Fraud in Hard Times

The US Department of Commerce conducted a study on fraud. As many as a third of all business failures can be attributed to internal fraud, totalling almost $40 billion in losses every year nationwide.


The Commerce Department indicated that employee theft is on the rise due in part to recession. "In my experience, what we're seeing is an increase, partly because some employers are more aware," said Daniel Perez, head of Subrosa Investigations. "But it's also true that when some people feel in need, they will take what they believe they can." Hard times can have an impact on the frustration level of employees and it can stir up feelings of entitlement. Employees will "take what they can" and feel that "it's not really stealing."


"It's need plus opportunity plus rationalization," agreed Don Hesselbrock, president of Corporate Security Systems Inc. "People say, 'I worked hard and the company was bought out or merged; I got laid off anyway.' It gives some people a kind of cynicism and a 'get-what-you-can' attitude."


Owners who rely on gut feelings are particularly vulnerable to becoming victims of fraud. The failure to adequately check references or the criminal background of applicants can mean the difference between thousands. And in this day and age, that could mean the difference between being in business this month, and not being in business next.



Checking criminal history is often not enough, look into civil litigation patterns as well because those check for suits for fraud or collections. A lot of employers fall into a trap and don't check out the applicant's references. It is important to call each and every one of those. A surprising amount of people report false dates of employment or job titles. Crucial employment history may be missing and its important to understand that gaps in employment may mean there is something to hide.


Unfortunately, it looks like we're in for a good stretch of hard times. It's hard not to get desperate but as an employer, using tools that are readily available and good sense instead of instinct may prove beneficial.

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Drunk Drivers Reveal Poor Judgement

State Representative of Madison, WI - Jeff Wood could face his third drunk driving charge since 1990. He has two prior convictions for driving under the influence of alcohol from 1990 and 1991 both in Eau Claire County. If found guilty of this latest arrest he could face up to $2,000 in fines and a year in prison. He may also face criminal charges of marijuana possession since a state trooper found 4.9 grams in his vehicle at the time of his arrest.

Many employers consider drunk driving to be an offense that bars an applicant from being hired. A DUI on a record can reveal a lapse in judgement, more than one offense seriously raises eyebrows about an applicant's good judgement.

Governor Jim Doyle of Wisconsin proposed upgrading the offense level of a third drunk driving offense to a felony. The bill didn't pass, lucky for Wood, who won't be facing such charges.

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Don't Rely on State Databases for Criminal Records

There are dangerous shortcomings in Texas' DPS Computerized Criminal History database. In a study done by Imperative in October of 2008, found that the DPS was missing 36% of known criminal records- records ranging from simple theft to capital murder.

This means there is a one in three chance of missing criminal records using these databases. Cases that ended in dismissals were also excluded.

Employer often uses this database and other state databases such as Texas' to make important hiring decisions. They are inadequately maintained, and organizations that are concerned about providing a safe (and profitable) work environment should be wary when using them.

Utilizing a County Criminal search is the fail safe way to find records. Using the county level courts and searching every county a potential employee lived in is the only way to ensure you are getting the most thorough background check.

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E-Verify Deters Illegal Immigrant Applicants

Bill Ekler is the CEO of Overland Products in Fremont, NE, one of the many states that have adopted statewide EVerify laws. Soon after the ordinance came into effect, Ekler posted a notifications that Overland would be participating in the program and would determine whether prospective employees had valid Social Security numbers. The number of job applicants quickly dropped.

“It became clear that you’d better have those documents to work here,” Ekler said. “…I didn’t want undocumented workers to make my life miserable.”

That misery he is referring to is the penalties and fines employers face for hiring illegal workers. Even in those states that do not require E-Verify, the penalties apply. There are serious legal fees ranging from $250 - $11,000 per violation including possible jail time.

The penalties don't just apply to those who knowingly hire illegals, if an employer cannot prove it took the proper steps to verify their employment status and continued to employ them.

There is currently a push in Washington to implement the program on a national scale that would require all states to participate. Currently, all federal contractors must use the E-Verify program to verify the identity of their workers.

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Ponzi Schemer Swindles $65 Million

With the recent allegations against Bernard Madoff who reputedly swindled investors out of $50 billion a smaller Ponzi artist, William "Boots" Del Biaggio has remained out of national media scrutiny. Del Biaggio duped investors out of about $65 million. The difference between these two high dollar scam artists is Del Biaggio had a background that should have alerted his venture debt firm, Sand Hill Capital, of his potential to commit fraud.

Ken Springer, former FBI agent who now runs Corporate Resolutions, investigated. "It's like history repeating itself. He had charges of fraudulent activity going back to 2003. You have to look at the track record, background and reputation.

After two civil suits in 2003 for fraud and breech of contract, a simple investigation into Del Biaggio's background would have revealed the man to be a bad risk. Springer said investors just didn't take the time, "People didn't do their homework. The bigger your balance sheet is, the less homework they do on these things."

Del Biaggio's attorney said in a statement that he will likely plead guilty, and face jail time, to charges against him. Del Biaggo has been fully cooperative with agents. The minimum sentence against security fraud is 25 years.

With the economy going like it is, it is important to remember there are perfectly good and legal ways to ensure you are entrusting your money with upstanding individuals. Most criminals are repeat offenders and leave a trail of evidence behind them. It's up to you to follow it and do your homework.

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Felons Behind the Scenes

Teamsters have long been involved with organized crime. The truck drivers for major Hollywood films have been working toward cleaning up their tarnished image, but they don't seem to be making much headway.

Teamsters Local 25 in Boston was found to allow career felons in their ranks, including murderers, bank robbers, drunken drivers, an armoured car thief, and an accused rapist to work on the set of a recent Bruce Willis movie filmed in Boston. Local 25 president, Sean O'Brian said there have been "no incidents" since he became president in 2006.

He goes on to say that to remove a felon from the movie set would be considered an unfair labor practice. The local does not run background checks.

The Massachusetts Film Office executive director, Nick Paleologos said that he has received "no complaints" and that he doesn't know what O'Brian is doing over there, "but whatever he's doing, it's working."

Not exactly the most stringent safety procedure. Companies run criminal background checks to protect themselves and their clients from future fall out. Many criminals are repeat offenders. To so blatantly allow criminals to work indicates a disregard for safety, however, it is known that Connecticut believes in allowing criminals to pay their debt to society and provide them with the right to work. Perhaps Boston will be following in their footsteps.

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Anesthesiologists To Undergo Random Drug Testing

Two hospitals: Massachusetts General Hospital in Boston and The Cleveland Clinic Foundation in Ohio have recently implemented a random drug testing program that focuses on their anesthesiologists. The Cleveland Clinic ran a survey in 2005 and discovered that 80% of those in the profession were found to be abusing drugs. Even more frightening, 19% of those were reported dead from drug related causes.

Dr. Michael G. Fitzsimons, administrator for the substance abuse program of the department of anesthesia and critical care at Massachusetts General Hospital in Boston explains, "The problem is that we are exposed to, and we have the use of, very highly addictive and potent medications."

Drug testing doctors is problematic. Doctors are well aware of the signs and symptoms of drug abuse and know how to mask those signs. Not only that, but they are fully aware of the best, most effective ways, of beating a drug test. This would mean observed tests, an invasion of privacy for those who don't abuse the drugs, but little else could be done to insure nobody was cheating.

Dr. Raymond Roy of Wake Forest University in Winston-Salem, N.C. tells a story of a young resident in his anesthesiology program who would arrive at work early to get just high enough to avoid going into withdrawal and return home each night to use heavily. The young man died of an overdose soon after completing a drug rehabilitation program. The unfortunate death of his young resident led Dr. Roy to ask his other doctors if they had noticed any signs of abuse. 100% of them reported that had suspected nothing.

The doctors find the incidents rates to be the same, but are hoping for multi-institutional studies that will help understand if the program is effective in staving off drug users.

The hospitals offer treatment programs and often allow the abusers to return to the program once they are clean. But the death rate for treated residents that return to the program is 1 in 9, as a result, hospitals are looking to find other ways to keep addiction at bay, including reining in the already tight regulations on narcotics and their availability in hospitals.

The institutions participating in these programs should be commended for taking action against a problem that has existed for years. The rehabilitation programs are impressive and the ability to return to the program is respectable. Doctors understand addiction is a disease and as they are called to do, they are fighting that disease with all the tools they have available to them.

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