Unmasking employee fraud: AI, smart checks, and staying compliant

In recent years, concerns surrounding employee fraud have increased dramatically. To understand the scope of the problem and identify potential solutions, People Matters partnered with IDfy to organise a roundtable discussion on 'Unmasking Employee Fraud: AI, Smart Checks, and Staying Compliant'. Leaders from diverse industries discussed the key challenge areas emerging in background screening and the use of AI and advanced technologies like document OCR, video KYC, and deep fake detection to improve the accuracy of background checks. 

The session examined the underlying causes of this troubling trend and potential strategies for prevention and detection, particularly in light of the growing sophistication of fraudulent practices following the COVID-19 pandemic. Paritosh Desai from IDfy and Alexander Rinku, Director of Human Resources at Oracle, moderated the session. The following article is based on excerpts from the discussion. 

The landscape of Employee Fraud

Paritosh and Alexander set the context for the discussion by explaining the range and types of services available for people to forge professional records. With specific use cases and examples, the leaders highlighted the following trends:

The creative evolution in fraud

Opening the discussion, one of the participants noted that fraud is not a new concern for HR professionals. However, the tactics have evolved, becoming more creative and challenging to detect. Key factors contributing to this rise include a limited talent pool and high competition, which drives individuals to falsify skills and experiences to secure jobs. The participant pointed out that external candidates sometimes collude with internal employees, which makes it harder to detect in these illicit activities.

The perception that "no one is watching" or that fraud is a victimless crime has fostered an environment where minor infractions have become more acceptable, especially for senior roles. This shift in corporate culture has made it easier for individuals to exploit loopholes, particularly when there is pressure on HR leaders to fill open positions quickly.

The role of improved technology

A leader from the IT industry highlighted how advancements in technology have made it easier for fraudsters to forge documents, demonstrate false experiences, secure fake degrees, and create fake identities. The easy accessibility of tools to replicate logos, signatures, and official documents has raised the stakes for background verification processes. With entire businesses emerging around creating false employment records, companies face unprecedented challenges in identifying fraudulent candidates.

Credibility and experience verification

A leader from Enterprise Solutions Technologies emphasised that while proof of employment can easily be faked, assessing an individual's credibility is much more complex, and proof of work is harder to counterfeit. For example, many candidates view exaggerating their experience as harmless, which can complicate the recruitment process, raising a dilemma about the acceptable scale of lies. He discussed the importance of fielding behavioural interview questions and conducting collaborative assessments to gauge genuine skills and experiences, recommending a shift from solely relying on artificial intelligence tools to more human-centric evaluation methods.

Understanding the challenges of background verification

With the current state of the challenge in context, the leaders delved deeper into the genesis of the problem and discussed how to tackle the complexities of the issue: 

The impact of COVID-19

The pandemic altered traditional workplace dynamics, leading to a decline in the rigour of background verification processes, said a leader from a staffing organisation. The reliance on conventional agencies has also resulted in complacency that can facilitate fraudulent practices. Echoing this sentiment, a leader from an e-commerce company suggested that while background verification remains crucial, its importance may vary across industries. He advocated for a more nuanced approach to pre-employment checks that balances the need for thoroughness with the realities of hiring pressures and suggested that metrics like university marksheets may not be entirely relevant in today’s skill-driven talent market. 

Emerging issues in verification

A leader from a global MNC raised concerns about compliance and the increasing complexity of verifying credentials in a virtual environment. With examples of fraudulent medical certificates and fabricated qualifications surfacing, the need for stringent checks has never been more critical. Another participant from the IT Industry, added that while companies once relied on blacklists of dubious institutions, the rapid changes in the employment landscape necessitate a re-evaluation of such methods and possibly expanding them to create industry-wide repositories of fraudster employees. 

The psychology of fraud: The human element

The conversation also touched upon the psychological factors that drive individuals to commit fraud. A leader from the IT industry described how personal pressures, such as financial strain or societal expectations, can lead to unethical behaviour, such as falsifying professional records. He mentioned that often, HR teams feel pressured to overlook red flags, particularly when there is an urgent need to fill vacancies, which means that the consequences of indulging in a smaller degree of fraud can potentially go unpunished.  

Another participant explained the concept of the "MOR framework" (Motive, Opportunity, Rationale), which suggests that if employees perceive a lack of oversight or feel justified in their actions, they may be more likely to commit fraud by finding the right motive (for example, "This will help me repay my loan") and coming up with reasonable rationale (for example, "Everyone does it!").

Employee fraud: Strategies for prevention and detection

The leaders also exchanged possible solutions and tools to combat the growing challenge of employee fraud: 

Leveraging technology and data

As the discussion progressed, participants explored the role of technology in combating fraud. While there are innovative digital tools that facilitate pre-interview background checks, harnessing AI and machine learning to streamline the verification process, the leaders noticed a lack of integrated databases to verify basic candidate information easily. Data privacy and ethical usage have also become important points of conversation. Leaders also urged companies to carefully consider which data points are truly relevant for recruitment to ensure that employee data remains safe and protected. 

The need for a cultural shift

A key takeaway from the roundtable was the need for a cultural shift within organisations. Participants emphasised the importance of fostering a work environment rooted in ethical values, where transparency and integrity are paramount. A leader also noted that shifting the narrative around fraud to focus on values rather than merely compliance could pave the way for a more principled workforce.

The future of employee fraud: Staying one step ahead of fraudsters

The roundtable discussion illuminated the multifaceted challenges of addressing employee fraud in today's workplace. As fraudulent practices continue to evolve, organisations must adapt their strategies for prevention and detection. By leveraging technology, promoting ethical standards, and fostering a culture of accountability, businesses can better equip themselves to navigate this growing threat. Ultimately, a proactive approach to employee fraud will protect organisations and contribute to greater transparency in the workplace.