Credit Crisis Takes Its Toll in Many Recruiting Firms

By: Gregg Dourgarian
Date: 10/1/2008

Although most recruitment business owners are already well versed on fraud prevention, the collapse of the credit markets, which began in 2007, has put the heat on a lot of people both inside and outside your company. This is a great time to review your business processes and evaluate likely threats.

Threats From Internal Staff

Your biggest threats come from inside your company- from internal staff. This can be hard to accept or even stay alert to because presumably we trust those that we have hired to help run our companies. Yet these are people, and people go into debt. Everyone is capable of stealing from you.

Take your payroll manager, for instance. How do you know that all the paychecks going out are to legitimate employees? I've seen it where a payroll manager paid herself and a sister tens of thousands of dollars in extra checks. This went on for months. When they were finally caught they plead innocent. "We were planning on paying it back!" But, it's almost always the case that by the time you get in a position to try to recoup that money, it's long gone.

How about your star branch manager? How do you know all those invoices are going out to credit worthy customers? Or, that those customers exist at all? If your employee is heavily commissioned, it's a great temptation to create bogus sales.

Finally, how about your IT manager and/or husband? Strange question maybe, but, maybe not. I know of a once thriving California staffing company where the husband, the IT manager, ran off with the owner's Dell server, the cute service rep, and payroll account. Yes, unfortunately, fraud can happen between family members as well.

External Threats

External threats are those from people outside your company- particularly clients and temporary workers. How well do you know your customers? Do you always make it a point to hand deliver that first invoice? No, haven't needed to before? Credit checks work fine, you say? This is 2008 is not 2006. The really bad news is, credit ain't what it used to be. Therefore, this is a good year to start getting really tight with clients from the get go.

How well do you know your temporary workers? A gang of immigrant temp workers in France sequentially defrauded dozens of staffing firms in France in 2007 to the tune of some several million Euros. How? They created trust by being good employees on the front end of assignments at large accounts and figured out how to continue sending in timecards and receiving checks months after they quit the assignment. As a result, some of France's best independent staffing companies have one out of business.

I travel around the U.S. a lot talking with staffing companies, and the most common fraud they talk about is worker comp. The fact is that most lowend employees don't want to work, and getting hurt or claiming to be is their easiest ticket to relaxation. Also, it's not just the $75k fraudulent claim that kills profitability. It's all the time you spend fighting such cases that can last years.

At this writing the credit crisis has entered its second year and is causing a severe contraction in the money supply. European banks are reporting record losses, and in China the Shanghai composite has lost almost 67% of its market value. The money supply is contracting and that makes people more desperate. Desperate times calls for intensified scrutiny. This is no market for an absentee owner. You need to be all over your processes and your relationships to avoid fraud.

Gregg Dourgarian is the CEO of TempWorks Software. He Can be contacted at 651.452.0366, or by email a greggd@tempworks.com.