Scam Artists Targeting the Staffing Industry

By: Wilson Cole
Date: 7/1/2007

This month I want to discuss a trend that I am starting to see in the staffing industry and it really concerns me. The trend that I am talking about is credit fraud and it appears that the criminals who run one scam after another have their sights set on the staffing industry. If you are a recruiter, this may not apply to you yet - so, if you choose to pass on this article, I understand. But if you are a staffing firm and you have Temps or you do payroll of any kind, you need to cut and save this article. If you allow your company to get caught up in this scam, you will not have a company for very long. Last year, one company in Colorado ran a scam for over 12 months, and in that timeframe, they scammed 35 staffing firms and took in over $2,000,000. Yes, I said $2,000,000. Last November, with the help of our firm, the FBI raided and closed down their office and the owners have been arrested and are awaiting trial.

The scam worked in two ways. One was doing payroll and the other was for temp staffing. Payroll was really easy for them. They would call up a staffing firm and say, "I have 5 employees and I want to convert them over to your payroll so you can pay the taxes, workmans comp and administrative issues." Well, our clients would do the payroll for about 30 days. Then, when they realized that they would not get paid they would cut them off. They would take the average client for about $30,000 to $40,000 this way. The reason the payroll was so high is this was for technical staffing with a very large hourly bill rate. One of our clients that was slow to react, lost over $150,000 over a four-month period. Now let's keep in mind there were no employees. They had five people in on the scam. They would get their paycheck, and cash them at our client's bank, and then they would share the money. These guys had guts. I had one client that did not pay them after week six. The so-called employees filed a complaint so the Labor Board would force our client to pay the weeks wages! The only thing that made the Labor Board back off was that we supplied them with the names of 22 other companies that did not get paid. Some of the other staffing firms were paying for the same weeks of work with the same employees.

"OK," you say to yourself, "That is really bad for the other companies, but I do not do payroll." Let me tell you how they became really creative (and this is a very hard one to defend against). They would send in the five guys to apply for temp jobs. They all had very specific qualifications. Then, about a week or 10 days later, the scam company would call, and they would need five temps. The client would send out seven to 10 temps for the interview and they would want to use only five. So, they would pick their five guys. Our client would send out the five temps (these were the same guys that were in on the scam); at the end of the week, the company would sign the timesheets and the temp would be paid for hours that really were not worked. After about six to eight weeks, our client would pull their temps, and the scam was repeated. At times, the same temps were working for six staffing firms at the same time. And, they were billing for hours that were never worked.

Think about it, this should scare you to death. If this is not bad enough, they would even create their own trade references. So, when they would apply for credit, they would give three fake trade references. They would all give glowing testimonials on how they paid on time. The trade references were the same five guys that our clients had hired as temps and the call-back numbers on the credit app were their cell phone numbers that they answered as a business name. These guys were slick.

So, now that I have you questioning every new client that you added in the last 90 days, let me give you a few tips on how to protect yourself from criminals like these. First, let me say I am so concerned about this I am teaching my free monthly tele-class on this very subject all of this month. I am teaching this four times this month so I can go into detail in a 45-minute class on what you can do to protect yourself. This one small article was limited on how the scam worked. The class will cover what to do to prevent this from happening to you. Go to my website at: www.aercollections.com and click on the "Free Class" button to register. This is absolutely free and the class is held on Wednesdays.

I will give you one thing that you could do today that would cut your risk in half. Please get a credit app filled out and check the bank history with the trade references. If our clients had checked out this " eight-year-old company" according to the credit app, and their trade references, they would have noticed that the bank account was less than six months old. They should have asked for another bank reference that tracked for more than six months. They also should have looked at the balance in the bank. The scam artists were not saving any of the money. The bank account had less than $2000 in it at any time. If a company comes to you and they want $20,000 in credit over a one-month period, and they have less than $2000 in the bank, how will they ever be able to pay you off?

Take my class this week, and I will share a few additional things you can do to protect yourself. One other piece of advice that I can give you in closing is this: If you are dealing with someone out of the blue that you do not know, and they are promising you tons of business, and in your gut, it just does not feel right, go slow, because your gut may know something that your mind has not picked up on as quickly.

Wilson Cole is Founder of Adams, Evens & Ross and Co- Founder of Recruiting & Staffing Solutions Magazine. He can be contacted at 800.960.4365, or by email at wilson@aercollections.com.