First Reference company logo

Inside Internal Controls

News and discussion on implementing risk management

machine cogs image

Hiring controls: a close look at managing the risks of hiring

Image: David Castillo Dominici |

Human capital is a firm’s most important and profitable asset. Recall Swiss banking giant UBS’ rogue trading disaster in 2011, during which the bank reported a $2.3-billion loss as a result of one man’s unauthorized trading. UBS’ chief executive officer resigned as a result, and the bank also lost two high-ranking executives who took indirect responsibility for the incident. The London-based UBS securities trader in question had been with the firm for five years and had no prior disciplinary action taken against him.

Then there was the recent case of Yahoo and its CEO Scott Thompson’s fraudulent background claims.

Of course, these incidents draw massive media attention and are rare occurrences, but let them be a lesson in risk management during the recruitment process. The costs of hiring the wrong candidate go way beyond financial.

Intelligent, motivated and profit-generating employees are not a fluke. A smart, strategic recruitment process is integral to discovering top talent and high-quality employees. The most successful firms have strategic policies and procedures set in place that determine what kind of employee should be hired and how. Many then look to recruitment agencies to help navigate the hiring strategy. Managing inherent recruitment risks is the first step in avoiding catastrophe.

What are the risks?

Unfortunately, there are always internal risks that accompany the recruitment process, for example:

  • An existing employee manipulating the recruitment or selection process to ensure the hiring of a close friend or family member. Acting to advance the interests of a friend is risky if the person is not the best candidate for the position. We’ve all seen or heard of firms that are staffed entirely by a tight-knit group of friends—even family—creating a plethora of problems (but we’ll save that for another post)
  • The assigned convenor appointing members to the selection committee who could be influenced in order to ensure a specific candidate is chosen. A strategic recruitment panel should not be strategically biased

The risks that accompany the candidate may seem obvious, e.g.:

  • An applicant falsifying information on a résumé or during an interview in order to secure the position. It’s not a new issue, there are always applicants who claim they can speak four languages or have done years of volunteer work if a far-off country. Applicants that misrepresent information in order to enhance their prospects can pose major threats to the company’s brand and reputation down the line
  • Taking a candidate at face value or without any digging can result in unwanted surprises later

Let’s not forget about the ethical and legal risks that could be present:

  • Failing to advertise, promote and encourage a diverse and equal opportunity workplace and selection process could land your firm in hot water
  • Ineffectively ensuring that applicants see the recruitment or selection process as inclusive
  • Bypassing or failing to abide by legislation pertaining to the recruitment and selection process

How can you recognize and manage these risks?

You’re obviously interested since you’re reading this post. The first step is to be aware of the possibility of risk. Of course, employers face numerous risks throughout the recruitment process, and each will have to discover the dangers specific to their practices. I have named some of the most prominent and likely dangers. Now that you’re aware of the risks, let’s think about the solutions.

Internally, there are a number of effective ways to prevent corrupt recruitment habits:

  • Introduce and enforce policies and procedures for recruitment and selection and ensure that employees, selection panel members and high-level executives understand the consequences of not abiding by the policy in effect
  • Review the policy every year to ensure it is up to date with regulation and standards
  • Refer often to policy and encourage employees to do the same in order to promote accountability
  • Advertise positions widely enough to maximize the potential field of applicants, as opposed to hiring within a small, narrow network
  • Document often: specifically why, when and how you and those responsible for hiring made decisions relating to recruitment and selection, and why you hired particular candidates; including why a potential candidate did not get hired is just as important
  • Retain and review interview notes made by each panel member
  • Consider career recruitment services to avoid any in-house bias that could be present

Consider the following to reduce the risk of fraudulent résumé claims:

  • Reduce the risk of employees inflating information by informing applicants right off the bat that fraudulent claims can lead to dismissal or prosecution
  • Another strong deterrence is asking applicants to sign documents stating all of their information is genuine and if it is proved otherwise they can be terminated without notice
  • Perform verification checks at each reference institution to determine if the information is accurate
  • Don’t hesitate to perform background checks via social media; often a public profile can divulge a great deal about a potential candidate

However, social media is a touchy subject; a social media policy should be in place prior to doing any (and too much) digging.

Recognizing and managing risk during the employee recruitment process will not only reduce the risks that arise with recruiting, but can also help in creating policies and precedents for future recruitment. The Economist claims that unsuccessful hiring is one of the largest problems facing business today. Moreover, up to 80 percent of employee turnover is the result of poor hiring decisions, according to The Harvard Business Review. Investing in risk management during the employee recruitment process will ensure that your firm carries strong human capital, with measurable results.

Meghan Tooley is a commerce student, active blogger and social media enthusiast from Winnipeg, Manitoba. She writes on behalf of Canada’s Web Shop, a communications firm also based in Winnipeg.

Occasional Contributors

In addition to our regular guest bloggers, Inside Internal Controls blog published by First Reference, provides occasional guest post opportunities from various subject matter experts on the topics of risk management and best practices in finance and accounting, information technology, environmental issues, corporate governance, sales/marketing and operations, not-for-profits and business related issues in Canada. If you are a subject matter expert and would like to become an occasional blogger, please contact Yosie Saint-Cyr at If you liked this post and would like to subscribe to Inside Internal Controls blog click here.

, , , , , , , , , , , , , , , , , , ,

Comments are currently closed.