Know Your Colleague: How to reduce internal fraud

Compliance focuses mainly on potential misconduct by clients. Whether it be fraud in insurance or anti-money laundering in banking. Financial institutions place a lot of emphasize on Knowing Your Client. And rightfully so. It’s their job to protect their business and clients from illicit actors. But, major fraud is often an inside job. In fact, a 2014 report by PwC states that 56% of committed fraud is done by insiders.

The impact of internal fraud isn’t just financial. It can also have a big impact on a company’s reputation. And in the case of banking and insurance, it can have a direct effect on clients. That is why governments around the world acknowledge the importance of protecting the financial services industry and society as a whole by creating legislation around screening of financial services employees. Over the years, more and more roles have been identified as ‘controlled functions,’ it’s not just the applicants for significant influence functions anymore that need to be assessed as fit and proper for their job. Most employees that are in direct contact with clients will need to be screened. This trend seems to be inline with the conviction that what’s really wrong in finance is its culture. A culture that is widely believed to lack moral compass and is mainly driven by greed.

Pre-employment screening shouldn’t be just a checklist

Pre-employment screening is typically done by the Human Resources (HR) department and largely follows the same process as the Know Your Client process. This is what justifies the involvement of the Compliance department in this process. The same internal and external sources are checked to hire an employee as to onboard a client. Those checks include:

  • regulatory references
  • qualification certificates
  • fraud verification databases
  • credit checks
  • criminal records checks
  • directorship checks
  • checks against sanction and pep lists

HR has the most experience with finding the best candidate for a job. And it seems fitting that one department takes on the entire process of hiring new employees. However, as HR isn’t experienced in assessing suspicious situations, the danger is that pre-employment screening becomes a ‘checking the boxes’ type of task.

Time and time again, we see that network analysis and behavioral profiles tell us more about a person than any stand alone data could. Just like individual transactions couldn’t tell you the whole story on money laundering, so do credit checks not tell you if a person could have financial problems. Which is after all a key factor for people to commit fraud, or at least be susceptible to bribery. It’s therefore impossible to say that someone with a clean criminal record would never be tempted to demonstrate fraudulent behavior.

To uncover someone’s ill will takes expertise. It takes a certain kind of sensitivity to look objectively at the presented data and to piece data together in such a way that a pattern emerges. Which is daily practice for the compliance officer, and exactly where the added value of the BusinessForensics’ solution can be identified.

Taking knowing your client to another level – and department

The compliance department has been designed to bring to light potential risky situations and behavior. A good sized firm onboards clients on a regular basis and therefore has to do Know Your Client and due diligence checks often. The pre-employment screenings have a slightly different focus but overall, it’s the same routine as KYC screenings. It’s expected that a compliance officer has a higher probability of catching suspicious actors than any HR-employee would have.

Breaking up the process and allocating the pre-employment screening to compliance however, would mean an increase in their workload. It’s well known that the workload at compliance departments is unmanageable as it is.

Another question we should ask is: Should compliance officers know about the more intimate details of their colleagues and possibly of higher management? Although compliance officers are used to handling sensitive data, it’s a different case when they know everything about their colleague. This might also lead to colleagues feeling uncomfortable with each other whereas it’s just business as usual for HR to know about an employees’ personal details. And in the case of in-employment screening, HR might just have an advantage because of the very fact that they do have better insight into an employees’ personal life.

Bringing compliance to HR

If bringing pre-employment screening to the compliance department seems undesirable, why not bring compliance to the HR department? And by that, we don’t mean to bring the literal compliance FTE’s to HR. Rather, we’d like to see the compliance competencies of carefulness, deliberateness, and risk-awareness be made available for the HR-department. These are the kind of skills HR needs to increase the quality of the pre-employment and in-employment screenings to reduce internal fraud. One way to do that is through the use of technology that incorporates typical compliance competencies to objectively assess whether a potential employee could be a risk to the company.

BusinessForensics’ technology can help make your KYC-compliance easier and less expensive by automating your processes, whether it is to Know Your Client or to Know Your Colleague. Send us an email at or give us a call + 31 168 479 038 for more information on our KYC solutions.


Tames Rietdijk

Tames Rietdijk is the CEO of BusinessForensics. His area of expertise lies with Product management, Forensic investigations and Data analytics. His work is focused on improving market mechanisms and operational efficiencies to increase value for his customers.