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Liability Risk

Internal Crime Prevention

Background checks and monitoring property — like laptops lent by the company — can deter and prevent crimes committed by employees.
By: | April 9, 2018 • 5 min read

Given the steady drumbeat of school shootings and other horrors, risk managers can’t afford the outrage fatigue that numbs Americans, especially given the unsettling fact that their companies’ resources — human, electronic, automotive — could be used to commit a crime.

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Economic crimes — fraud, espionage, embezzlement — are commonplace. PwC’s 2018 Global Economic Crime and Fraud Survey reports 49 percent of global organizations have experienced economic crime in the past two years, and 51 percent of frauds were inside jobs.

As different as violent and economic crimes are, risks of both can be mitigated through management practices: careful hiring, background checks, on-the-job monitoring and probing exit interviews, industry experts agree.

Ounce of Prevention

A background check on a prospective employee is not an off-the-shelf affair, said Richard G. Hudak, managing partner, Resort Security Consulting Inc., but a thoughtful, detailed inquiry by a reputable organization appropriate to the applicant’s prospective duties.

“A $25 computer ‘background check’ isn’t a background check,” he said. “Real ones look at sex crimes, drunk driving, serious debt, mismanaged credit, multiple divorces and bankruptcy.”

A veteran consultant to the hotel industry, Hudak said, “Bankruptcy isn’t a big deal for guys moving banquet tables around, because they don’t have access to guest data.”

Heidi Li Feldman, professor of law, Georgetown University Law Center

However, bellmen and housekeepers with access to property should get a more thorough check, and front desk clerks, who have access to credit cards, should undergo even greater scrutiny.

For pilots, he said, any domestic violence, DUI, or dishonesty about employment or education should be a disqualifying event.

Exit interviews can deter theft of intellectual property, said David Taylor, managing director, Protiviti, by employees who leave on good terms of their own volition and by disgruntled or laid-off workers.

“When people leave, they can release their research, proprietary information, network and customer information into the wild.”

Employers have limited tools to “prevent them from downloading that intellectual property to their new employer,” Taylor said, and exit interviews are an important reminder not to do it.

For example, Waymo sued Uber last year, alleging departing employees gave the ride-hailing company access to Waymo’s trade secrets covering technologies needed to build autonomous cars. The suit ended in a settlement.

Because debt, divorce, addictions and despair can turn good employees bad over time, periodic checks after hire are a good idea, said John Farley, vice president, cyber risk practice leader, HUB International.

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So are controls on access to information.

“Limit access to information on a need-to-know basis,” he said. Classify all data, monitor it in real time, block thumb drives and other exit points for information and set up immediate notifications if certain information is emailed. Block file-sharing websites.

Background check best practices also apply to contractors, said Scott Moritz, managing director, Protiviti. Even with the best controls, employees can go rogue.

For example, Edward Snowden, a government contractor, infamously leaked a veritable trove of National Security Agency secrets in 2013.

An investigation afterward showed his background check was incomplete, but it’s unclear whether a properly conducted check would have thwarted his leak anyway, said Moritz. Snowden considered himself a righteous whistleblower, an attitude cursory background checks wouldn’t detect.

Although out of step with current employment practices, the availability of mental health counseling might suss out the state of mind of employees with access to potentially weaponized information — as well as actual, literal weapons such as guns, said Heidi Li Feldman, professor of law, associate professor of philosophy, Georgetown University Law Center.

“A $25 computer ‘background check’ isn’t a background check. Real ones look at sex crimes, drunk driving, serious debt, mismanaged credit, multiple divorces and bankruptcy.” — Richard G. Hudak, managing partner, Resort Security Consulting Inc.

Employers should find out whether counselors can be helpful in identifying when an employee might be under pressures that could lead them to disclose classified information, Feldman said.

A single employer is unlikely to impose mandatory counseling or psychological testing on its employees, she said, but collectively they might, if sufficiently motivated, move the needle.

“Social change happens when people, like employers, bear excessive or unfair costs of a problem,” at which time they may seek help from a trade association or state chamber of commerce to nudge social change, Feldman said. It would be similar to the series of events that ultimately produced smoke-free workplaces.

Supervisors should also monitor employees’ work habits and stressors, Hudak said. His wife, a nurse, observed one of her staff members was “getting hammered” every night at a local bar.

His wife watched closely and offered help. She also documented her observations and made sure the employee didn’t have access to the hospital’s drug closet.

To Be or Not To Be Liable

In general, said Feldman, an employer can be held liable for its employees’ criminal acts when it is in a good position to influence the criminal actor’s actions, and they’re responsible for the torts of their employees when acting in the course of employment.

The exception could be where the employee is a senior executive and the conduct is imputed to the organization, said John Denton, JD, managing director, Marsh.

Liability laws aren’t as draconian as they may sound, Feldman said.

“People get very anxious when they think the law says, ‘You have to prevent all crimes of parties other than yourself.’ ”

In fact, the law requires employers to be “a reasonable person of ordinary prudence.” But what is “ordinary prudence?”

A court may consider different metrics, said Hudak, such as a CAP index, which assigns a number from 0 (lowest) to 2,000 (highest), predicting the chance of a certain kind of crime, such as homicide or auto theft, at a particular address.

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When considered with incident reports on the property and 911 calls, the index suggests which types of crime are likely and which precautionary steps are prudent.

“A CAP index would tell the court that you’ve done homework, that you know foreseeability,” said Feldman.

A crime committed using, say, a company computer while the employee is off the clock is a defensible position, said Farley. Written policies and procedures about what employees may and may not do will bolster a case, as will formal training.

A strong anti-corruption tone at the top may also mitigate liability risk, said Mark W. Jenkins, senior managing director, Glassratner Advisory & Capital Group LLC. &

Susannah Levine writes about health care, education and technology. She can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

Risk Management

The Profession: Curt Gross

This director of risk management sees cyber, IP and reputation risks as evolving threats, but more formal education may make emerging risk professionals better prepared.
By: | June 1, 2018 • 4 min read

R&I: What was your first job?

My first non-professional job was working at Burger King in high school. I learned some valuable life lessons there.

R&I: How did you come to work in risk management?

After taking some accounting classes in high school, I originally thought I wanted to be an accountant. After working on a few Widgets Inc. projects in college, I figured out that wasn’t what I really wanted to do. Risk management found me. The rest is history. Looking back, I am pleased with how things worked out.

R&I: What is the risk management community doing right?

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I think we do a nice job on post graduate education. I think the ARM and CPCU designations give credibility to the profession. Plus, formal college risk management degrees are becoming more popular these days. I know The University of Akron just launched a new risk management bachelor’s program in the fall of 2017 within the business school.

R&I: What could the risk management community be doing a better job of?

I think we could do a better job with streamlining certificates of insurance or, better yet, evaluating if they are even necessary. It just seems to me that there is a significant amount of time and expense around generating certificates. There has to be a more efficient way.

R&I: What was the best location and year for the RIMS conference and why?

Selfishly, I prefer a destination with a direct flight when possible. RIMS does a nice job of selecting various locations throughout the country. It is a big job to successfully pull off a conference of that size.

Curt Gross, Director of Risk Management, Parker Hannifin Corp.

R&I: What’s been the biggest change in the risk management and insurance industry since you’ve been in it?

Definitely the change in nontraditional property & casualty exposures such as intellectual property and reputational risk. Those exposures existed way back when but in different ways. As computer networks become more and more connected and news travels at a more rapid pace, it just amplifies these types of exposures. Sometimes we have to think like the perpetrator, which can be difficult to do.

R&I: What emerging commercial risk most concerns you?

I hate to sound cliché — it’s quite the buzz these days — but I would have to say cyber. It’s such a complex risk involving nontraditional players and motives. Definitely a challenging exposure to get your arms around. Unfortunately, I don’t think we’ll really know the true exposure until there is more claim development.

R&I: What insurance carrier do you have the highest opinion of?

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Our captive insurance company. I’ve been fortunate to work for several companies with a captive, each one with a different operating objective. I view a captive as an essential tool for a successful risk management program.

R&I: Who is your mentor and why?

I can’t point to just one. I have and continue to be lucky to work for really good managers throughout my career. Each one has taken the time and interest to develop me as a professional. I certainly haven’t arrived yet and welcome feedback to continue to try to be the best I can be every day.

R&I: What have you accomplished that you are proudest of?

I would like to think I have and continue to bring meaningful value to my company. However, I would have to say my family is my proudest accomplishment.

R&I: What is your favorite book or movie?

Favorite movie is definitely “Good Will Hunting.”

R&I: What’s the best restaurant you’ve ever eaten at?

Tough question to narrow down. If my wife ran a restaurant, it would be hers. We try to have dinner as a family as much as possible. If I had to pick one restaurant though, I would say Fire Food & Drink in Cleveland, Ohio. Chef Katz is a culinary genius.

R&I: What is the most unusual/interesting place you have ever visited?

The Grand Canyon. It is just so vast. A close second is Stonehenge.

R&I: What is the riskiest activity you ever engaged in?

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A few, actually. Up until a few years ago, I owned a sport bike (motorcycle). Of course, I wore the proper gear, took a safety course and read a motorcycle safety book. Also, I have taken a few laps in a NASCAR [race car] around Daytona International Speedway at 180 mph. Most recently, trying to ride my daughter’s skateboard.

R&I: If the world has a modern hero, who is it and why?

The Dalai Lama. A world full of compassion, tolerance and patience and free of discrimination, racism and violence, while perhaps idealistic, sounds like a wonderful place to me.

R&I: What about this work do you find the most fulfilling or rewarding?

I really enjoy the company I work for and my role, because I get the opportunity to work with various functions. For example, while mostly finance, I get to interact with legal, human resources, employee health and safety, to name a few.

R&I: What do your friends and family think you do?

I asked my son. He said, “Risk management and insurance.” (He’s had the benefit of bring-your-kid-to-work day.)

Katie Dwyer is an associate editor at Risk & Insurance®. She can be reached at [email protected]