Is your company suffering from viral referrals?

Viral referral_1With an aim of making India a global talent hub, companies across the board are making unswerving efforts to attract and retain talent. One of the most prolific methods that most organizations adopt is the concept of employee referrals. Besides being a more cost-effective recruitment tool, it also motivates and encourages current employees to contribute to the growth of the organization’s success and vision, and derive tangible returns. Accordingly, companies depend heavily upon employee referrals as a key source of manpower (e.g. some human resource teams have specific performance indicators to minimise the use of external consultants).

Unfortunately, there is an inherent underlying threat of perpetrators being able to abuse this system. Even though companies have begun to realize the potential vulnerabilities, considering the pros, many have either decided to overlook the cons.

Weighing in the pros and cons – why it is important

While employee referral programmes offer a variety of advantages, it also has its share of drawbacks which could have dire consequences, if not addressed appropriately. The human resource function is usually one of the most cost-intensive centres for every industry, and proactivity in evaluating any potential fraud risk could be considered an ideal approach. For instance, proactive fraud vulnerability reviews can help in both discovering and mitigating fraud risks.

Here are a couple of scenarios which depict some of the ground realities:

  1. A data analytics review of the employee referral summary of a multinational ITeS company highlighted that Keith* (an employee holding a junior position within the organization) had made 16 successful employee referrals in the past year. The referral amount payable was twice of Keith’s overall cost to company. After further investigation, it was identified that when the company conducted walk-in interviews of candidates, Keith would interact with them during the break, and managed to convince numerous individuals to mention his name in their ‘interview application’, under the employee referral option. He would also collect copies of their resumes and subsequently send them to the HR to claim employee referral. This observation was then corroborated with the CCTV footage of such walk-in drives.
  1. A scheme was unearthed wherein recruiters of a large company informally told candidates that the company would guarantee recruitment if they undertook a two week training from a specific ‘training institute’. The cost of such training would be approximately INR 2,00,000 per candidate. Subsequent investigations identified that the ‘training institute’ in question, belonged to one of the recruiters in the company and was also not a recognised institute or organization. Additionally, the profiles when received from the ‘training institute’ were routed through the employee referral program to also generate funds through spurious referrals

Troubling techniques

A few common examples of various modus operandi that perpetrators could potentially use to infiltrate the system are:Viral referral_2

Are you diluting your ethical quotient?

Some of the above instances may not have an overall impact on the cost of recruitment to the company. However, it is necessary for organisations to understand the implications of such actions on the tone of the organisation and ethics at the workplace. Such practices, if unchecked, could further negatively impact the individual’s character and potentially persuade him or her to resort to other improper practices at the cost of the company.

Check the checklist

There are some basic checks that organisations can do to identify, prevent and implement effective controls in deterring employee referral frauds.Viral referral_3
While the management may undertake these primacy checks to identify potential red flags and implement the necessary controls, it is important to amplify the message that the company is always looking to hire the best human resources but not at the cost of compromising its ethical and moral ecosystem.

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One thought on “Is your company suffering from viral referrals?

  1. Very interesting article which is of importance as nowadays companies focussing on employee referrals. Highlights key vulnerabilities which if exploited will be an area of risk

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