This is Part 1 of our Business Trust & Safety Series by Trustify CEO Danny Boice

According to the Federal Trade Commission, the average business loses 10 percent of its revenue to fraud and deception each year.

While this stat should be shocking, many businesses blow right past it. Perhaps even your own response is to look away. You might think, It’s an unavoidable problem or It won’t happen to me.

You would not be wrong to feel your response is justified, but what if I told you that this loss is at the hands of employees 95 percent of the time? The problem is not so theoretical; it is very real and hits very close to home. Here are the facts: rarely is the customer or client doing the cheating; and despite all the press about Russian hackers and cyber attacks, fraudulent behavior rarely comes from outside actors.

This is an employee problem—a people problem. Fraud and deception can happen at any stage in the employee lifecycle: pre-employment, within the period of employment, or post-employment.

Of course, fraud doesn’t only affect businesses; the problem extends to every individual. In the United States, 70 percent of adults have been defrauded once in their lives, and 25 percent have been defrauded twice. The issue is ubiquitous.

As business owners acknowledge these risks, they often feel paralyzed. The fear can become overwhelming and keep them up at night. Perhaps these feelings of fear describe you. Here’s the good news: solutions do exist. This is a manageable problem, not out of your control. And by simply reading this you have done more than most companies. You are well on your way to better protecting your business.

What Are the Options?

Because of our work in the trust and safety space, we’re used to people cornering us at cocktail parties to learn more about what we do. We often feel an urge to lie because we know what we’re about to hear: another sad story about how someone got ripped off by a business partner or ex-spouse. Everyone who has lived long enough has one of these unfortunate stories to tell.

Still—even though the problem of fraud and deception is broadly understood—businesses ignore it. In the US, businesses spend billions tweeting, slacking, and Skyping, but allocate effectively none of their budget and resources toward truth, trust, and safety—the very things costing their business the equivalent of 5 to 10 percent of revenue each year. That’s nearly the equivalent of paying your taxes twice each year.

In most cases, we’ve found that business owners and executives assume there are no resources to mitigate the risk. A business might be losing 5 percent of its revenue to fraud every year, but the problem is shrugged off with a simple statement like, “Well, that’s just what happens” or “The big guys can afford it, but we just can’t.” Historically, they’d be correct. Only Fortune 500 companies have been able to afford services to mitigate trust and safety issues in the past.

With this embedded mindset, businesses cannot accurately measure the value of resources that can take care of this problem. Only the top 1 percent of businesses can afford services from very specialized, expensive investigative consulting firms, Kroll being one example of such a firm. These firms are involved in corporate espionage, international government contracts, and even hunting down weapons of mass destruction. Their clients can easily spend upwards of $100,000 for a few days’ worth of work with them. No wonder businesses balk at the idea of spending money for dealing with the issue of fraud! Their budget would have to be effectively infinite.

On the other side of the equation, some businesses settle for low-cost options that have a perceived value but don’t actually take a deep dive into what they need. On the HR side of the house, solutions like Sterling are popular. In reality, most of these solutions are just traditional background-checks with better branding; they do very little to mitigate big risks. These firms have simply done a great job of marketing in the HR space and locking HR departments into spending thousands of dollars for services that cost under $20 online.

The problem here goes beyond cost. We’ll dive into the details in Part 3, when we discuss screenings. In short, even a $20 online check is still a waste of time and money. It takes a name, date of birth, and city or state and tries to do a match. Assuming that match occurs, the check is utilizing public records that are inherently flawed. The first problem is that the records may not be entered in time or accurately. Would you risk your life on the work of a lowest paid employee clerk in the local government bureaucracy, hoping he or she will enter in records accurately and quickly? Of course not. These clerks might be uneducated or simply lazy and fail to enter the record correctly. They might just happen to work in a county that doesn't make its records easily available electronically. Either way, the system is flawed from the beginning.

The second problem is that there is no such thing as a nationwide criminal records database. To even have a shot at finding information about a conviction, you would have to check the databases of the 3,007 US counties as well as the fifty states (fifty-two including DC and Puerto Rico). Still, you would be missing the majority of what you are wanting to find: charges of a crime or reports of an assault, sexual harassment, or drug use. You would miss anyone who had never pleaded out to a lesser charge to relieve the overburdened DA’s office staffing woes. You would miss those who had a good attorney and beat the charges. It’s easy to see why our systems for “trust” are so broken.

The entire trust and safety space is antiquated and fragmented. It’s a yellow-page industry dating back to Allen Pinkerton foiling the first assassination attempt on Abraham Lincoln and becoming his private investigator. Rumor has it that Pinkerton’s rates got so high that Lincoln had to cut him loose just days before that fateful night at Ford’s Theater. Since then, the space has undergone very few changes, and businesses have thrown their hands in the air and said, “Well, there’s nothing better out there.”

We were haunted by that thought. Are there really no other options?

Of course there are! Read Part 2 to learn more....


Danny Boice
Danny Boice

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