Due diligence key to good hiring: KPMG

An important part of an effective fraud and misconduct prevention strategy is the use of due diligence in the hiring, retention, and promotion of employees, agents, vendors, and other third parties, according to KPMG's Fraud Risk Management Report 2006.

Such due diligence, it says, may be especially important for those employees identified as having authority over the financial reporting process.

The report defines fraud as 'any intentional act committed to secure an unfair or unlawful gain'; and refers to misconduct as an umbrella term that covers 'violations of law, regulations, internal policies, and market expectations of ethical business conduct'.

The scope and depth of the due diligence process typically varies based on the organisation's identified risks, the individual's job function and/or level of authority, and the specific laws of the country in which the organisation resides, according to the report.

There are certain situations where screening third parties may be valid. For example, management may wish to screen agents, consultants, or temporary workers who may access confidential information or acquisition targets that may have regulatory or integrity risks

that can materially affect the value of the transaction. Due diligence begins at the start of an employment or business relationship and continues throughout, the report says.

For instance, taking into account behavioural considerations - such as adherence to the organisation's core values - in performance evaluations provides a powerful signal that management cares about not only what employees achieve but also that those achievements were made in a manner consistent with the company's values and standards, the report says.

It argues that management should incorporate fraud and misconduct awareness initiatives into training programmes that seek to educate employees about their obligations concerning reporting fraud and misconduct.

An organization's code of conduct is a vital vehicle that management can use to communicate to employees on key standards that define acceptable business conduct, the report states.

A well-written and communicated code, it says, must provide ethical decision-making tools to assist employees in making the right choices and make clear reporting channels and viable mechanisms that employees can use to report concerns or seek advice without fear of retribution.