August 2024 Articles - Suits the C-Suite | SGV & Co. | EY

26 August 2024

Roderick M. Vega

Keeping up with advances in employment fraud

As the global economy shifts towards recovery, organizations are ramping up their defenses against the threat of employment fraud. The hiring landscape, ever-evolving and increasingly digital, presents various opportunities for deceitful practices. Impersonation, falsification of qualifications, and sophisticated phishing attacks are just a few of the tactics employed by fraudsters to infiltrate companies.Employers who place their bets on seemingly promising candidates without conducting thorough background checks are especially vulnerable to fraud. Impersonation, hiding information, falsifying facts, placing proxy attendees during work evaluations, multiple affiliations, and phishing attacks on job portals have been increasing given the advent of technology.The Report to the Nations 2022 by the Association of Certified Fraud Examiners (ACFE) reports that nearly half of the organizations that fell victim to employment fraud (43%) had bypassed comprehensive background checks in their hiring processes. This data highlights the need for a more diligent and nuanced approach to candidate verification, one that balances thoroughness with the realities of the modern job market.The shortcomings of traditional background screening methods Currently, the hiring industry relies almost entirely on multiple third-party verification vendors who physically visit addresses to check the claims made by prospective employees. In one of the surveys conducted by EY, as many as 59% of the LinkedIn poll respondents revealed that their organizations employ third-party intermediaries for pre-employment background checks, while 18% conduct manual checks, and 9% onboard employees without any employment verification at all. However, the manual process is not only time consuming but also prone to human error as well as allowing room for misinterpretations. As many as 14% of the LinkedIn poll respondents confided that their current manual verification process is filled with errors while 66% felt that their current method is time consuming. The costs involved and the exposure of employees’ Personal Identifiable Information (PII) data and the challenges it entails additionally weigh heavily on employers. Physical verification methods alone are almost redundant given that fraudsters are devising more technically advanced scams. On the other hand, making the process non-virtual makes the process transparent, reduces the chances of employees submitting doctored documents, and ticks all the boxes of data privacy compliance.Navigating the evolving technological landscapeThe rise of the gig economy and the shift to remote work have compounded the difficulty of tracking a candidate's employment history. Traditional verification methods, which often involve third-party vendors personally verifying claims, are becoming increasingly outdated. These methods are not only slow and prone to human error but also raise privacy concerns as they involve the handling of sensitive personal information.While the fraud menace threatens to arrest the application of technological advancement in the hiring space, the answer to the dilemma lies in tech itself. The development of employee background check tools has led to a complete overhaul of pre-hiring formalities. Technology supported checks have helped simplify the methodologies for companies to identify anomalies in the overall assessment of the candidate’s past employment experiences. Scaled and customized to fit the hiring prerequisites of diverse industries, these models also have a shorter turnaround time as compared to traditional methods, making for a swifter hiring experience.Digital address verification, face-match technology, and geotagging are other methods being employed to identify inconsistencies in photographs and validate the authenticity of the claims made by candidates. These solutions are more efficient and offer a higher degree of accuracy and compliance with data privacy standards.The ethical use of technology in hiringAs we integrate these advanced tools into our hiring processes, it is imperative to consider the ethical implications. It is crucial to ensure that these technologies are used responsibly and that they serve to enhance, rather than replace, human judgment. Technology strengthens our hiring defenses, yet it cannot guarantee absolute protection against fraud.While these technological advancements significantly enhance our ability to detect inconsistencies and fraudulent claims, they are not foolproof. It is important to acknowledge that no system can guarantee a completely fraud-free hiring process. The goal is to reduce the risk of fraud and to build a more trustworthy workforce.Revolutionizing hiring Looking ahead, the potential for further technological advancements in hiring is vast. Machine learning algorithms are becoming increasingly adept at analyzing vast amounts of data to identify patterns that may indicate fraudulent behavior. Blockchain technology holds the promise of creating secure, immutable records of candidates' employment histories, education, and credentials.HR departments play a critical role in navigating this new landscape. They must be adept at using these technological tools while also maintaining a human touch. It is their responsibility to ensure that the hiring process remains fair, equitable, and free from discrimination.In an era where hiring practices are being redefined by digital innovation, it may be crucial to consider engaging the services of an experienced and technologically enabled third-party who can do precise and regulatory-compliant models to expedite and secure pre-employment checks. This way, companies will be able to harness the power of data and technology to hire human resources with verified profiles, enabling a more secure and reliable recruitment process. Roderick M. Vega is the Forensic and Integrity Services Leader of SGV & Co.This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinion expressed above are those of the author and do not necessarily represent the views of SGV & Co.

19 August 2024

Roderick M. Vega

How background checks can help prevent employment fraud

Employment fraud not only takes a financial toll due to the hiring of an ill-suited candidate but also increases risks of occupational fraud. The events that marked the beginning of the 2020s spurred unprecedented transformation by compelling organizations to accelerate their digital journey and enable remote working and business continuity. While it ushered in a new working world of tech-powered solutions, the accelerated pace of growth also left organizations vulnerable to heightened fraud risks.According to the Occupational Fraud 2024: A Report to the Nations issued by the Association of Certified Fraud Examiners (ACFE), out of 183 cases documented in the Asia-Pacific region, 12 (6%) of those were from the Philippines. This report analyzes 1,921 real cases of occupational fraud that were investigated between January 2022 and September 2023. However, it should be noted that the Asia-Pacific region reports the highest loss due to the cost of fraud compared to other regions in the study, with losses amounting to 1.2 million USD, compared to Western Europe who came in second with losses of 1 million USD.According to ACFE’s Report to the Nations 2024, 16% of the organizations that fell victim to fraud had chosen to onboard candidates despite the red flags that were raised during the background screening process, illustrating their dire need to hire.To mitigate such risks, HR departments can set the groundwork for organizational compliance efforts and cultivate an environment committed to following rules and policies. Through the support of HR personnel, compliance approaches can evolve from being reactive to proactive, enabling businesses to effortlessly integrate new regulations.Challenges of remote hiring and inadequate background checksDuring these challenging times, human resource functions find themselves struggling to bridge the talent gap in organizations through remote hiring. However, without the tried-and-tested safety measures such as employee background checks in place, fraudsters exploit the loopholes in the tech-enabled virtual interviews and skill-assessment processes to con organizations into hiring inadequately skilled, unscrupulous, or downright unqualified candidates for important positions through impersonation, proctored interviews, and so forth. The lack of continuous monitoring also results in issues such as multiple employment and compromised employee performance.In the realm of talent acquisition, HR teams play a pivotal role in ensuring compliance. They must ensure that the recruitment process adheres to employment laws, remains impartial, equitable, and free of discrimination. In an era where employment fraud is escalating, the onboarding process is particularly susceptible to modern fraud tactics, including overstated resumes, the use of deepfakes (artificial intelligence or AI-produced media where someone’s likeness or voice is replaced with another’s) during interviews, the submission of counterfeit documents, and undisclosed criminal histories. As such, HR can act as a safeguard by employing risk mitigation strategies to recruit candidates with verified qualifications and employment records.The high cost of occupational fraud and unverified hiresOrganizations share confidential information and valuable data with employees based on the trust established during the onboarding process. If the relationship is built on false pretense or with forged documents submitted by the candidate to improve their chances of being recruited, it can prove detrimental to the organization. All types of fraud are breaches of trust. Occupational fraud is the costliest and most common form of deception that takes place within organizations.The Report to the Nations 2024, which covered 1,921 cases of occupational fraud in 138 countries, reported losses of more than US$3.1 billion incurred by affected companies. Candidates who use fraudulent ways to get hired and submit inauthentic documents during pre-employment background checks are likely to operate with the same mindset during their employment, resulting in increased incidences of occupational fraud. The long-term repercussions of employment fraud A fraudulent candidate presents false information due to the lack of appropriate credentials to secure the position organically. With the advent of technology and remote jobs, fraudsters are creating deepfakes to impersonate qualified professionals and land jobs on their behalf. Such frauds can hamper overall team productivity, compromise business outcomes, and expose the organization to legal and reputational damage. While employees committing employment fraud stand to lose their jobs when their misdemeanors come to light, the organization incurs long-term reputational damage in the ordeal.Leveraging technology for comprehensive background checksWith the introduction of improved background check processes, HR teams can now utilize industry experience to thoroughly scrutinize candidates' resumes, documents, references, academic qualifications, and professional experience—all by one specialist. Automated HR compliance solutions can reduce the inaccuracies associated with manual background checks and offer faster processing times compared to traditional methods. This ensures that the hired candidates meet the company's requirements and adhere to its policies. While the primary objective of background checks is to detect fraud, they can also serve to assess cultural and value alignment, assisting HR in selecting candidates who resonate with the company's values. Employment fraud, like every other scam, is difficult to avoid. However, occurrences can be considerably reduced by implementing innovative solutions offered by employee background verification companies. Organizations can help prevent the hiring of unqualified professionals by investing in tech-forward tools for background verifications, leveraging data and cutting-edge innovations like face-matching and geo-tagging to address the loopholes in the employee verification process in a timely and cost-effective manner. Preemptive measures such as employee background checks can help reduce instances of fraud.Safeguarding the future of workThe importance of comprehensive background checks in the modern workplace cannot be overstated. As organizations navigate the complexities of a digitalized employment landscape, the need for robust verification processes becomes increasingly critical to prevent employment fraud and its associated costs. Advanced tools that harness centralized viewing are not only streamlining the background check process but are also enhancing the accuracy and integrity of hiring decisions. In addition, companies can explore engaging with third-party professionals with an extensive track record in fraud and integrity services. These measures are instrumental in building a trustworthy workforce that upholds the values and standards of the organization. Ultimately, by investing in and prioritizing thorough background checks as well as fostering a culture of compliance and ethical hiring, companies can protect themselves from the financial, operational, and reputational damages caused by employment fraud, ensuring a secure and prosperous future for their business and employees alike. Roderick M. Vega is the Forensic and Integrity Services Leader of SGV & Co.This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinion expressed above are those of the author and do not necessarily represent the views of SGV & Co.

12 August 2024

Noel P. Rabaja

Balancing act: Asia-Pacific CEOs embrace cautious optimism

The convergence of market dynamics, policy changes, and geopolitical tensions is forging a wave of cautious optimism among Asia-Pacific businesses. Following a period of spiraling costs of business and a significant drop in mergers and acquisitions (M&A) to multiyear lows in the region, the persistent challenges in the economy and of geopolitical uncertainties have dampened earlier expectations of faster recovery. Initially brimming with bullishness in early 2024, CEOs and investors are now recalibrating their forecasts to consider a more conservative view. Reflecting the region's more measured outlook, the Philippines earlier revised its own GDP growth forecast to a more conservative 6-7%, down from the previous 6.5-7.5% projection. The National Economic and Development Authority (NEDA) also raised the budget deficit ceilings until 2028 to provide greater flexibility in funding government infrastructure programs. Despite these headwinds, 55% of CEOs feel optimistic about their company’s revenue growth, and 61% remain confident in their profitability, as revealed by the latest 2024 EY CEO Outlook Pulse survey. The report surveyed 340 CEOs and 100 institutional investors across Asia-Pacific and found that CEOs are reworking their strategic playbooks. From mere business expansion goals a year ago, businesses in the region are now zeroing in on strategic investments in innovation and sustainability to achieve long-term resilience and better prepare for the future. However, while investors are keen to support genuine sustainability efforts, they also demand strategies that deliver long-term financial value. Achieving both the desired sustainability impact and positive financial benefits remains crucial to both CEOs and investors. Here are the key findings from the survey, providing salient insights for Philippine businesses. Competitive edge through technology and sustainability With AI's potential to boost productivity and provide a competitive edge, over a third (39%) of Asia-Pacific CEOs are prioritizing advanced technology, including AI, in their strategies for the next 12 months. To navigate the complexities of the digital landscape and ensure they reap the full benefits of advanced technologies, 35% of CEOs are also focusing investments in data management and robust cybersecurity. Over two-thirds of CEOs (68%) and investors (70%) believe that technology and AI can seamlessly bridge short-term financial goals with long-term sustainability. Meanwhile, over the next three years, CEOs are focusing their agenda on sustainability, with 49% of CEOs now seeing it as even more critical than a year ago. This shift to prioritize the green imperative rather than pay mere lip service is fueled by rising consumer demand for sustainable practices that extend beyond the point of sale. While consumers may balk at a "green premium," they still expect companies to implement comprehensive sustainability strategies across their supply chains. Stronger push for greater government action Asia-Pacific CEOs and investors stress the need for governments to take coordinated and consistent action to combat climate change, calling for greater infrastructure investments to spur regional growth and support the energy transition. A key barrier they emphasized is the region's lack of sophisticated public-private partnerships and innovative funding models. While many Asia-Pacific CEOs are pleased with current government infrastructure efforts, a vocal minority calls for more robust actions. They see subsidies, tax incentives, and direct investments as crucial for regional growth and energy transition, whereas mandatory reporting standards and financial penalties are less favored. Moreover, Asia-Pacific CEOs show willingness to accept tighter profit margins and higher costs to protect domestic manufacturing, though their commitment to such sacrifices is more cautious compared to leaders in other regions. M&As to accelerate transformation Asia-Pacific CEOs are seizing new opportunities through mergers, acquisitions, divestitures, and strategic alliances to advance their transformation agendas. Nearly all (99%) are planning or considering transactions this year, with 54% targeting mergers and acquisitions, far surpassing their counterparts in the Americas (36%) and Europe (40%). To ensure that sustainability is not just a box to tick but a core component of their strategic growth plans, companies are embedding sustainability considerations into their M&A framework. This forward-thinking approach aligns with the triple bottom line principle, balancing people, planet, and profit for long-term success. Three strategic actions The following are strategic actions CEOs can take to balance immediate productivity and profitability goals with long-term imperatives to ensure sustainable business growth and climate action alignment: Strength in numbers. By working together, e.g., by way of partnerships or strategic collaboration — particularly given the continuing challenges in the market — companies can have better access to the necessary funding and support from investors and governments to accelerate their transition toward more sustainable operations. Pursue public-private partnerships. When governments are deciding sustainability policy, CEOs, as key stakeholders, must actively engage with them. They are well-informed and ideally placed to advise on the most effective mechanisms to support policy objectives while minimizing economic downsides. Tell a better story. Investors are broadly positive about the outlook for dealmaking. However, they emphasize the need for companies to articulate why acquisition returns will surpass organic investments. They also want to see how integrated sustainability initiatives drive long-term value. Given the need for APAC CEOs to balance short-term productivity and profitability with longer-term imperatives, close collaboration and dialogue between companies, investors and governments will be key to sustaining economic growth while also addressing climate risk concerns. Noel P. Rabaja is the Strategy and Transactions Leader of SGV & Co.This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinion expressed above are those of the author and do not necessarily represent the views of SGV & Co.

05 August 2024

Philip B. Casanova and Ma. Airra S. Hernandez

How AI can sustain business continuity

Artificial intelligence (AI) is transforming the way we innovate—empowering machines to perform tasks that typically require human intelligence. It focuses on emulating human behavior and performance, from simple task automation to complex problem-solving and decision-making. As businesses continue to navigate an increasingly volatile landscape, the traditional, reactive approaches to continuity and crisis management no longer suffice. AI can help redefine organizational resilience by enabling companies to anticipate disruptions and fortify their operations against them.To adapt, businesses are increasingly turning to AI to transform their approach to Business Continuity Management (BCM). This article examines how AI's capabilities improve BCM strategies and foster a proactive approach to organizational resilience.The role of AI in BCMAI’s role in BCM goes beyond redefining business continuity procedures. It transforms the way organizations plan, detect, respond, and withstand business disruptions. Risk assessment, impact analysis and planningAI can be used to analyze large volumes of data to identify risks within an organization. It can also predict potential disruptions by analyzing patterns from past incidents. These capabilities reshape how organizations can prepare for unprecedented events and turn reactive measures into proactive strategies.AI can also be used in conducting Business Impact Analysis (BIA) and can streamline the identification of critical business functions, products and services, and the impact assessments of disruptions. It helps ensure that recovery efforts include interdependency requirements that are aligned with the criticality and recovery objectives of business functions, products, and services.AI can also assist in developing dynamic and adaptive disaster response plans by leveraging its acquired knowledge on various disaster scenarios and predicting their potential impacts on business operations. AI can further keep businesses abreast of regulatory shifts and ensures that BCM strategies are aligned with the latest mandates through automated compliance monitoring and reporting.Incident and crisis managementThe detection of threats or system failures becomes faster and precise with the use of AI-enhanced monitoring systems. The early-warning capability of such monitoring systems is critical for managing incidents before they escalate into large-scale business disruptions or crises. In fact, the Philippines, being one of the most disaster-prone countries in the world, has been incorporating AI and advanced technologies for monitoring seismic activities, volcanic eruptions, tsunami warnings, and typhoons for better disaster preparedness.Aside from detection, AI ensures availability of data through intelligent backup and recovery systems—safeguarding data integrity and facilitating swift restoration in the event of disruptions. AI-driven communication tools are also vital during a crisis where effective and timely communication is crucial. They provide stakeholders with immediate and accurate information when it is most needed.Exercise simulations and continuous improvementAI-driven simulations can train employees on emergency and response procedures as well as enrich the decision-making capabilities of Crisis Management Teams to help them prepare for real-world incidents and business disruptions.This capability parallels organizations in civil aviation that use AI in flight simulators where various flight conditions, system failures, and weather scenarios are simulated to train pilots in handling different situations. Similarly, military organizations also use AI in combat simulations and war games to create realistic training scenarios.Lastly, AI does not just respond to incidents—it learns from them. By analyzing BCM exercises and real events, AI provides actionable insights for refining continuity plans, ensuring that each iteration is stronger than the last. AI can help transform business continuity from reactive recovery to proactive preparedness, redefining organizational resilience.Challenges of AI-Driven BCMWhile AI offers significant advantages for BCM, it also presents several challenges that organizations must navigate.Resource requirements. AI systems require substantial funding for resources, such as technology, infrastructure and, ultimately, skilled talent. The use of AI needs specialized skills and knowledge to develop, manage, and interpret AI systems. Yet these times, the number of professionals in the field of AI are still limited.Reliability of data. AI systems require significant volume of high-quality data to work effectively, as insufficient or poor-quality data may result to inaccurate predictions. The AI systems may also inherit biases or result to unfair outcomes if data will not be managed properly.Decision-making capability. As AI systems are highly complex and lack transparency in their decision-making processes, organizations may find it difficult to understand and trust the recommendations made by AI. The extent to which decision-making should be automated and whether AI-driven decisions align with the organization's values and ethical standards are also some of the factors that organizations should consider.Maximizing AI to achieve resilienceTo harness AI's full potential in BCM and overcome challenges, organizations must facilitate thorough planning, stakeholder engagement, continuous monitoring, and the improvement of AI systems. Integration with existing systems is one of the key factors to ensure a holistic approach in enhancing every area of BCM. Moreover, it is essential to have subject matter experts in AI who can interpret and manage AI-generated intelligence to bridge the gap between data and decision-making.AI is not just complementary to BCM—it's a transformative initiative that is redefining the very essence of organizational resilience. As organizations start to embrace this AI-driven future, the ones who skillfully integrate AI systems into their business continuity strategies will not only survive disruptions but thrive in their aftermath. Philip B. Casanova is a Technology Consulting Principal and Ma. Airra S. Hernandez is a Technology Consulting Manager, both from SGV & Co.This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinion expressed above are those of the authors and do not necessarily represent the views of SGV & Co.

August 2024

Keeping up with advances in employment fraud

How background checks can help prevent employment fraud

Balancing act: Asia-Pacific CEOs embrace cautious optimism

How AI can sustain business continuity

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