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Financial Alerts Position Paper

Posted on: January 24, 2017

Financial Alerts are leading indicators enabling a company to proactively identify and take appropriate actions to mitigate risk and prevent financial and other crimes from occurring.

Overview

Financial Alerts are designed to identify material changes in an employee’s personal financial behavior that may be indicative of financial stress.  The objective of financial alerts is not to assess the credit worthiness of an employee, but rather to uncover early indicators of organizational risk.  Employees subject to sudden, increasing, or sustained financial stress over extended periods of time may alter their behavior within the workplace, leading to potentially inappropriate or illegal activity that places the company and employees at risk.

Financial Stress

Most employees do not suddenly decide to commit a crime or defraud their place of employment.  Decisions to commit crimes within the workplace are usually preceded by one or more external events that can accumulate over time that alter the way in which an employee behaves and how they view their job, employer and colleagues.

Material changes in a person’s financial condition represent a major external event.  As an example, according to the US Navy, 90% of individuals who lose their security clearance do so because of financial issues. Rapid acceleration of debt, monthly costs exceeding income, defaulting on a mortgage, or car repossession can all lead to high levels of financial stress.  The risk is that an employee will turn to illegal means of alleviating financial stress. Additionally, financial stress can leave an employee susceptible to outside criminal influence.  Sudden and substantial repayment of personal debt may be the result of a bonus, sale of assets, inheritance or other legitimate events.  However, large and unexpected cash and income may result from fraud or other financial crime.

ClearForce Financial Alerts

ClearForce generates 13 specific Financial Alerts, each designed to identify material changes in an employee’s personal financial condition.  The risks pertain to the potential level of personal financial stress and the subsequent risks that may materialize inside the workplace.  The 13 Financial Alerts can be classified into three major categories:  financial payment delinquency alerts, financial debt balance alerts, and financial credit activity alerts.

State Regulation Considerations

Some states that have enacted specific laws regarding credit information including California, Colorado, Connecticut, Hawaii, Illinois, Maryland, Nevada, Oregon, Vermont, and Washington. These states restrict employers’ use of a consumer report including credit information for employment purposes, but provide several exceptions, including most federally regulated financial services companies, when credit information is required by other law, or when “job relatedness” can be established by the employer.

HR Policy and Action Considerations

With Financial Alerts as a newly available leading indicator of risk, policies are needed to determine when an investigation is needed – for example, based upon a combination of multiple Financial and/or other alerts. Defined personnel actions in response are also appropriate.  Since Financial Alerts tend not to be high risk, it is unlikely that severe disciplinary action (i.e., termination of employment, demotion) would result from single or even combination of Financial Alerts.  However, limiting access to confidential, customer or financial data may be appropriate based on the alert(s) significance.

Appropriate personnel actions resulting from a Financial Alert may include some combination of:  increased communication or more frequent interaction by the employee’s manager or supervisor; credit counseling; credit education or training; or closer evaluation of other non-financial information (such as performance reviews, absentee reports, peer reporting, criminal history, computer network activity, or social media). Additionally, by enabling early identification of possible financial deterioration, the organization has the ability to intercede and prevent the employee from slipping into unrecoverable financial stress.  Proactive engagement can save the individual and the organization from unnecessary negative outcomes.

ClearForce is ready now to provide 24/7-365 continuous insider risk monitoring.

For copies of this paper or for more information, Contact ClearForce Marketing at 703-639-4780