Check Them Out Before You Hire

By Gerry Adams

gerry@adams-pi.com

The average company loses more than $9 a day per employee to fraud. According to Joseph Wells, Chairman of the Board of the Association of Certified Fraud Examiners (ACFE), this equates to an average of 6 percent of annual revenue.

One of the most valuable and cost-effective tools a company can use to combat fraud are pre-employment background checks. Despite this, however, they are also one of the most underused.

Often seen as a mostly cursory process that low-level service providers must undergo, pre-employment background checks should be standard operating procedure for most organizations.

It has been estimated that employee theft results in losses of over $120 billion a year. This puts the cost of employee theft even higher than shoplifting losses. In fact, some experts allege that employee theft is the reason behind one out of every three business failures.

Although these figures are astounding, they become even more so when one realizes what they don't cover, namely the theft of intellectual property. Any firm that depends on its own innovations for survival--from biotech to high-tech to manufacturing firms--can lose everything due to one employee's actions. This employee may be stealing concepts to sell to another company or for his or her own side business. Whatever the reason, the results can be devastating.

A Pacific Northwest high-tech company found this out the hard way. Forgoing a background check on its new executive, upper management soon became suspicious of his behavior. Our firm was called in to conduct a discreet investigation and soon discovered that the executive had a history of alleged, questionable behavior and was planning to steal company secrets in a takeover attempt.

Yet another possibility is that an applicant may be a professional instigator of lawsuits. This individual attempts to earn money not from hard work but from frivolous claims. These claims can range from fraudulent cases of sexual harassment to workmen's compensation.

A pre-employment background check can help determine if an applicant is likely to engage in one of the above behaviors. The scope and content of the investigation is shaped by the nature of the position, the history of the applicant, and the extent of the hiring company's resources.

Generally, a pre-employment background investigation will attempt to verify an applicant's education and work history. A prospective employer should pay close attention to whether the job titles, duties, and dates listed by the applicant on his or her resume or application match those stated by the former employer. Inconsistencies can reveal a pattern of lying on the part of the applicant. Significant discrepancies in employment dates can indicate that the applicant is trying to cover up that he or she was fired from one or more previous positions. In some cases, these gaps could even be due to periods of incarceration.

Be aware that many companies these days, leery about being sued for making negative comments regarding former employees, will not do much more than confirm the applicant's former job title and employment dates. This underscores the importance of requesting and checking an applicant's references.

Although one would assume that the references would be favorable else the applicant would not have chosen them, this is not always the case. Sometimes a reference will openly tell you, or let slip, that the applicant left due to some sort of impropriety.

A complete background check will also search for any criminal or civil court records involving the applicant. A prospective employer may find that the applicant has been found guilty of a financial crime, such as embezzlement or theft.

Other items on an applicant's resume to be verified include publications, presentations, and memberships on the part of the candidate. This is an especially fertile area for exaggeration or outright lies. Many applicants expect their educational degrees to be substantiated but count on the employer to be lax in checking on other details.

If the firm's budget is small and its Human Resources coordinator has time available, the pre-employment check can be conducted in-house. If not, a private investigative firm that specializes in background investigations is a logical choice.

A good investigative company will sit down and discuss with you both your needs and budget. Drawing from its experience, it will offer you certain recommendations and guidelines. Be wary of any firm that promises a thorough background check on the cheap. As is true elsewhere in life, you get what you pay for. Although pricing will vary depending on the components of the investigation, you can expect to pay between $400 to $1,000 for a background check into someone applying for a position of responsibility and trust. This individual, for example a scientist or rising corporate executive, is likely to posses one or more advanced degrees, a moderate to long work history, and various awards, associations, or publications. In addition, he or she is likely to have resided in more than one area of the state or country. Pre-employment investigations into applicants who have minimal histories and who are applying for less sensitive positions would, of course, be less expensive.

The expense of the background investigation is small when compared to the cost of replacing the applicant once hired, estimated today at a minimum of $75,000. The toll is even greater if the employee has committed an act of fraud before being fired. According to the ACFE, median losses due to fraud by non-managerial employees is $60,000; by managers, $250,000; and by owner/executives, $1 million.