Background Check Industry Warning

April 3, 2000
When the owners of a San Jose, Calif., appliance and furniture company discovered that a number of their expensive built-in refrigerator units were missing a few months ago, they called in local private investigator Kent Cossey. After checking, Cossey found that five of the company's warehouse and delivery employees had been stealing goods; further investigation showed that all had prior theft or drug convictions. Had the business managers ordered pre-employment background checks, they probably would not have hired the people - and they would avoided the losses and headaches.

Small businesses that skimp on careful hiring practices will pay for it later. Fortunately, pre-employment background checks, a critical tool for preventing fraud and eventual legal hassles, are easier and more affordable than ever before.

Background screening goes beyond traditional reference checks and looks at such things as criminal and driving records, credit reports and whether applicants actually have the work and education experience they claim.

Who Do You Trust?
A variety of background screening outfits have begun offering their services online, and some are completely Web-based, so that background checks can be done at any time and results are just keystrokes away. Pricing, meanwhile, has grown more competitive, so the most basic background checks can be had for under $25.

Yet most small businesses continue to neglect this important step in the hiring process, according to Joseph Wells, chairman of the Austin, Texas-based Association of Certified Fraud Examiners.

"Every fraud involves an element of trust," he says. "In small businesses where you know people face-to-face you're most likely to trust people than in big businesses. Our defenses are down."

However, trusting everybody without taking precautions is a recipe for disaster. Small businesses are 100 times more vulnerable to workplace fraud than large companies, according to the association's 1996-1997 Report to the Nation on Occupational Fraud and Abuse. Also, the losses small businesses suffer from workplace fraud are proportionately greater than those suffered by big businesses.

One factor that puts small businesses at greater risk is that small companies have fewer divisions of responsibility than large outfits. One person may be in charge of an entire bookkeeping department, for instance. "It takes more people to pull off a fraud in large businesses," Wells says.

But it's not just the lone bookkeeper with sticky fingers that poses a threat. Technology has created new risks as more and more sensitive company and financial information is stored on computer systems, Cossey says.

Neglecting background checks also can lead to dire legal consequences. Companies can be held liable for the willful misconduct of their employees, if the courts determine they were negligent in their hiring and retention. Suppose a company hires somebody without doing a background check, and the employee later assaults a customer. The customer then sues the company, showing that the employee had a string of assault convictions when he was hired.

"Damages in that kind of lawsuit can be tremendous," says Robert Maguire, a partner in the human resources consulting group for SK Consulting in San Jose, Calif. Doing pre-employment background checks is one way companies can protect themselves, he says.

Finding a Screener
Background screening is a specialized task that businesses shouldn't perform themselves, Wells says. He advises companies to ask around for reputable background screening firms and to check the references of the companies before hiring them. A quick Web search will produce the names of dozens of firms.

"I would recommend checking out the Internet-based companies," says Bryan Copas, vice president of operations of Solntec, Inc., a Mountain View, Calif.-based technology consulting company with 35 employees.

Copas' company began doing pre-employment background checks about six months ago because its clients began requiring them. Copas, who uses the services of Sacramento, Calif.-based Backgrounds Online, likes the convenience of requesting the checks online and getting the results on his computer. The screening company notifies him by e-mail when the reports are ready.

"My work hours can vary from day to day, and it's very nice to sit down at my computer at 6 a.m. or at midnight and make sure the request is going in on that day," he says. "I can do it on my own time."

With Backgrounds Online, customers can contact the company initially through the Web site to open an account. A one-time $50 setup fee covers the cost of a new-user kit, which explains laws governing background checks, including the Fair Credit Reporting Act, which business managers should be familiar before ordering background screens. The kit also provides tools necessary for setting the process in motion, including sample release forms for prospective employees to sign. Businesses must get the permission of their potential employees before they order the checks and the people being screened must be given the results of the checks so they have a chance to order reinvestigations in case there are mistakes.

Customers of Backgrounds Online then get user names and passwords and can order background checks anytime by typing in the names of the subjects and what they want screened. The service is completely Web-based so it doesn't require additional software.

Copas likes the capability of setting up screening categories online. Different positions require different checks. By setting up a category for each type of position, he can order the specific set of checks simply by choosing that category in his online account. That saves time, he says, and also ensures that checks for the same category are uniform.

Kroll Background America, based in Nashville, Tenn., also offers background screening through its Web site, but customers first have to contact the company by phone or fax to get a user name and password. Then they can order screening services online and can retrieve reports on the Web site, although they are not notified by e-mail when the reports are complete.

Prices and turnaround times vary depending on the screening company and the level of investigation. Taisha Rucker, a compliance specialist for Kroll Background America, said turn-around time for most reports is three to five days.

The company does a lot of screening for health care agencies. A basic background check for a nursing applicant, which would include a social security number, professional license, employment and reference verifications along with a criminal history check, would cost between $35 and $50, depending on the number of counties where records had to be searched

Backgrounds Online, meanwhile, reports turnaround times ranging from seconds for identity verification by social security number to an average of one to three days for criminal background checks and education and employment verification. A criminal background check costs $18.50, a credit report check is $14, and identity verification by Social Security number is $5.

Not everyone is sold on Web-based screening, however. Private investigator Kent Cossey takes orders and delivers background-screening reports using e-mail for about half his clients. He says even those customers still want the personal touch of a telephone call. (Cossey also notes that a P.I. such as himself may also offer a whole gamut of services - from pre-employment screening to undercover investigations to follow-up checks.)

Steve Pearce, Backgrounds Online sales and marketing director says his company also frequently talks to customers by phone. And Copas says the company has called him promptly anytime there's been a problem, such as a misspelling of a name.

On Deep Background
So what should businesses check for when they screen prospective employees? Rucker says companies should start with identity verification by social security number because that can turn up other names used by the individual that should also be checked. She says in some cases applicants are weeded out in that first step because the screening shows the number belongs to someone dead.

Maguire of SK Consulting, who contracts with Cossey's CC and Associates for background screening, recommends that companies also do criminal background checks for all applicants.

Joe Ciola, human resources director of Wavve Telecommunications Inc., says his company bases the level of screening on the positions for which the job candidates are being hired. The Sacramento, Calif., based company provides information technology services and employs 45. Beyond criminal and social security number checks, for instance, it does credit checks for anyone who would handle money and driving records for anyone who would drive on the company's behalf

Businesses should also verify education and employment backgrounds if those are crucial to the job. It's not all that uncommon for people to fudge on their resumes to make themselves appear more impressive. According to Kroll Background America, more than 30 percent of resumes contain some degree of untruth.

"You run into situations all the time when someone says they have a master's degree when they really don't, or they say they graduated from a university but only attended there," says Pearce of Backgrounds Online. "We get ones where the school (the applicant) said he attended never even heard of him, or a guy says he was director of sales and was only a sales associate.

Not only does that tell employers the applicant may not have the qualifications for the job, but it raises questions about character. "If this guy's lying about this, what else is he going to lie about?" Pearce asks

Not only does that tell employers the applicant may not have the qualifications for the job, but it raises questions about character. "If this guy's lying He points to a 1998 negligent hiring cast in Boston, MA, in which a jury awarded a family $26.5 million after a man hired by a home healthcare company to care for their 32-year-old son stabbed, robbed and killed him in 1991. The victim suffered from cerebral palsy. A basic background check would have revealed that the health care worker not only had six felony convictions, but had never attended nursing school, which he claimed on him application.

He points to a 1998 negligent hiring cast in Boston, MA, in which a jury awarded a family $26.5 million after a man hired by a home healthcare company to care for their 32-year-old son stabbed, robbed and killed him in 1991. The victim suffered from cerebral palsy. A basic background check would have revealed that the health care worker not only had six felony convictions, but had never attended nursing school, which he claimed on him application.

Ciola, who uses the services of Backgrounds Online, says his firm has done pre-employment screening since it was formally established in October. So far none of the screens has raised any red flags. "We are very fortunate, especially in this tight labor market." But the screening is still worth the cost, he says. "You can spend a lot of time dealing with one bad hire."