Employee Background Checks: Should You Try This at Home?

When it comes to screening prospective new employees, companies can’t be too careful these days. The safety and sanctity of the workplace, the morale of existing employees and the success and reputation of the company itself are all on the line with each new hire.

Not to mention the fact that if an employee does something disruptive or illegal, employers may incur liability, especially if the worker is on the clock at the time.
Fortunately – and unfortunately – truckloads of information are available: credit reports, criminal and driving records, verification of identity, citizenship, prior addresses, former employment, education, personal references, the list goes on. And within each category, different sources offer different results in vastly different formats.

Even with a solid grasp of what checks to run, deciding where and how to go about it can be daunting for smaller businesses in particular. Products and services look alike. Service bureaus and online databases may sound alike while actually offering distinct pieces of a total solution. Volume and a la carte pricing is all over the map.

So many data source options exist that, for many small to medium enterprises (SMEs) the greater challenge lies not in deciding what to look at, but in deciding how best to obtain and use affordable, comprehensive information. HR departments’ primary goal is often keeping the process as simple, speedy and cost-effective as possible, so the first order of business is determining what should be performed internally versus outsourced to Consumer Reporting Agencies (CRAs).

Industry expert Bruce Berg of Berg Consulting says that companies evaluating how much screening to do internally must weigh several factors. “Speed, accuracy and cost are generally three equally important considerations regarding a comprehensive background check,” Berg says. “You want to verify all the information on the application and all information developed by the background check. This goal is offset by the extra cost to do extra data searches and resume verification. It’s difficult to draw an absolute dollar limit for each background, so the goal should be to keep the average cost within a limit and do all the detail necessary for each applicant.”

Because verifications can be so individual, some businesses actually prefer to conduct more screening themselves in house to maintain greater visibility and tighter control over the decision-making process. Jason Fisher, Director of HR, US Retail Stores at Dollar Financial Group says the chain of 475 check-cashing and payday loan service outlets operates like bank branches and has to be more careful than most.

“When you’re about to hire or promote someone to a job where they will have access to store safes or cash inventories, you may have to look more critically at credit fraud and certain other things than a third party reporting agency might. We also prefer not to belimited by external providers’ interpretations of data,” Fisher says. “By doing more internally, we can personalize the process much more and make the best decisions for our company.”

Walt Wojciechowski, President at MicroBilt, provider of comprehensive credit, collections, ID and other risk management services to both CRAs and end-users, says the deciding what to outsource is a greater challenge for smaller companies.

“While big businesses can maintain relationships with the largest, most expensive service bureaus, smaller businesses have to devise custom strategies that optimize their HR, legal, IT and financial resources. In doing so they have to select from literally thousands of options that look and sound alike but actually differ substantially,” says Wojciechowski. “The first step every company should take, no matter what its size, is to get very clear on its own unique screening needs, its hiring priorities and the best use of resources.”

According to Wojciechowski, following considerations constitute a good place to start:

Balancing Time with Cost
To conserve time and money, many companies run only the bare minimum screenings necessary to conform to due diligence and guard against potential fraud and workplace risks. A basic screening of an applicant to verify that they a) are who they say are, b) aren’t drowning in debt to the point where embezzling might seem tempting, and c) aren’t featured on any post office walls, carries a base cost of about $15 per prospective employee plus county and state fees charged by some agencies.

As Berg points out, “When companies break it down in terms of what they plan to pay a prospective new hire, the cost of a thorough background screening is usually less than what they would pay an employee on Day 1. That’s a tiny investment, especially compared to the thousands of dollars often spent during the recruiting process.”

Cost can also grow exponentially, however, if an employee has moved around a lot, or has things on his or her credit, criminal, even driving reports that warrant further investigation. Most reporting agencies recommend a complete search of all known counties in which a candidate or employee has lived during a specified and usually extended time period. Individual county records generally contain relevant information about felonies, misdemeanors and infractions, as well as traffic violations and other arrests.

Here, the legwork involved in contacting and interfacing to multiple databases can be so exhaustive as to make outsourcing to agencies a bargain. But even if external providers mark up base costs by as much as 50%, their ability to quickly track down, pull and consolidate information from a vast number of sources is often well below the cost of having HR complete the effort.

“When it’s left to in house HR departments to do background checks along with everything else they have to, there may never quite be enough time to do everything necessary for a comprehensive screening,” Bruce Berg says. “Verifying previous employment and past addresses are typically hardest and most time-consuming because you can easily end up playing phone tag for days.”

In performing criminal record checks on an applicant who has moved around a lot, many courts in many counties may have to be contacted. The challenge for smaller companies seeking to concentrate the process in house is to execute thorough checks without delaying the hiring process or running up exorbitant costs.

Sue Johnson, National Sales Director at Background Source Intl. says more progressive third-party providers are working to help smaller businesses by evolving toward more predictable pricing. “We look at a company’s average needs and how many hires they predict for the coming year and offer one price inclusive of their unique needs. If most of their screening is done within particular states we can also look into pay-one-price offerings for certain geographic regions.”

Still, Dollar Financial Group’s Fisher believes an experienced HR professional using the right data sources can make a determination very quickly. “Using the MicroBilt products we use today, access to much of the information we require is more or less instantaneous. Once we have all the reports in hand, it doesn’t take someone on our end that’s been in the business awhile more than a few minutes to determine whether we want to proceed or not, or if  more information is needed.”

Fisher even maintains that over-relying on third-party reports is, in some cases, equivalent to HR professionals “shirking” responsibilities. “If you just take what an agency says at face value you can end up overlooking something very relevant to a specific company or job. HR should definitely play a very active role in the screening and decision-making parts of the process.”

IT may also be impacted. While running screenings in-house can net companies substantial savings in both time and money, there may be a considerable initial drain on the IT staff to interface with various criminal databases and other information sources. Additional programming may also be required to consolidate results into uniform reports for easy evaluation.

In the end, companies must weigh the base savings inherent in using internal resources versus the less direct savings represented by partnering with dedicated experts. In-house may appear less costly while actually imposing a substantial drain – or worse, if a lack of resident internal expertise leaves the company needlessly vulnerable.

Keeping Your “Assets” Covered”
Assessing whether the right mix of expertise resides within a company to not only screen applicants but conform to relevant regulatory mandates is another critical component of deciding what to do in house. Do both the HR professionals and legal counsel have the time to stay up on changing compliance issues at the federal, state and local levels?

In addition to the predictability and volume discounts inherent in this approach, Background Source’s Johnson says companies benefit from the expertise and protection that comes with using a third party. “We have researchers throughout the country that follow the specific regulations of each individual state. And if something does happen with an employee that ends up in litigation, companies are much better having a third party standing behind them verifying that they’ve run the required checks.”

The legalities and liabilities surrounding the screening of job applicants vary not only from state to state, even from county to county. These regulations can differ chronologically in terms of how far back in time an employer can consider convictions and defaults legitimate reasons not to hire a candidate. Federal, state and local governments also prescribe very distinct, specific procedures for obtaining applicants’ permission to check criminal records and for disclosing beforehand any potential negative consequences like not hiring or termination.

Public records may go back 20-30 years but it may be unlawful for employers to use all the information available about arrest records and the like. Other groups like the federal Equal Employment Opportunity Commission (EEOC) have also prescribed definitive guidelines for the use of criminal records on the grounds that may have a disparate impact on minorities. The EEOC has recommended against the use of these records in making employment decisions in the absence of a clear business reason. Employers must take into account the nature and gravity of an offense, the amount of time that has passed since the conviction, completion of a related sentence, and the nature of the job assignment.

In this area, third-party background screening companies defined as consumer reporting agencies (CRAs) under the federal Fair Credit Reporting Act (FCRA) are likely to know the nuances of what can legally be reported and taken into consideration. Since these regulations evolve constantly, keeping up on the latest changes is an ongoing job onto itself.

So, more and more, is checking employee records after they come on board.

“You’re Hired.” Now What?
Depending on a company’s business or a person’s job function, companies should consider periodically running updated batch checks (for volume savings) on existing employees. In some cases, in addition to criminal records, a company might check driving records for those who operate company vehicles or credit for those with access to funds or inventory, looking for any red flags in terms of debt or spending patterns.

Screening as Part of Comprehensive Risk Management
Last but not least, a company should look at background screening in terms of an overall corporate risk management strategy. However a company chooses to in- or outsource employee screening, costs can likely be contained, and processes simplified, by obtaining more information from fewer suppliers. Consolidating verifications of prospective clients, suppliers, partners and creditors along with new and existing employees can net significant savings as well as uniformity.
The key is to invest a little time devising a company’s own individual best practice. Industry associations like NAPBS (www.napbs.com), experts such as Berg Consulting (www.bergconsulting.com), and comprehensive risk management solutions providers like MicroBilt (www.microbilt.com) can be valuable resources.
By investing a little time analyzing its needs, priorities and resources, companies can minimize their exposure and, with the right mix of suppliers, achieve the risk management mantra:
Know more, pay less.