There’s more to background checks than calling references

by James Marasco , CPA, CFE, CIA

Fraud Matters, Winter 2006

More and More employers are learning that background checks are a necessity in their hiring practices.

Simply confirming dates of prior employment isn’t going to work for most companies today.

Estimates are that nearly 10 percent of candidates applying for jobs have criminal violations, according to the Northeast Human Resource Association. As exemplified by the company featured in the associated case study , failing to adequately scrutinize new hires can have disastrous results.

What precautions should your organization implement?

Types of Verification

Background checks are usually conducted by most organizations during the initial hiring process and as a condition of employment.

Some of the most popular include:

• Contacting previous employers to verify dates of prior employment
• Checking references that are provided by the candidate
• Criminal checks in various jurisdictions
• Department of Motor Vehicle verifications
• Credit reports
• Transcript, professional license and accreditation verifications
• Drug screening

What to Require

Calling previous employers to note dates of prior employment is a good practice to determine any noticeable gaps in someone’s employment history. It could expose something that the candidate failed to disclose.

Contacting references could help you understand your candidate better, but these references may be restricted by what they can or will reveal. In addition, because they are usually provided by the candidate, they should be discounted accordingly.

Criminal checks should be a must for certain categories of employees. For example, prospective teachers, caregivers and those with financial responsibilities should all be subject to a criminal background review.

The main complication behind a criminal check is that it can be cost prohibitive because it has to be run on a jurisdictional basis. Therefore, it is essential to be familiar with the candidate’s geographic history—you may need to run numerous state and local criminal reports depending on how frequently the prospective employee has relocated.

For companies employing those with extensive company-owned vehicle responsibilities, a DMV check could be required by your insurance provider. Your coverage could be at risk if you employ any individuals with poor driving records and place them in a position where they will be driving a company vehicle.

Credit checks should be considered for those who will have access to financially sensitive areas or bank accounts. Applicants who have trouble balancing their own finances may pose a greater risk to your organization. Transcripts, professional licenses and accreditations should be verified if these credentials are critical to the position. Finally, many organizations require drug screening during the hiring process as well as periodic testing thereafter. Discovering a problem before it becomes your responsibility can save your organization financially as well as protect your reputation.

Obstacles and Challenges

Performing criminal and credit checks on prospective employees could present some legal challenges.

Limitations or inconsistencies about how different counties transmit data through their respective state’s criminal databases complicate running certain criminal verifications. Some states’ searches may reveal convictions only, not charges or arrests.

There are also legal implications to running these reports. Certain provisions set by The Fair Credit Reporting Act and The Equal Employment Opportunity Commission could be applicable. These acts may require prior consent by the candidate and may contain rules about how certain criminal records are used in denying employment to a candidate.

The DMV allows different levels of access to those verifying information. The lowest level may disclose certain infractions during the past few years, while a more thorough verification will reveal more detailed accident and personal information.

Many professional organizations allow verifications of professional licenses and accreditations in good standing without consent. But, the disclosure of infractions, complaints or suspensions may require more than a simple inquiry. Drug testing should be conducted on a confidential basis by a professional lab in a controlled environment to ensure its reliability.

Adding employees to your company is an important process. Hiring the wrong employees could result in a financial nightmare. Consider retaining a professional background investigation firm to help you achieve the most accurate results and avoid potential legal exposure to your organization.

James I. Marasco, CPA/CFF, CFE, CIA Jim is a partner at EFPR Group. He brings more than 18 years of public accounting and auditing experience. He is a full-time management consultant and travels extensively throughout the country while leading StoneBridge Business Partners (an EFPR Group affiliate company). Article republished with the permission of CPAmerica.