VideoAfter her interview with a large accounting firm, Lila Beckford got a verbal offer for a job as a senior financial consultant. Told to expect a written offer pending a background check, she signed the required authorizations allowing her potential employer to search her credit reports, criminal background, references, and other data sources.
Then she got a call. The background check had turned up a "blip": a civil suit had been filed against her. The manager apologized profusely, but explained that the firm couldn't make a written offer until the case had been resolved. The problem was, says Beckford, she hadn't been sued. The true subject of the lawsuit was the current resident at Beckford's previous residence. The background-screening company had made an error. Once Beckford explained the mistake, the accounting firm checked again, and eventually offered her the job.
In response to 9/11 and the rash of accounting scandals, companies have increasingly relied on background checks for prospective employees. Generally conducted by a third party, basic checks include checks for a criminal record; date, source, and subject of educational credits; and dates and places of prior employment. But more and more often, companies are also gathering information on credit history, civil litigation, motor-vehicle record, even "mode of living" and character.
For some jobs, obviously, such extensive checks are essential. No one wants a taxi driver with multiple driving violations or an assistant controller with a record of bounced checks. But given how many more background checks are being conducted — ADP Screening and Selection Services reported a 65 percent jump between 2001 and 2004 — companies may be going overboard.
Apart from the philosophical question of whether this practice violates an applicant's right to privacy, widespread use of elaborate background checks poses several problems for employers. First, errors are common; in fact, screening companies are required to warn their customers of that possibility. Second, theft of confidential information may leave employers vulnerable to lawsuits. And third, to a surprising degree, background checks fail to identify potential wrongdoers, while disclosing much information that is irrelevant to job conduct.
What's Job Related?
In Beckford's case, employment experts say the company should probably not have cared even if the suit had been filed against her. (Beckford's employer declined to comment.) The Equal Employment Opportunity Commission, which enforces antidiscriminatory employment laws, has stated that any fact an employer uses to deny employment should be job related, and experts think that civil suits usually don't pass the test. "I don't believe that civil searches are job related," says Barry Nadell, president of Chatsworth, California-based InfoLink Screening Services. "If you do a civil search, you have to be ready to defend the job-related aspect of it. I see a lot of employers gathering information even though they can't explain why they need it," says Philip Deming, principal of Philip S. Deming & Associates in King of Prussia, Pennsylvania, a security and human-resources firm.
"Using any of the search services," like LexisNexis, says Deming, "you can get information on whether a person has ever had a foreclosure, been sued or arrested, or if he lives with someone he isn't married to — data that isn't relevant to a job but still makes an impression on a potential employer."
Oddly enough, a Society for Human Resource Management survey shows that, overall, employers are moving away from examining an applicant's actual work history and are turning instead to credit, criminal, and character data checks before hiring. In 1996, 92 percent of employers checked references and 84 percent checked work history. In 2003, both of those numbers dropped significantly (to 80 and 79, respectively). In their stead, 80 percent of companies that conducted background checks in 2003 did criminal checks, compared with 51 percent in 1996. Credit checks rose from 19 percent in 1996 to 35 percent in 2003.
Chalk it up to fear of liability. Although in practice it is difficult for an ex-employee to sue an ex-employer over a negative reference, companies have shied away from sharing more than dates of employment with prospective employers, because of the perceived potential for a lawsuit. Companies also fear a "negligent hiring" lawsuit if they have failed to complete due diligence on an employee who later commits a crime on the job. The problem cuts both ways. "Let's say the employer does the due diligence and gets a lot of info on a potential hire," says Deming. "Now, there's a lot of information sitting in a file about that person. If the employee commits a crime and someone sues, the first thing the defense expert is going to ask is, 'What information is available in the HR file?'" Costs associated with such litigation can run to the hundreds of millions of dollars.
Crime Predictors
To date, no organization has ever produced empirical evidence that background checks can reduce the incidence of fraud. In fact, the cost of employee fraud has remained steady since 2000, at about 6 percent of GDP, according to the Association of Certified Fraud Examiners (ACFE). A study by that group in 2004 reveals that most corporate fraud is committed by first-time offenders; only 12 percent are repeat offenders.
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