Are background checks necessary? Is it okay to skip them? What happens when you do? These are questions that are worth asking if you run a business in the US, because the answers can help you avoid some pretty serious consequences.
94% of employers report running some kind of background screening. When something seems so common and operates in the background, it’s easy to take it for granted. But it’s important to remember that workplace safety, theft, brand damage, company culture dysfunction and negligent hiring claims can all be outcomes of not conducting background checks. Therefore, it’s also important to have a documented pre-employment screening policy.
Here’s a closer look at what risks you expose your business to if you skip thorough background checks.
Background Checks for Workplace Safety
According to the latest data by the U.S. Department of Labor Occupational Safety and Health Administration (OSHA), “Some 2 million American workers are victims of workplace violence each year.” According to OSHA, employees in the health care and social services fields who regularly interact with the public and those who deliver goods in exchange for cash face an increased risk, but interactions with the public aren’t the only source of workplace violence. Fellow employees can also cause harm to their coworkers.
There are financial implications from workplace violence too. In 2019, the American Federation of Labor and Congress of Industrial Organizations (AFL-CIO) reported that workplace violence costs American businesses an average of $250 to $330 billion annually.
Background Checks for Due Diligence
The cost of hiring, training, and replacing a bad hire typically amount to a third of their salary. On top of that, approximately 9% of bad hires lead to legal troubles. So doing your due diligence during the hiring process saves you money, and can even save you from more serious problems too. In fact, studies show that “Negligent hiring lawsuits are extremely costly to defend, and if the plaintiff is successful, a multimillion dollar award is not uncommon.” For small to medium businesses, these kinds of situations can spell disaster.
On top of that, the Association of Certified Fraud Examiners’ 2022 global report entitled Occupational Fraud 2022: A Report to the Nations uncovered that businesses with fewer than 100 employees reported $150,000 in median losses from internal thefts and fraud.
Doing your due diligence to prevent these kinds of problems involves properly vetting employees by conducting background checks, checking their references, and verifying their work history and credentials. Without it, you open up your company to all kinds of financial risks.
Protect Against the Risk of Harm and Negligent Hiring Lawsuits
Imagine hiring a driver without checking their driving record. Because you skipped their background check, you don’t know that they’ve had several recent DUIs. Several months later, they cause a fatal accident while working under the influence and kill a coworker in the vehicle with them. Will your insurance policy cover the damage? Will you be sued for negligent hiring? Will your company survive the financial and reputational damage it incurs? How will you notify the victim’s family, knowing that your lack of oversight put their loved one at risk?
The cable company Charter Communications, for example, was ordered “to pay more than $7 billion for the murder of an elderly woman who was killed by one of its service technicians in her home” due to its failure to conduct an adequate background check on an employee.
In another case, the company AJD Business Services was ordered to pay $1 billion for the death of a student killed in a semi-truck crash. According to reports, “The jury agreed the company did little to nothing toward safety and background checks before letting their driver behind the wheel.” By conducting background checks on your new hires, you can avoid these kinds of risks.
How to Protect Assets Using Background Screening
Any position will involve dealing with some type of company asset, whether that asset is a laptop, merchandise to be sold, or cash from customers. Theft or damage to those assets can have a significant impact on a company’s bottom line. In fact, in the United States, employee theft is responsible for:
- Costing businesses $50 billion annually
- Approximately a third of business bankruptcies
- 33.2% of retail inventory shrinkage
These types of incidents are also on the rise, according to the Society of Human Resource Management and the Report to the Nations: 2018 Global Study on Occupational Fraud and Abuse by the Association of Certified Fraud Examiners (ACFE). The report found that, “The theft of noncash property jumped from 10.6 percent of company fraud cases in 2002 to 21 percent in 2018.”
How Background Checks Protect Against Theft
Background checks are one tool you can use to help prevent workplace theft. Here’s how each type of background check helps to protect your company’s assets:
Criminal Record Checks
There are several different kinds of criminal record checks.
A Single County Criminal Search, for example, includes:
- Social Security Number Validation with Address History Trace (SST)
- Sex Offender Search
- Global Terrorism, Fraud, Sanctions, and Security Watch Lists
- National Criminal Database Search
- Residential County Search
- Federal Statewide Criminal Search
An Unlimited County Criminal Search, by contrast, includes all of the above, plus unlimited residential county searches. Through these background checks, you can learn more about a candidate’s criminal record and potentially uncover a history of prior theft.
Reference checks involve contacting a previous employer, either by phone or email, to gain more information on a particular candidate. This information can help you learn more about how they performed in their previous role and if they are a reliable individual that you can trust.
Credit checks are useful when hiring for certain roles in finance. How so? According to SHRM and FinancesOnline, the top two red flags that a prospective employee might commit theft are living beyond their means (at 42%) and financial difficulties (at 26%). By conducting a credit check, you can uncover these types of red flags. Note that access to credit checks for employment may be limited to certain employment situations by law in some jurisdictions. Be sure to be aware of those laws if you are requesting credit checks.
Top Reasons To Use ID Verification
ID verifications can also help protect your company from malicious parties using stolen IDs to gain access to systems and sensitive information. According to SHRM, “Once on the job, these individuals can gain access to data and systems, release ransomware, or obtain the credit card information or Social Security numbers of customers or employees.”
According to IBM’s annual Cost of a Data Breach report, malicious insiders account for approximately 8% of all data breaches, usually incurring costs of $4.81 million USD each time. By using ID verification, you can add a layer of security to your organization and help protect it and its assets from these types of threats.
SOC 2 Compliance
As we’ve covered in other blog posts, SOC 2 compliance is an important designation to have, since it demonstrates a commitment to data security. Developed by the American Institute of Certified Public Accountants (AICPA), SOC 2 is a voluntary auditing procedure that signals to your clients that you do your due diligence when it comes to keeping their data safe. Not having it could negatively impact your brand’s reputation and erode trust with your clients.
For SaaS companies, it’s not just a nice-to-have: It’s an essential designation. According to IBM’s Cost of a Data Breach 2022 report, vulnerabilities in third-party software accounts for 13% of data breaches, and cost on average $4.55 million USD. This means that no client will want to purchase services from a vendor that can’t demonstrate a commitment to security. If you aren’t SOC 2 compliant, then your clients can’t be either. You’ll both be vulnerable to security breaches.
Conducting background checks on new hires is an important part of gaining SOC 2 compliance. In fact, it’s a requirement. So if you skipped out on doing background checks, then you won’t be able to become SOC 2 compliant. And all those clients who might have purchased your services will look elsewhere.
How Do You Account for These Risks While Enacting Fair Chance Hiring Policies?
The consequences of not doing background checks can be pretty scary. But many American employers believe that doesn’t always mean you should avoid hiring candidates with a criminal record.
According to one study, “More than 80% of managers and two-thirds of HR professionals feel that the value workers with criminal records bring to the organization is as high as or higher than that of workers without records”. Hiring candidates who have a criminal record, therefore, can be an important part of your talent acquisition strategy depending on factors such as the nature of your business and depending on the nature of what background screening reveals.
So, how can you?
Look for “green flags”, such as:
- The nature and gravity of the offense
- The amount of time elapsed since the offense
- The nature of the job
- If they have done similar work in the past without incident
Taken together, these factors help you feel confident in the hiring decisions you make.
Conclusion: Skipping Background Checks Isn’t Worth the Risk
Skipping out on background checks might sound like a good idea, but it opens you up to all kinds of risks and problems that can be extremely difficult to tackle. Without background checks, you could:
- Be at risk of negligent hiring claims
- Be vulnerable to theft and fraud attempts
- Be unable to gain SOC 2 compliance
Of course, if you’re going to conduct background checks, you want to make sure that you do so in a manner that is fully compliant. Certn has a 100% compliance rating on G2.
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Legal disclaimer: The information contained within this blog is for general informational purposes only and does not constitute legal advice. Employers should consult with their own legal counsel regarding their responsibilities under the Fair Credit Reporting Act and other applicable laws.