Background checks Featured

8:00pm EDT March 26, 2007
With respect to internal controls, an ounce of prevention is worth a pound of cure.

Although effective internal controls are a necessity for any business, no system is completely free from manipulation. One way to reduce the risk of an employee defrauding a company is to prevent potentially problem employees from gaining access to a position of trust or authority by performing a background check on the individual.

Smart Business talked to W. Clay Busker, senior forensic manager at Tauber & Balser, P.C., about background checks.

How have background checks changed over the years?

Traditionally, the human resources department of a company would scrutinize a candidate’s résumé. However, two factors have led companies to out-source this activity.

First, litigation against former employers has significantly curtailed the amount and nature of information many companies will release about a former employee. Some companies will not provide more than a simple acknowledgement that the person did work at the company, thereby reducing the effectiveness of verifying the résumé.

Second, the digitization of large quantities of public records data has greatly expanded the amount of readily available information. Now, it is possible to expand the investigation of the candidate beyond what is included on the résumé to such information as criminal record, credit history or driver’s license status. The expansion of available data has resulted in specialized third-party providers being able to obtain more accurate background information faster and much more cost-effectively.

Isn’t it standard procedure for most companies to perform a background check on new hires?

For many jobs it is. However, the nature or extent of the background check is often a one-size-fits-all-type approach. For example, the background check of a senior level employee, who has more ability to defraud a company, is typically the same as that performed for an entry level clerk.

So companies need to tailor the background check to the level of the employee?

Yes, the more authority or trust required by the position, the more thorough the background check should be. For example, you may perform a criminal record search for all of the previous counties/states a senior level candidate has lived in instead of just the current one. The additional information about the candidate would be worth the marginal increase in cost.

Furthermore, I have seen numerous instances where companies do not perform background checks of senior-level employees. When a company is promoting from within, a background check is almost never performed. Even if a background check was performed on an employee at hiring, the current financial or legal situation of the employee would be revealed by a new background check. Knowing this type of information may have an impact on a company’s decision to promote a current employee to a position of greater trust or authority.

Another time companies frequently don’t perform background checks is during a merger or acquisition. Even if the backgrounds of the principals of the merged/acquired company are investigated, those of the other senior-level employees may not be. Since the other company hired these individuals, you may not be aware of what type of check, if any, was performed, or the results of these checks. Even if the results of these checks are included in the personnel file, the person’s situation may have changed from the date of hire.

Does it hurt morale to request internal candidates to undergo a new background check?

If this is a company requirement or standard procedure for filling this position, and not presented as a special circumstance for that one employee, it shouldn’t have any impact. Furthermore, publicizing this policy may have the additional effect of discouraging potential problem employees from applying for positions where they would have an increased potential for defrauding the company.

W. CLAY BUSKER is a senior forensic manager with Tauber & Balser, P.C. in the Forensic Accounting Services Group. He has more than 10 years of professional experience providing forensic and investigative accounting, internal corporate investigations, damage calculations, corporate restructuring and due diligence services to clients. He has worked with both publicly traded and privately held companies of all sizes in a variety of industries. Reach him at cbusker@tbcpa.com or (404) 814-4934.