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Management Research Review
Vol. 33 No. 3, 2010
pp. 210-223
# Emerald Group Publishing Limited
2040-8269
DOI 10.1108/01409171011030372
Beyond the basic background
check: hiring the ‘‘right’’
employees
Richard G. Brody
Department of Accounting, Anderson Schools of Management,
University of New Mexico, Albuquerque, New Mexico, USA
Abstract
Purpose – The purpose of this paper is to explore the various methods available when conducting a
pre-employment screening investigation in attempt to hire honest employees, those less likely to
commit fraud against their organization. While many companies perform the most basic type of
background chec k, this paper suggests that companies need to go beyond the basics when hiring its
employees.
Design/methodology/approach – By reviewing the existing literature and conducting interviews
with experts in the area of background investigation services, the paper makes suggestions for
companies to follow.
Findings – Merely relying on the most basic background check may lead to the hiring of the wrong
employee, one likely to commit fraud. Companies should consider performing other screening
techniques before hiring an employee.
Practical implications – Background checks have become a widely-recognized method of pre-
employment screening. However, these checks are just one part of the employee selection process and
companies should understand both the practical and legal implications of conducting additional
testing.
Originality/value – The guidance provided in this paper will aid companies in the pre-employment
selection process. Both basic and more advanced techniques are discussed and companies can choose
any or all of the recommended methods.
Keywords Recruitment, Assessment, Asset protection, Human resourcing, Fraud
Paper type General review
When Philip Crosby Associates Inc. (PCA) hired John C. Nelson as director of finance to head
its international division, the business educational training company thought the man had
impeccable credentials. He graduated with an MBA, was a CPA, and had a glowing
recommendation from his previous company. But Nelson siphoned money from the company
by photocopying the chief operating officer’s signature and affixing it to contracts he created
and showing the bookke eper only copies of those contracts. In total, the former director of
finance wired $961,000 from PCA to dummy companies he set up. When PCA uncovered this
embezzlement, it also made another discovery: John C. Nelson was actually Robert Liszewski.
Unbeknownst to PCA, Mr Liszewski had served 18 months in prison for embezzling $400,000
from a bank before taking on the position of director of finance at their company (Albrecht
et al., 2006).
Introduction
It is both prudent and wise for companies to invest in ways to protect their assets by
hiring honest employees. As indicated in the above example, the effect of not doing so
can be quite damaging. The Federal Bureau of Investigation (FBI) defines white collar
crime as ‘‘those illegal acts which are characterized by deceit, concealment, or violation
of trust and which are not dependent upon the application or threat of physical force or
violence. Individuals and organizations commit these acts to obtain money property
or services; to avoid the payment or loss of money or services; or to secure personal or
business advantage’’ (Barnett, n.d., p. 1). According to the National Incident-Based
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/2040-8269.htm
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Repo rting System, between 1997 and 1999, white collar crime accounted for about 3.8
percent of all incidents reported to the FBI and the majority of those offenses are fraud
cases and counterfeiting and or forgery (Barnett, n.d.).
Most research, including a study that was conducted by noted criminologist Donald
Cressey, shows that fraud perpetrators are not care er criminals, and a survey of 1,134
Certified Fraud Examiners showed that less than 8 percent of perpetrators had prior
convictions (ACFE, 2006). While the researc h in this area is limited, data have shown
that recidivism rates for white collar offenders are significantly lower than those of
street criminals (Shover and Hochstetler, 20 06). However, these authors also suggest
that one reason for this lower recidivism is that victims are often unaware that they
have been victimiz ed and, as a result, any new crimes that are committed are less likely
to be reported.
Problem: corporate corruption
Corporate corruption comes in many for ms, but unethical or criminal acts committed
by upper management can often bring down an entire organization (Murphy, 1993).
These acts includ e price fixing, blatant disregard or the safety of the public, fraudulent
warranties, bribery, and theft. Whether executives commit crimes on behalf of the
organization or against the corporation, the losses as a result can be staggering.
Statistics show that US organizations lose 5 percent of their annual revenues to fraud
and that this translates to approximately $650 billion in fraud losses (ACFE, 2006). The
ACFE study also reports that occupational fraud schemes (where a perpetrator uses
his/her job for personal enrichment through the deliberate misuse or misapplication of
the employing organization’s resources or assets) can be very difficult to detect and
that the median length of the schemes in their study was 18 months from the time the
fraud began until the time the fraud was detected .
Within occupational fraud, there are three categories: asset misappropriation,
corruption and fraudulent statements. A study using data from the ACFE found that
the perpetrators in fraudulent statement frauds tend to be white, educated males in
their 40s who held managerial or executive positions in their organizations (Holtfreter,
2005). Individuals who committed asset misappropriation and corruption were ‘‘middle
class’’ offenders and equally likely to be male or female, and did not differ significantly
from each other in their levels of education. Although asset misappropriation was
committed more often in smaller organizations, likely due to more relaxed internal
controls, the same study found that corruption occurred in larger and publicly traded
companies.
Interestingly, while one might expect that frauds will be uncovered by auditors, the
ACFE repor t (ACFE, 2006) reveals that frauds are most commonly discovered by tips
(34.2 percent) or by accident (25.4 percent). However, even after a case has been
detected, many companies are reluctant to report fraud o r press charges for fear of bad
publicity. The corporate fraud scandals caused by top officers at public comp anies
such as Enron, Tyco, WorldCom and HealthSouth are good examples of the negative
publicity that can occur, and it is high-profile cases like these that may, in fact,
discourag e other organizations to report fraudulent activities by top management.
Other victimized companies declined to prosecute as they thought that their internal
discipline was sufficient or the litigation was too costly and yet others were hoping to
reach a private settlement. Meanwhile statistics show that those companies that
attempt to seek a private restitution agre ement were only able to recover, if at all, a
small percentage of their losses (ACFE, 2006).
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All of these statistics point to a need for companies to practice due diligence, and
the most cost-effective way to deal with fraud is prevention. Once fraud is detected,
success at loss recovery may not only be limited, but it can be very expensive and
time-consuming (Murphy, 1993).
The perpetrator
A survey of inmates in the 1950s by Cressey found that nearly all fraud per petrators
shared three common traits: a ‘‘hidden’’ financial motive, a perceived opportunity to
commit fraud without being detected and an ability to rationalize the behavior (Wells,
1990). The opportunity to engage in such behavior usually comes from the position the
per petrator holds. Managers or executives may not be more or less hones t than entry-
level employees, although they do have more opportunities to steal more by virtue of
the fact they have more control over company assets.
Cressy’s research (as cited in Murphy, 1993) on what drives people into committing
white collar crimes found that executives are often under pressure to produce results,
and the fear of failure causes them to succumb to the temptation of using dishonest
means to achieve those results. They also often rationalize tha t their illegal or
dishonest behavior is acceptable. Many often have hidden financial problems or a
secret such as a substance abuse habit or gambling losses. Greed is often a motive.
Some people are addicted to making more money and achieving success, and as avarice
grows, it triggers a vicious cycle.
Even with the enactment of the Sarbanes-Oxley Act of 2002 (specifically, Section
302) requiring management to take responsibility for ‘‘establishing and maintaining
internal controls’’ and to certify that they ‘‘have designed such internal controls to
ensure that material information relating to the company and its consolidated
subsidiaries is made known to such officers by others within those entities’’, controls
may still be ineffective in detecting fraud cases committed by owners or senior
executives, given the level of authority they have to override controls. Once again, the
position a perpetrator holds within a company tends to have an effect on the extent of
losses in a fraud case. Generally, as the level of authority rises, the loss increases. The
2006 ACFE survey showed that the median loss ($1,000,000) in schemes plotted by
owners/executives was five times as high as losses caused by ma nagers and more than
13-fold the medi an loss in ones cause d by employees. In addition, the survey found a
direct correlation between the length of time of employment of a perpetrator and the
size of loss. The longer an employee is in a company, the greater degree of trust he or
she will earn from the company and the greater the likelihood of advancement to
higher levels of authority.
The results of the ACFE survey show how important it is fo r a company to have in
place senior execu tives of utmost integrity who will then set the tone for the corporate
culture. The first step in preventing fraud and managing risk is in the hiring of the
right leaders and workers.
Prevention: pre-employment screening
Background check
Prior to Congress passing legislation prohibiting the use of polygraphs and voice stress
analyzers in the private sector in pre-employment screening, these techniques were
routinely used to weed out dishonest candidates. Now, the more commonly used
approach is the background c heck, some form or other of which is used in 96 percent of
all organizations (Shep ard and Duston, 1998). Given an incre ased number of companies
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are now conducting background checks on potential employees, applicants’ lies are
more likely to be detected ( Wood et al., 2007).
On its web site, the Association of Executive Search Consultants (AESC) provides
several relevant definitions as well as the varying levels involved with a ba ckground
check. It is designed to ensure the accuracy of infor mation provided by the candidate. It
may include a reference check, an employment history check, educa tional and
professional credentials check, criminal record check and media check (AESC, 2006).
Resume verification
Executive recruiter s have started to hire private investigative companies such as
Pinkerton Inc. and Kroll Inc. to conduct in-depth checks into senior executives (Reason,
2003). The rise in background investigations can be attributed, in part, to the very
public news of high-profile individuals accused of fraud and wrongdoing. Some
company leaders have had to resign after it was determined that they submitted
resumes with fictitious information. RadioShack’s chief executive officer David
Edmonson stepped down after it was revealed that he didn’t have degrees in theology
and psychology, as he claimed (CBS News, 2006). While not the CEO of a large
corporation, George O’Leary had to resign from his head football coac h position at
Notre Dame after it was revealed that he falsely stated that he was a three-time
letter man in college and that he had earned a masters degree in education
(MSNBC.com, 2004).
One company that ‘‘help s clients reduce their exposure to global threats, seize
opportunities, and protect employees and assets’’ is Kroll (www.kroll.com). Kroll offers
background chec k services and as described on their web site, ‘‘Kroll’s Background
Screening division helps companies and government agencies verify the backgrounds
and resumes of potential new hires. In background checks, accuracy is critical and
Kroll maintains a more than 99 percent accuracy rate by adhering to a strict company-
developed Quality Assurance Program, which ensu res that information gathered is of
the highest quality and accuracy’’. One component of the background screening
process deals with an applicant’s educational history. Resume embellishment is not all
that uncommon. Buckley (as cited in Mu rphy, 1993) cites a report from a committee of
the House of Representatives that one in three applicants falsifies information in their
resumes.
Kroll’s background investigation department ( J. DeLoach, Senior Vice President of
Strategic Initiatives and Background Screening for Kroll, personal communication,
October 10, 2006) observes that most misstatements in resumes are largely minor
misrepresentations from a mistaken recollection of the exact date of employment or
graduation da te. Many people also exaggerate titles, duties or responsibilities in
previous positions. Someone may claim that he led in a divisional turnaround, from a
$3 million loss to a $2 million profit. A quick call to the company will verify the
information, and there may be a difference in opinion in the semantics, e.g., whether the
individual ‘‘contributed’’ or ‘‘led’’ in a turnaround.
The more serious misrepresentations would include listing academi c degrees or
awards that were never earned. Association of Executives Consultants President, Peter
Felix (personal communication, October 23, 2006), said it is not uncommon to hear of
senior managers being fired for falsely listing an Ivy League degree never earned.
While it may be difficult to tell how much is intentional or just an honest mistake,
background searches may or may not ever uncover the truth. Because job applicants
know this, they are often willing to take the chance to embellish their accomplishments.
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At the upper levels of management, recruiters usually request more tho rough
searches. Typically, an employer who is looking to place a board level candidate would
check all prior employment, full academic history post-high school, and any
qualifications, certificates or activities or professional qualifications that candidates
report on their resume (J. DeLoach, personal communication, October 10, 2006). This
could be anything from a professional distinction, to an award that has been won, or
any philanthropic or volunteer activity that individual is representing about himself.
Investigations should include looking into the status of any professional licenses o r if
candidates were subjects of any disciplinary action in the past. A star attorney in a
reputable Chicago law firm, who quickly rose to partner, was found to have been
practicing law for ten years without graduating from law school and with no license
(Shepard and Duston, 1998).
In the case of Philip Crosby Ass ociates Inc., above, it had to pay dearly for the
mistake of hiring John C. Nelson. A quick call to the Illinois state accountancy board
would have found that he was never issued a CPA license and that the license he had
hanging on his office wall was one that he produced on his home computer. In most
states, this information can be verified online fo r no cost. Thus, a small amou nt of
effort can provide critical information to an employer.
Media search
DeLoach (personal communication, October 10, 2006) also suggests that at the
executive level, extensive media searches – how the individual has appeared in the
press either in his or her professional life or in his or her philanthropic or personal life –
be conducted. Positive publicity weighs favorably for the candidate. If an individual
served in some capacity in a publicly held company, research can be done on the
financial health and the reputation of the business during that executive’s tenu re there.
This would inc lude the performance of the company and how it was perceived by
shareholders and the public.
Credit check
Most background investigations include checks into an individual’s credit report. A
company would want someone who is both in good financial standing and financially
responsible as a chief financial officer. Alarm bells go off if an individual has declared
bankruptcy, has been caught violating tax laws, or has judgments, liens or foreclosures
against him/her. Candidates who are living beyond their means also are incentivized to
steal to carry on with their lavish lifestyles (Tristar Investigation, 2006). As mentioned
earlier, excessive financial burden that a person has coupled with oppo rtunity may
have an influence on or lead someone to an unethical undertaking. The financial
pressures would include a very messy and expensive divorce, which can be found via a
civil record check, or excessive leverage on a house.
In accordance with Section 615 of the Fair Credit Reporting Act, if an applicant
is denied employment based on information within the consumer report, then the
individual must be informed of the denial and the employer must provide the name,
address, telephone number of the consumer repor ting agency that furnished the report
(Fair Trade Commission, 2004). Further, the employer must info rm the applicant that
he/she has the right to obtain a free copy of the report and dispute the accuracy of any
information within that report. It should be noted that the FCRA requires the employer
to get a potential employee’s written consent before seeking their credit report and that
the refusal to give this permissio n may serve as a red flag.
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Reference check
Executive search firms often conduct reference checks, collecting information about
the candidate’s reputation in the job, their competency and what their peers, bosses and
subordinates think of them (P. Felix, personal communication, October 23, 2006).
References or people who have been supplied as sources of references by candidates
can also be invaluable in the process of questioning. However, one should not be
sur prised when references of the candidate provide positive feedback; the references
have likely been chosen because the candidate believes that this is what will happen.
The fear of defamation and privacy lawsuits causes many former employers (often
listed as references by the candidate) to be reluctant to reveal information other than
the date of employment and title, which frustrates efforts of companies trying to get a
candid assessment of a potential candidate (Shepard and Duston, 1998). To circumvent
this, some search firms are willing to grant confidentiality to a previous employer who
requests to speak off-the-record (P. Felix, personal communication, October 23, 2006).
While this confidentiality may, in fact, be granted, many former employers are not
willing to take the risk and will default to the most basic employment information.
In the previously mentioned Philip Crosby Associates case, the company failed to
properly verify all of Nelson’s references, and instead just blindly accepted a written
reference which was provided by his wife, then a part-time employee with Nelson’s
‘‘previous employer’’ ( Albrecht et al., 2006).
In the course of an investigation, if it was discovered that someone was accused of
wrongdoing from which charges were never pressed, then it would be up to the search
consultant’s judgment whether to reveal the information to the client based on what he
has learned about the candidate so far, so as to present a balanced view (P. Felix,
personal communication, October 23, 3006). If the charges were not substantiated and
there was no evidence of wrongdoing, and the accusations were not proven to be valid,
then that should be of little concern in evaluating a candidate. However, it would be
advisable and prudent to investigate further to see if there was any adverse pattern.
Also, the candidate should be given a chance to respond to the discovery. Felix asserts
that such cases are very rare compared to the number of executive searches conducted
in a year.
There is general consensus among recruiters and search firms that employers seem
to trust what top-level candidates say about their backgrounds and are not as worried
about due diligence and thoroughly checking the information provided. The reasons
provided have been either it is impolite to conduct a background screening because of
the level of responsibility or it is implied that executives are more trustworthy for the
same reason (Mende, 2004). Firms that make exceptions to an investigative report for
upper management not only risk making a bad hiring decision but could face serious
losses if the individual turns out to be a fraudster. In the interest of fairness, and to
avoid p otential legal issues, if the company’s policy is to conduct investigative
background checks on all employees, there should be no exceptions made.
Criminal history
Smith and Wesson Holding Corporation found out through a newspaper headline that
its chairman had spent tim e behind ba rs for a series of ar med robberies and an
attempted prison break. Granted, James Joseph Minder paid his debt to society and had
since turned over a new leaf. As nobody asked him about his past, he did not tell
(CNNMoney.com, 2004). It would have served Philip Crosby Associates well to have
conducted a criminal record check on Nelson, for it may have uncovered his time in jail
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for embezzlement. A motor vehicle license check would have revealed that John C.
Nelson was an elderly man who used to work for Liszewski. Liszewski was a manager
named ‘‘Bruce Fox’’ at the bank he defrauded ( Albrecht et al., 2006).
In an effort to curb employee theft, fraud and white collar crime, in 1984, Boise
Cascade Corp. decided to revamp its pre-hiring screening methods. It now routinely
runs criminal background checks of all employees in pre-employment scre ening, after
discovering that former employees fired for theft had existing records that were
unknown to the com pany. In a test project under the new p olicy, it found that 5 percent
of job applicants had criminal reco rds. Boise Cascade did not offer jobs to these people
(Shepard and Duston, 1988). Similar statistics were found in the 2003 and 2004 reports
released by ADP Employer Services, a division of Automated Data Processing, Inc.
(Business Wire, 2005).
Many companies have also added criminal background checks to the pre-employment
screening process, but, unfortunately, there are several limitations associated with these
searches. While there are hundreds of web sites on the internet which offer extensive
criminal history investigations for a fee, many of them are incomplete and offering
minimal information even after paying a large subscription fee. The information gleaned
from a computer search is simply a faster way to search public records. But because there
is no national system that will provide all of the information that should be reviewed, a
criminal record will not always be found. Even worse, sometimes cases are not entered
into public record for months or years after the case has been litigated. ‘‘Criminal database
searches can be used as one component of a robust criminal background screening
program’’ (ADP, 2007), and multiple levels of searches are often necessary. Thorough
background checks are time-consuming, and far more difficult than typing information
into a computer database search engine; of course, just as there is the deterrent effect of a
proactive fraud detection program, the mere threat of conducting a criminal background
check will discourage many ‘‘undesirables’’ from applying for a position.
Driving record
An individual’s driving record can say a lot about an applicant’s honesty, and it is a
relatively inexpensive search (Shepard and Duston, 1998). Such searches list any
violations of traffic and safety laws as well as suspensions and revocations, and also
can be used to cross c heck personal information. A drug or alcohol abuse pattern may
also be revealed if there is are driving while intoxicated or reckless driving convictions.
A flagrant disregard of the law may spell trouble in the futu re.
Responding to discrepancies
What happens when a discrepancy is found during the course of a background search?
It de pends on the client because every client has unique tolerances and it also depends
on how much the client likes the candidate. For instance, a candidate may have listed a
CPA license on his resume but as it turns out, the license is inactive. One client may be
uncomfortable with this and end discussions, while others may be more willing to
forgive the mistake. Very often, search companies are not informed of the final decision
made by the client after the information has been submitted to the client. However, a
2002 study of small businesse s and Fortune 100 companies indicated that only 36
percent of respondents fired employees after uncovering a lie on their job applications
(Prater and Kiser, 2002).
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Honesty/integrity testing
While an applicant’s past records can be gleaned from a background investigation or
an application fo rm, honesty or integrity tests may be used to predict honesty in the
future. It can be especially useful when past records are incomplete, inaccessible or do
not reveal much about a candidate. Honesty tests are written psychological tests
designed to identify job applicants who have high propensities to steal money or
property on the job or who are likely to engage in behavior of a ‘‘counterproductive’’
nature, including tardiness, sick leave abuse and absenteeism (Wiley and Rudley,
1991). These tests, also known as integ rity tests, are purported to measure a person’s
attitude about integrity and predict the likelihood of theft (Guastello and Rieke, 2006).
Test publishers assert that job applicants who have a more tolerable attitude about
dishonesty are more likely to be dishonest than those who are less tolerant (Shep ard
and Duston, 1998).
Every year, US organizations administer nearly thre e million paper and pencil tests
in pre-employment screening to find out applicants attitudes about rule compliance,
impulse control and counterproductive behavior (Pawlowski and Hollwitz, 2000).
Advocates for such tests argue that the validity of the tests is high and unless new
research shows otherwise, these tests are something companies should continue to
conduct and invest in to protect assets (Steiner, 1990).
The results of the Reid Report revealed that ‘‘30 percent of employees will not steal
or tolerate stealing, 40 percent will not steal if there were reasonable internal controls,
and 30 percent are incurable thieves and will create opportunities to steal’’ (Shepard
and Duston, 1998, p. 22).
Most honesty testing, such as the Reid Repor t, Stanton Survey, or Personnel
Selection Inventory, is largely written and designed for entry-level job applicants. Still,
executives can be made to take similar tests such as Management Readiness Profile or
Management Success Profile. To be fair, these tests are less established and focus more
on other leadership qualities, with business ethics making up only a small portion of
the entire test.
In 1990, a study by the now defunct Congressional Office of Technolog y and
Assessment (OTA) found that research on such tests does not support or dismiss the
assertion that they predict dishonest behavior. A year later, the American
Psychological Association countered that these tests do reflect aspects of personal
integrity, dependability and trustworthiness (Murphy, 1993). One cannot refute that
these tests have been used for more than 50 years in both the public and private sector.
The use of these tests to screen job applicants is not without controversy. There are
concerns that an applicant may be misclassified, and test results may cause erroneous
inferences to be made about an individual, who may be denied employment. Although
Murphy (1993) and others found that the tests lack adverse impact against women and
members of racial and ethnic minorities, there are still ongoing complaints that they
disfavor members of minority groups. Further, companies that administer these tests
may not have adequate personnel who are trained in acc urately interpreting results.
Another criticism is that the bulk of research, which shows high validity and
reliability, had been conducted by test publishers, and as such, results may have been
skewed. There have been far and fewer studies done by independent scholars (Shepard
and Duston, 1998), although research by Ones, Schmidt and Viswesvaran (as cited in
Sackett and Wanek, 1996) argues that there was no reason to doubt publishers’ in-
house studies on validity and the American Psychological Association’s ethical
standards. However, more recent research (e.g., Guastello and Rieke, 2006; Karren and
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Zachariasa, 2007) has reported the high incidence of false positives and marginal
validity associated with the honesty tests reviewed.
Lastly, civil libertarians c laim that paper and pencil testing violates privacy laws
and lacks protections from possible misuse of the information (Office of Technology
Assessment, 1990). In some states, they prevailed. Massachusetts and Rhode Island are
two of a few states that sp ecifically restrict the use of written honesty tests (Wiley and
Rudley, 1991). While similar bills were introduced in the New York and Oregon
legislatures, they were not passed (Sackett and Wanek, 1996). Although many of the
questions ask sensitive topics, none of the test publishers have been found to have
violated federal or state privacy laws, and advocates for such tests argue that since
validity of the tests is high and unless new research shows otherwise, these tests are
something companies should continue to conduct and invest in to protect assets
(Steiner, 1990).
Many recruiters repor t that board members’ and directors’ gut feelings about a
candidate sometimes cloud their judgments over the test readings. Executive hires are
often tapped by companies’ board of directors fo r their positions based on p ast
employment, leadership skills and personality. In addition, board members tend to
approach people who have been affiliated with top firms, automatically assuming they
are fit for the job (Krohe, 2006). These individuals may then escape the scrutiny that
should be a required part of the hiring process.
Another alternative to pencil and paper honesty testing would be a face to face
structured interview with the line of questioning focused on integrity. These interviews
raise the defensibility of pre-employment ethics screening by overcoming the
prohibition of written tests in some states (Pawlowski and Hollwitz, 2000).
Additionally, this method circumvents sophisticated executives from trying to guess
the ‘‘right’’ answer, or picking a dishonest response (Krohe, 2006).
There are two types of structured interviews in which applicants are asked open-
ended questions, in which there woul d be no ‘‘right’’ answer. The individual would be
made to reveal who they really are in their responses (Hollwitz and Pawlowski, 1997).
The first type is the situational interview, in which applicants are asked to respond to a
hypothetical scenario. It is also based on the assumption that intentions predict
behaviors. The second type is the behavioral interview, based on the assumption that
past behavior is the best predictor of future behavior. Here, applicants describe specific
instances from their experiences.
One added advantage to structured interviews is the oppo rtunity for the tester to
read the nonverbal cues of the applicant suc h as gestures, posture, and eye contact. A
trained interviewer may be able to detect evasiveness or uneasiness in a response and
can provide information about a person’s trustworthiness (Shepard and Duston, 1998).
According to Friedley (as cited in Shepard and Duston, 1998) certain nonverbal cues
such as fidgety behavior, foot tapping, ankle movement and frequent shifting of hands
or feet show stress, but that stress does not necessarily mean dishonesty. Because
every job interview is stressful, the key is to look for increasing signs of stress as the
interview progresses. It should be noted that most interviewers have very little training
in detecting deception and that signs of dishonesty are easily misread. Published
research in this area confirms this, and it has been noted that, ‘‘the conclusions from
this research are obvious – trained professionals and untrained layp eople, in general,
cannot tell when a person is lyin g’’ (Grohol, 1999, p ara. 16).
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As stated previously with respect to criminal background checks, the mere threat of
conducting honesty testing in any form may deter a large percentage of the ‘‘less
desirables’’ from entering the applicant pool.
Other technique s
Although unproven scientifically and generally considered to be highly contentious
with respect to validity, graphology (o r handwriting analysis) is used by some
companies. This technique is presumed to reveal an individual’s personality in his
handwriting. Some personality traits are predictive of success on the job in addition to
measuring only honesty or integrity (Murphy, 1993). Graphologists typically insist on a
spontaneous sample that is a brief autobiographical sketch or self-description so as to
yield the most accurate reading. Ben-Shakhar’s finding (as cited in Mu rphy, 1993)
showed that it is the content itself that reveals who the writer is, more so than the shap e
and size of the letters. Very often, professional graphologists and non-professionals
arrive at the same conclusion about an individual when content is being considered in
reading personalities. Mowbray’s research (as cited in Murphy, 1993) showed a
growing trend in the use of graphology in assessing candidates for middle and upper
management positions. Although it is not prevalent, the few companies that have used
this method rep orted success (P. Felix, personal communication, October 23, 2006), and
it is seen as less invasive than pencil and paper integrity tests. However, as mentioned
previously, there is little or no scientific evidence to support the use of graphologists, so
one should proceed with caution if c hoosing to rely on the results.
Murphy (1993) points out other pre-screening techniques, one of which is called the
self-report method. Here, an applicant fills out a weighted application form. Certain
items consistently discriminate those who steal or com mit dishonest acts from those
who do not, and those that clearly do are given more weight. A composite score is
obtained to predict future honesty. Some examples of those items include an individual
providing a post office box rather than using a home address, length of time at present
address, number of previous jobs, number of dependents, ownership of an automobile,
whether the applicant wants a relative contacted in case of an emergency. Once again,
this technique can be openly biased based on race, gender, or income level, and
employers who use this technique are at risk being sued under Title VII of the Civil
Rights Act of 1964. Still, Shepard and Duston (1998) point out that waivers are often
made for senior management if they submit a resume in lieu of a formal application,
which increases the risk for a company, as many applications require a job applicant to
put in writing information which would not be on a resume , such as a prior arrest or
conviction.
Legal considerations
Although most negligent hiring cases involve violence com mitted by workers,
companies should not ignore this liability in cases of fraud. In John W . White v.
Consolidated Planning (2003), the plaintiff sued the insurance company for negligent
hiring of the plaintiff’s son, who misappropriated funds from the plaintiff’s various
insurance and annuity products. The Court of Appeals in North Carolina held that the
trial court erred and that allegations were sufficient to assert the defendant could have
discovered the unfitness of its employee (the plaintiff’s son) had it conducted a
reasonable investigation prior to hiring him.
Companies should define the scope of the background investigation. The standard
industry search is a ten-year employment and criminal history and a list of addresses
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the person lived at within the same time frame. If the search company completes the
work for ten years and it was found an individual committed fraud 25 years ago, then
both the investigating company and client had acted in good faith and done what was
reasonable. There may not be much room for litigation to sue for negligent hiring ( J.
DeLoach, personal communication, October 10, 2006).
Employers can use ‘‘character’’ tests or honesty tests so long as they do not violate
Title VII of the Civil Rights Act in which minority applicants are dispropor tionately
disqualified from employment. For example, some courts have held that consideration
of a person’s credit or financial status violates Title VII, because statistics have shown
that the less-favorable financial conditio ns of minorities in the US cause such checks to
disqualify many applicants.
Other employers have prevailed in cases where they cite ‘‘business necessity’’ or
‘‘job-relatedness’’ as defenses. In Bailey v. De Bard (1975), the court held that a state
police department’s use of background investigation of applicants for trooper positions
did not violate their rights under Title VII because the investigation was related to the
trooper’s job performance. The investigations included general character and
reputation, credit standing, sobriety, police record, previous work history, and the
investigator’s recommendations, all of which were info rmation relevant to the trooper’s
ability as a prosecution witness, to withstand cross-examination by a defense attorney,
to deal with emotional assaults by suspects, and to resist inducement into criminal
activity. As might be expected, business necessity or job-relatedness as defenses will
be subject to interpretation, and employers should be cautious in establishing
guidelines on what type of adverse information obtained through such investigations
might cause an applicant to be rejected.
Prior to administering any of these tests, employers should protect themselves by
asking candidates to sign a consent for m. The legal issue then becomes how the test
results are kept confidential, allowing employees access to their own records, while
safeguarding them from third parties (Wiley and Rudley, 1991).
Conclusion
Although many avenues were available to Philip Crosby Associates in researching
John C. Nelson’s background, it is clear that due diligence was not exercised. Hiring
Nelson was a very costly lesson learned. Shareholders should demand that companies
take the appropriate steps to ensure that corporate leaders are not only law-abiding,
but also have a strong sense of integrity.
Background checks have become standard and a widely recognized method of pre-
employment screening. Anyone who refuses to sign a consent form allowing for a
background check may automatically be considered suspicious. It is important for
companies to invest resources upfront to obtain a deep knowledge of a candidate,
rather than to pay de arly afterward for a hiring mistake. In addition to making sure
information in a resume is accurate, all candidates should have their criminal and
credit histor y and driving records checked. Further, employers should have the
candidate fill out an application form, and have the candidate’s civil/criminal reco rd
and references chec ked.
These ‘‘standard’’ background checks are really just one part of the employee
selection process. Other screening techniques exist and should be considered.
Candidates should take a written ho nesty test and go through an integrity interview,
because many studies have proven the tests are valid. At a minimum, such tests
provide an additional piece of information to be considered as part of the total package.
Beyond the basic
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221
Ideally, a company will practice due diligence and know everything about a person’s
past history to ensure hiring an ethical professional. However, in cases where past
records do not lead to a definitive conclusio n about a person’s character (as is often the
case), honesty testing might be a valuable tool, in combination with other tools, in
predicting a person’s integrity and his/her behavior as an employee of the company.
When all is said and done, hiring safe, honest and qualified employees is one of the
most important decisions that an organization has to make. All available resources
should be used to ensure that the ‘‘right’’ employee is hired.
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Further reading
Securities Exchange Commission (2003), SEC Implements Internal Control Provisions of
Sarbanes-Oxley Act, available at: www.sec.gov/news/press/2003-66.htm (accessed at 18
October 2006)
About the author
Richard G. Brody is the Rutledge Professor of Accounting in the Anderson School of
Management at the University of New Mexico. He is a Certified Public Accountant, a Certified
Fraud Examiner and a Forensic Certified Public Accountant. His research addresses issues
related to forensic accounting, auditing and corporate governance. Recent research has focused
on issues such as corpo rate fraud, identity theft and the impact of corporate governance
structure on auditor judgment. He also conducts cross-cultural research and has been involved
in projects in Taiwan, Japan, Poland and Spain. Richard G. Brody can be contacted at:
brody@mgt.unm.edu
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