Background checks: the theories behind the process

Abstract

The use of background checks has become more prevalent and is perceived as having crucial importance in hiring in the private sector, given the extent of employee crimes. In examining this phenomenon, security and administration scholars have promoted the general security necessity of such checks but have only focused on the application of legal and constitutional provisions relevant to the background check process. As a result, the security field has overlooked the theoretical bases for background checks and the theories addressing how background checks should be conducted. To address this gap, this article presents a qualitative meta-analysis of the theoretical literature from a variety of academic fields and identifies four overarching themes important for understanding background checks as a tool for hiring. Then, as an illustration, the article examines how well the regulation of background checks in the U.S. financial sector reflects theoretical findings, exposing critical gaps between research and practice. Thus, this analysis provides security practitioners with important guidance in how to effectively use background checks as a crime prevention tool.

Full text

Security Journal
ISSN 0955-1662
Secur J
DOI 10.1057/s41284-020-00260-4
Background checks: the theories behind the
process
Chelsea A.Binns & Robin J.Kempf

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Vol.:(0123456789)
Security Journal
https://doi.org/10.1057/s41284-020-00260-4
ORIGINAL ARTICLE
Background checks: thetheories behindtheprocess
ChelseaA.Binns1 · RobinJ.Kempf2
© Springer Nature Limited 2020
Abstract
The use of background checks has become more prevalent and is perceived as hav-
ing crucial importance in hiring in the private sector, given the extent of employee
crimes. In examining this phenomenon, security and administration scholars have
promoted the general security necessity of such checks but have only focused on
the application of legal and constitutional provisions relevant to the background
check process. As a result, the security field has overlooked the theoretical bases for
background checks and the theories addressing how background checks should be
conducted. To address this gap, this article presents a qualitative meta-analysis of
the theoretical literature from a variety of academic fields and identifies four over-
arching themes important for understanding background checks as a tool for hiring.
Then, as an illustration, the article examines how well the regulation of background
checks in the U.S. financial sector reflects theoretical findings, exposing critical gaps
between research and practice. Thus, this analysis provides security practitioners
with important guidance in how to effectively use background checks as a crime
prevention tool.
Keywords Background checks· Corporate security· Crime prevention·
Criminological theory· Due diligence· Employee crime· Hiring processes· Insider
threat· Internal investigations· Onboarding· Security management
* Chelsea A. Binns
cbinns@jjay.cuny.edu
Robin J. Kempf
rkempf@uccs.edu
1 John Jay College ofCriminal Justice, 524 West 59th St, NewYork, NY10019, USA
2 School ofPublic Affairs, University ofColorado Colorado Springs, 1420 Austin Bluffs Parkway,
ColoradoSprings, CO80918, USA
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C.A.Binns, R.J.Kempf
Introduction
Background checks are an important part of the hiring process. There are many
examples in the literature which demonstrate their importance towards reducing
the instance of fraud in the workplace. One example is the case of John C. Nelson
(Brody 2010). Nelson was hired as a director of finance at the consulting firm, Philip
Crosby Associates (PCA). He came into the role with top credentials, an MBA and
a CPA, and a strong reference from his former employer. However, Nelson ended up
stealing over $900k from PCA. He falsified contracts, fraudulently used the CEO’s
signature, and wired the proceeds to shell companies “owned” by his wife that he
created for this purpose. It was later learned that Nelson was not his real name; it was
Robert Liszewski. He had falsified his identity and his stated credentials, because he
had spent time in prison for embezzling from his previous employer (Brody etal.
2015). It is unknown whether a background check was performed in this case, but if
so, it was obviously not conducted effectively.
Another case that demonstrates the importance of thorough background checks
is the case of Al Dunlap(Brody etal. 2015). Dunlap was hired to be the CEO of
Sunbeam, a major producer of electric home appliances. In his application, he didn’t
disclose two former employers on his resume: Nitec and Max Philips and Son. It
was later learned he had been fired from both of these employers, and from Nitec,
for fraud. Although a background check had been conducted on Dunlap, the search
firms who conducted it didn’t uncover his two previous dismissals. Dunlap ulti-
mately committed a massive accounting fraud at Sunbeam—one that was similar to
the crime he had conducted at Nitec (Brody etal. 2015).
As the previous examples demonstrate, employee crimes are a serious organiza-
tional threat. The Association of Certified Fraud Examiners (ACFE), who has con-
ducted a comprehensive, biannual fraud study since 2002, has consistently found,
based on the cases they analyzed,1 that a typical business organization loses 5%
of its revenue annually due to occupational fraud (ACFE 2002–2018). One way to
reduce these internal threats is to employ background checks at the hiring phase,
which have become a standard security practice for preventing business crime espe-
cially following the terrorist attacks on September 11, 2001 and the subsequent pas-
sage of heightened security legislation and regulations, including the Patriot Act
(2001) and the Financial Crime Enforcement Network’s (FinCEN) Know Your Cus-
tomer requirements (2016), which require background checks on customers of finan-
cial institutions.
Background checks, here, are defined to include any investigation that reviews,
broadly or narrowly, the facts and history of a given person. Such investigations
can range from social security number verification to a criminal or credit history
review to analyzing an applicant’s social media presence. This article’s focus is on
1 In their most recent report, their 10th edition, ACFE analyzed 2,690 cases across 120 countries. The
cases analyzed in their study were chosen from the results of a survey the organization sends to members.
While this study has methodological limitations, it is the largest known comprehensive study on occupa-
tional crime conducted on a regular basis.
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Background checks: thetheories behindtheprocess
the collection of information about applicants used to help make personnel deci-
sions, “including hiring, retention, promotion and reassignment” (EEOC and FTC
n.d., p. 1).
Despite the important role of background checks, the existing literature on the
subject from the fields of security, law, and administration is not theory-based.
Scholarly work on background checks asserts the importance of background checks
(see e.g., Calder 1987; Lipman 1988; Prenzer and Sarre 2008; Rigakos etal. 2009),
but thenlimits discussion to the applicable legal and constitutional constraints (see,
e.g., Cozzetto and Pedeliski 1996; Levashina and Campion 2009); the practices of
human resource managers, especially in regard to social media (see, e.g., Tufts etal.
2015); or the effect of new initiatives like “ban the box” mandates (see, e.g., Atkin-
son and Lockwood 2015; Smith 2014). While the legal, constitutional, and practical
considerations for doing these background checks is important, these articles do not
explore the theoretical basis for completing background checks or the theories on
the interpretation of the data collected.
Thus, this article seeks to fill an important gap in the security literature: to iden-
tify the theoretical perspectives that could inform security background checks by
examining literature from other fields like sociology and organizational psychol-
ogy. This effort is an important endeavor towards the advancement of the scientific
method in the field of security science as promoted by Smith and Brooks (2013, pp.
2–6). This research employs the method of qualitative meta-analysis. The goal of a
meta-analysis is to “ascertain systematically, comprehensively, and transparently the
state of knowledge” (Sandelowski 2004, p. 892). To that end, this article reviews the
literature on background checks produced in multiple disciplines to identify the the-
oretical bases for understanding the purpose of the background check and the condi-
tions under which it is best used to protect both employer and employee. A compre-
hensive review of 108 peer-reviewed social science and legal research publications
was completed.2 This review yielded eleven such theories, which reflect four distinct
themes: (i) there is a human resource justification for pursuing background checks;
(ii) employers have an important role to manage the background check process on
the macro/organizational level; (iii) consideration should be paid to how background
information is evaluated by the assigned assessor; and (iv) criminal histories require
special scrutiny and analysis.
Our goal is to encourage a theory-based approach to implementing background
check processes in the private sector as well as more theory development on the
topic. By way of illustration, we examine regulatory requirements placed on the
United States financial sector related to background checks to determine whether
current regulations are consistent with theory. The financial industry was chosen
for two reasons. First, in this industry, insiders often exploit their legitimate access
to secure systems for personal gain. Here, insider crimes are often non-technical in
nature (Cummings etal. 2012). This means that any employee in a given financial
2 As explained further in the methods section below, the population of research literature examined was
narrowed to include literature where background checks were discussed and also at least one theoretical
perspective was mentioned.
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C.A.Binns, R.J.Kempf
institution can be a security risk. Therefore, background checks are an essential ele-
ment of hiring in this sector. Second, this industry is highly regulated in terms of
background checks processes and requirements, likely the most stringent and reli-
able in terms of breadth and quality. Multiple regulatory schemes provide a structure
for the background process in the financial sector, which provides a good example
of current practices with which the inventory of theories guiding background checks
can be compared. This research shows that gaps and resulting weakness in these reg-
ulations, based on theoretical approaches, can be found. Findings about the financial
industry can be relevant to other industries in the private sector, because the industry
represents an “extreme situation... in which the process of interest is “transparently
observable’” (Huberman and Miles 2009, pp. 12–13). In other words, lessons are
more easily drawn from an examination of the financial industry’s highly regulated
and near universal background check processes. Security and human resource pro-
fessionals in other less regulated industries, where background checks may not be
as universal, can use the analysis of the financial industry to identify theoretically
sound practices. This research provides important lessons for policy makers as well.
A qualitative meta‑analysis ofthebackground check literature
In the current security and administration scholarship, the dominant approach to
examine background checks is in the context of privacy rights, which are enforced
by common law torts or civil rights suits, such as negligent hiring cases (Creed
2008; Evans 2007; Strahilevitz 2010). For example, the literature addresses the
impact of background checks on applicants’ constitutional right to privacy (Back-
man 2012; Harris and Keller 2005); the need to balance the rights of the employer
against the employee’s right to privacy (Evans 2007; Gerlach 2006; Petersen 2015);
and the employer’s need for legal clarity in managing sensitive information received
during the background check process (Creed 2008).
After privacy, the second most common approach is to explore the discriminatory
effects of background checks (Kuhn 2013; Millard 2007; Proctor 2005). Scholars
examine the role that background checks can play as either barriers to employment
or clearing candidates for employment (Blumstein and Nakamura 2009; Bushway
et al. 2011; Denver etal. 2017; Holtzer et al. 2006; Wang et al. 2010; Weiman
2007). One particular type of law has gotten significant attention in the context of
discrimination: so-called “ban the box” laws. Multiple studies explore the impact of
these laws, which limit the extent to which employers can collect applicants’ crimi-
nal records in order to promote the hiring of ex-offenders (Atkinson and Lockwood
2015; Gerlach 2006; Lichtblau 2016; Maurer 2017; Rodriguez and Avery 2017;
Smith 2014; Solinas-Saunders and Stacer 2015; Weissert 2016).
Yet the security and administration literature on background checks does not
delve into the sociological and psychological theories that address the validity and
use of background checks. This meta-analysis of the theoretical literature on back-
ground checks sets out to fill that gap. It identifies eleven theories that could, and
should, inform policy and practice.
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Methodology
Qualitative meta-analyses require the identification and analysis of scholarly work
from which larger themes can be drawn (Hoon 2013). These analyses go beyond a
literature review by using the process set forth by Valeau (2015) to analyze previous
research in order to extend existing theory. The present research cast a wide net to iden-
tify scholarly articles to make up the sample to be examined. First, relevant literature
was selected using the database EBSCO, searching the full text of academic articles
published in English for the terms “background checks” and “theory,” without limiting
types of journals or range of years within which the articles were published. A full 134
articles were identified. Next, the articles were individually examined to qualitatively
isolate only those articles which specifically discussed the application of theory towards
the background check process. Twenty-six articles were excluded through this review.
This resulted in 108 articles that made up the sample of articles to be coded.
The second step involved data extraction. Once the sample was identified, the
researchers used an iterative process to code the articles, identifying and catego-
rizing the theories used in each case. Using a qualitative content analysis process
(Atkinson 2017), the two researchers reviewed the articles separately, coding the lit-
erature review section of each article for the theories applied to help understand the
background check process. Focusing solely on the literature review may have lim-
ited the identification of emerging theories described in an article’s findings, but, on
the other hand, theories identified in the literature review would be longer standing
and better understood.
After coding separately, the researchers met to ensure intercoder reliability by
identifying congruence in coding and discussing and resolving any areas where
there was a lack of agreement. Although additional coders might have been opti-
mal to provide additional assurance as to the reliability of the codes, the deductive
approach used here, without any preconceived notions as to the theories that authors
may have used, mitigated the overall need for additional coders.
Finally, the third step entailed examining the theories and their application to the
topic of background checks to extract common themes and further develop theory,
which was the ultimate purpose of this qualitative meta-analysis. Based on a review
of the sample literature, coupled with research into articles that originated the theo-
ries at issue or were cited in the sample articles, the researchers sorted and catego-
rized similar theories and applications.
Findings
In all, eleven theories were identified that were relied on by scholars to help under-
stand or explain some element of the background checks process.3 These theories
can be found listed in the second column of Table1. In addition, four critical themes
emerged. These themes, which are listed in the first column of Table1, include:
3 All the theories that the researchers encountered are included here. No theory was included or
excluded based on the numbers of mentions in articles.
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Table 1 Theories on background checks
Theme Theory (academic field) Example application Author of theory Basic tenets of theory
The human resource jus-
tification for pursuing
background checks
The Ecology Model
(Sociology)
Mael (1991) Mumford and Owens
(1987), Mumford and
Stokes (1991)
An individual goes through life repeatedly pursuing educational
and other experiences that maximize adaptation for success
orachievement of personal goals. In that way, past behavior
informs future behavior.
Social Identity Theory
(Sociology)
Mael (1991) Tajfel (1978) In addition to their personal characteristics, individuals often
behave in ways consistent with the norms of formal and
informal groups of which they are a member.
Theemployer’s respon-
sibilities and role
Alternate Theory of Mis-
behavior (Management
and Administration)
Arjoon (2006) Greenfield (2004) Individual “bad apples” are responsible for most of the crime
and/or fraud in businesses. Thus, to prevent problems,
employers must try to identify potentially problematic indi-
viduals during the hiring process.
Integrative Social
Contracts Theory
(Management and
Administration)
Berkelaar (2014) Donaldson and Dunfee
(1994)
Employers and applicants have certain implicit expectations
about their rights and duties arising from their relationship.
Part of this social contract is an expectation that employ-
ers will carefully select who will work for them, which can
include a background check.
Routine Activities
Theory (Criminology)
Harris and Keller
(2005)
Cohen and Felson (1979) Criminal acts require the convergence of likely offenders,
suitable targets, and the absence of capable guardians against
crime. Background checks attempt to identify likely offend-
ers; however, employers should also work to reduce targets
and provide appropriate supervision to decrease crime.
The assessor’s role Image Theory (Psychol-
ogy)
Roth etal. (2016) Beach and Mitchell
(1987)
Assessors rely on their individually-developed images about
the organization—such as its values, trajectory, and strate-
gies—which inform the ways they evaluate background check
information.
Inferred Information
Model (Psychology)
Roth etal. (2016) Johnson (1987), Johnson
and Levin (1985)
Assessors can jump to negative conclusions from missing
information in background check investigations.
Reasoned Action Theory
(Psychology)
Roth etal. (2016) Jaccard and Wood (1988) In an effort to complete a job search quickly, an assessor may
reject a candidate with negative information, regardless of its
applicability to the job needs.
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Table 1 (continued)
Theme Theory (academic field) Example application Author of theory Basic tenets of theory
Assessing criminal
histories
Unintended Conse-
quences Theory of Pur-
posive Social Action
(Sociology)
Solinas- Saunders
andStacer (2015)
Merton (1936) To avoid lengthening and/or complicating the hiring process,
organizations and their assessors might unfairly decide not to
hire a candidate with any criminal history.
Life Course Theory
(Criminology)
Bushwayet al. (2011) Laub and Sampson
(1993)
The propensity to commit crime can decrease during the course
of one’s life.
Rehabilitation Theory
(Criminology)
Creed (2008) Widespread popular-
ity beginning in the
early twentiethcentury
through 1970s
Underlying the theory of punishment, experiences and pro-
grams in prison serve to rehabilitate the offender.
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1. There is a human resource justification for background checks.
2. On the macro or organizational level, employers have important responsibilities
to ensure the background check processes are useful, but their responsibilities
don’t end there.
3. On the micro level, the individual doing the background check, whom we call the
assessor, plays an important role when evaluating the information gleaned during
a background check, and thus, deserves particular attention.
4. Special considerations should be taken when reviewing criminal history of appli-
cants.
Table 1 includes the total range of theories and their corresponding themes,
including the original author of the theory, a citation to one or more examples of the
application of the theory to the topic of background checks, and the basic tenets of
the theory. How these theories relate to background checks and the lessons that can
be drawn from the meta-analysis are discussed in the next section.
How are background checks justied asahuman resource practice?
Before undertaking any human resource practice, it is important to understand the rea-
sons why one might do so. What is the value of looking up information about an appli-
cant’s past? Two sociological theories suggest answers to this question: the ecology
model and social identity theory. Attention to these theoretical bases helps an employer
focus on relevantelements of an applicant’s history and guide conclusions accordingly.
The Ecology Model provides thefoundation ofthebackground check process:
future behavior isinuenced bypastbehavior
Sociologists have long suggested that an individual’s past behaviors might predict
future behaviors, but it wasn’t until the late 1980s that scholars began to develop a
theoretical basis for the assumption. In a series of several papers, sociologist Mum-
ford and his colleagues, Owens and Stokes, developed what they called the Ecol-
ogy Model (Mumford and Owens 1987; Mumford and Stokes 1991; Mumford
etal. 1990). This model suggests that “prior learning and heredity, along with the
resources and limitations which are their result, will make some avenues of behav-
ior more likely in new situations, thus allowing some prediction of future behavior
through assessment of the individual’s earlier behavior and experiences” (Mumford
and Owens 1987, p. 2, emphasis added). This process is iterative as a person makes
new choices based on prior development (Mael 1991).
The ecology model has direct relevance for background checks in that it suggests
an employer’s review of an applicant’s past educational and employment history,
along with other formative experiences, provides evidence of whether and how the
applicant has pursued increasing skill level and experiential growth (Mael 1991) and
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provides insight into how the applicant might behave in the future. In other words,
an employer should consider how the applicant has made choices over time.A limi-
tation of the Ecology Model is its focus on an individual’s volitional behaviors,
which does not encompass issues such as the impact of experiences that happen to a
person or how group affiliations might influence that person (Mael 1991).
Social Identity Theory suggests thataperson’s associations are important
whenpredicting theirbehavior
This theory proposes that in addition to one’s personal characteristics, individu-
als also behave in ways consistent with the norms of formal and informal groups
ofwhich they are a member (Tajfel 1978). Thus, when an individual is part of a par-
ticular group, the group’s norms will likely influence the behavior of the individual
even when the association is involuntary or has been terminated (Mael 1991). Mael
(1991) explains “a person’s previous experiences... can strongly affect the personal
and social identity, and thereby affect subsequent behavior” (p. 768).
Organizational identification, a specific form of social identification, can be particu-
larly influential on a person’s behavior if the person feels loyalty to a formal organi-
zation. Mael and Ashforth (1995) found that Army recruits with prior experiences of
being part of an organization were more predisposed to identify with the Army and less
likely to leave early, albeit other personality traits were also shown to have systematic
impact on attrition. Yet beyond attrition, scholars have yet to explore how social identity
theory might help predict how an employee’s social identity could impact their behav-
ior at work, deviant or otherwise.Nevertheless, an employer should take time tocon-
sider an applicant’s membership when considering their potential as their employee.
Lessons
These theories provide bases for why background checks can be justified in a hir-
ing process, and they also provide guidance in understanding applicant histories.
In other words, the theories provide a context for understanding what the back-
ground checks may reveal. Ultimately, the trajectory of an applicant’s education and
employment can provide insight into their future potential. Similarly, the groups to
which an applicant is part of can suggest the norms to which they will subscribe.
Although more research into the full range of assumptions are justifiable from the
information collected in a background check, these fundamental theories provide
guidance in how to optimize a background check.
What istherole ofemployers regardingbackground checks?
One of the themes that dominates the background check literature is the important
role of the employer to manage the employment setting on a macro level. Back-
ground checks are but one tool among many which can be used to protect current
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employees and the organization as a whole. The following theories propose expla-
nations for why an employer should pursue background checks as well as create an
ethical environment, assign appropriate duties, and provide sufficient supervision.
The Alternate Theory ofMisbehavior provides arationale forrejecting potential
candidates based ontheir pastbad acts
This theory reasons that individual “bad apples” are primarily responsible for most
employee crime (Arjoon 2006). This theory underlies the Federal Sentencing Guide-
lines for Organizations (FSGO), adopted by the U.S. Sentencing Commission in
1991 and updated in 2010, which provide compliance-related guidelines for organi-
zations to help strengthen their ethics and compliance programs. FSGO focuses on
an employer’s responsibility in taking due care not to delegate “substantial discre-
tionary authority to individuals who have a propensity to engage in illegal activities”
(Arjoon 2006, p. 56). Thus, when employers conduct thorough background checks
and attempt to remove identified bad actors, they are acting consistently with the
alternative theory of misbehavior to protect their organizations and the people who
work in them.
Yet scholars have noted that this theory must be balanced with an employer’s
need to establish an ethical culture. As Greenfield (2004) argues, keeping these peo-
ple out of the workplace “will not solve underlying [ethical and compliance] prob-
lems” (p. 1). Furthermore, the cost of keeping “bad apples” out of an organization
should be balanced with its benefits, and an employer should not become compla-
cent and assume applicant screening solves most or all internal crime, when in fact
problems may continue if it is facilitated by the organization itself (Arjoon 2006).
Integrative Social Contracts Theory (ISCT) says thatanorganization’s background
check process should be consistent withits ethics
This theory provides a foundation for the employer’s responsibility to establish an
ethical culture. It extends the philosophical concept of a social contract, which is
an implicit agreement that provides rights to a member of a society as long as they
perform duties set by the society, into the employment setting. ISCT suggests that
between economic participants like employers and employees, there exists a contract
that incorporates, or integrates, both ground rules for a relationship between the par-
ties and the norms of the community, to which the parties agree. This contract is
implicit, grounded in ethics, and encompasses empirically-based and normatively-
based methods of enforcement.
The social contract between employer and employee is what gives an employer the
right to conduct a background check on an applicant. Employers promise employees
their salaries and benefits, etc., while employees promise employers to perform the job
assigned with integrity. The background check validates the information an applicant
provides to the employer to help determine suitability for employment, which further
establishes their social contract (Arjoon 2006). The extent to which background checks
are rule-based, i.e., the applicant’s prior activities complies with certain established
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standards, or principle-based, i.e., the applicant’s prior activities demonstrate ethics
consistent with the organization’s, varies depending on the underlying employer’s cul-
ture (Burgemeestre etal. 2009).In other words, background checks should done in a
wayconsistent with the ethical environment of the employer.
Background check rules, as part of the social contract between employer and
applicant, are currently in flux. The easy availability of more personal information
about applicants through the Internet calls into question the social rules regarding
an applicant’s privacy as well as appropriate sources an employer should check
to ensure the applicant is suitable to join the organization (Berkelaar 2014; Mar-
tin 2012; Stohl etal. 2017). This so-called cybervetting places new obligations on
potential employees to be proactive in making relevant information available to
employers, while also curating their online information with their future careers in
mind (Berkelaar 2014). In this time of uncertainty, the ISCT framework can help
guide employers to set the ethical standards that apply to their workplaces and delib-
erately enter into appropriate social contracts with employees, which should extend
to the background check process.
Per Routine Activities Theory, employers should be mindful oftheposition
oftheworker, inaddition tothebackground check
This theory posits that crime occurs when there is a convergence of three conditions:
likely offenders, suitable targets, and the absence of capable guardians (Cohen and
Felson 1979). Employers should use background checks to identify likely offenders
(Harris and Keller 2005); however, they should not overlook the fact that the routine
work activities assigned to an employee can give them opportunities to identify tar-
gets, or weaknesses in processes, which they can take advantage of to commit illegal
or unethical acts. Further, employers should give attention to supervision to prevent
employee crime. Thus, routine activities theory emphasizes that background checks
are but one tool that employers should use when reducing the risk of employee
crime.
Lessons
Employers have an important role in protecting their organizations, their workplace
settings, and their employees. Each of the three theories makes clear that back-
ground checks can be important but are only one tool at an employer’s disposalto
help protect the organization. According to ISCT, employers should thoughtfully
examine the ethics of their organization and implement background screening stand-
ards consistent with those ethical goals. Furthermore, according to routine activities
theory, issues surrounding the assignment of duties and supervision of employees
should receive adequate attention by employers. What is missing from these theo-
ries, however, is how one should perform background checks. This topic is more
directly addressed by the theories examining the role of the individual assessing the
background check information.
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C.A.Binns, R.J.Kempf
What istheassessor’s role inthebackground check process?
Employers on an organizational level determine the context in which background
checks are conducted. Employers should also control how background checks are
performed, addressing who conducts the background checks and what information
is collected. Perhaps background checks are completed in-house or outsourced to a
third party; and the information collected is far reaching or narrow in scope. In any
case, theoretical literature suggests that the individual who assesses the background
information can influence the conclusions, overtly or inadvertently, based on their
individual perspectives. The following theories strive to explain the impact of the
assessor in the background check process.
Image Theory suggests thepeople performing thebackground check
(the “assessors”) can inuence theresults, based ontheir personal image
oftheorganization
This theory posits that assessors of background information do not complete a par-
ticularized review of each candidate’s qualifications and background, but rather rely
on sets of images, or shortcuts, to guide their assessment (Roth etal. 2016). Images
can vary by the individual. One set of images particularly relevant to background
checks relates to values of the organization. An assessor of background information
may determine that an applicant’s past behavior is right or wrong depending on the
assessor’s perception of organizational values, and thus, and promote or reject an
applicant accordingly. Roth etal. (2016) show that the understanding of an organi-
zation’s image varied depending on the individual assessor, and conclusions made
during routine background checks depended upon an assessor’s beliefs about the
organization’s image and expectations.
Individual assessors’ understanding of their organizations’ image can have direct
consequences on the hiring process. Beach etal. (1988), who examined the hiring
patterns of corporate executives, found that assessors favored candidates who they
thought would uphold the perceived values of their firm (see also Beach etal. 1988).
On the other hand, assessors’ perceptions of an applicant having values contrary to
their understanding of the organization’s values resulted in summarily removing that
person from employment consideration, instead of balancing evidence of negative
behavior against other positive behaviors in the applicant’s past (Beach etal. 1988).
For this reason, according to image theory, social media content can prove very
damaging for a potential candidate depending on the individual assessor’s percep-
tion of organizational values.
Values images are not the only images applicable to background check assess-
ments. Seidl and Traub (1998) suggest that the promotion or rejection of a candi-
date based on image theory is based on two phases of the decision-making pro-
cess: screening and evaluation. During these phases, an assessor may rely on two
additional sets of organizational images—trajectory and strategy—which guide
their understanding of what is needed for a position. Thus, assessors of background
information “compare the trajectory image (desired goals) with the projected image
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(anticipated states) and, if the two are incompatible, change tactics, plans, or goals.”
(Beach etal. 1988, p. 20). In other words, according to this theory, an applicant’s
background must be consistent with the assessor’s perception of organizational val-
ues and the organization’s future plans to be considered for employment.
Roth et al. (2016) suggest that assessments based on organizational images are
reasonable, based on the resource limitations, such as time and cost, assessors face in
the decision-making process. Typically, assessors are tasked with reviewing the back-
grounds of multiple candidates and have a limited time to make a hiring decision.
Thus, when they come across any negative information for a given candidate that con-
flicts with the organization’s image, it is very easy to simply eliminate that candidate
from consideration and move on to the next one. Without uniform understanding of
the values of the organization and its desired trajectory, individual assessors may make
guesses based on their personal impression of the organization, which might not be
consistent or may even conflict with the organization’s values.This theory then sug-
gests that employers need to train assessors about the organization, its values, and goals.
Per theInferred Information Model, assessors may vary inhowthey process
information whenperforming abackground check
This theory suggests that assessors tend to view “missing information” with suspi-
cion (Roth etal. 2016). For instance, gaps in employment are often a red flag to an
assessor. Even if an applicant may have a perfectly legitimate explanation for the
gap (time spent raising children; caring for a sick relative, etc.), an assessor likely
presumes that such a gap might mean the person was in prison or was unemployed
due to prior poor work behavior. Similar to what may occur pursuant to image
theory, these negative assumptions can have detrimental, and potentially discrim-
inatory, effects on applicants. For instance, missing information is more likely to
negatively impact women, who are often the caregivers for children or parents, or
African American men, who are assumed to have spent time in jail (Holzer etal.
2006). Employers who do not provide adequate training to assessors to identify and
question the validity of such assumptions are at risk of losing strong candidates and
being vulnerable to charges of discrimination.
In the social media age, managing such negative assumptions is particularly dif-
ficult for job applicants. An applicant may purposely choose not to have a social
media account for fear of an employer finding out negative information, but an asses-
sor may assume the absence of an account means the applicant is concealing nega-
tive personal or professional traits. Conversely, an applicant may maintain a simple
social media account curated to avoid negative information; yet, under this model,
the applicant will compare less favorably with a second applicant with a more robust
social media account (Roth etal. 2016). Thus, this model demonstrates that inferred
information likely provides problems for both employers and applicants.Again, the
appropriate training of assessors becomes critical.
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Under theTheory ofReasoned Action, assessors might make decisions
whenperforming background checks intheinterest ofoperational expediency
This theory suggests that an actor’s intention can influence their overt behavior
(Albarracin etal. 2001). In the case of hiring, the intention of the assessor is to
complete the hiring process, usually under time constraints. Accordingly, when
information is presented that depicts an applicant in a positive light, the assessor
will likely make additional positive assumptions to speed up the hiring process.
Likewise, any negative or incomplete information may lead to the assumption
that the applicant should be rejected quickly, in favor of moving on to the next
applicant.
Under this theory, an assessor finding inconsistent information may make
assumptions that the applicant’s abilities are ambiguous, at best, and negative, at
worst (Roth etal. 2016). Alternatively, assessors may assume an applicant’s own
positive statements about their qualifications on their social media platforms, with-
out supporting information, are accurate. A lack of information can cause confu-
sion to an assessor because it does not help them meet the hiring goal (Roth etal.
2016). In short, pressures to complete a job search quickly can encourage assessors
to jump to conclusions about an applicant that may or not be valid or relevant to the
job in question. Employers thus need to make sure assessors have sufficient time to
review background information and to caution assessors from making assumptions.
Lessons
The theories suggest that attention to the individual in the role of assessing back-
ground information is crucial if assessments are to be made as objectively and
accurately as possible. Minimally, assessors should be carefully selected and
carefully trained consistent employers’ values and goals. Assessors also are likely
to require guidance in how to address missing information. Assessors should
be cautioned not to make assumptions simply in order to complete the hiring
process.
How should anapplicant’s criminal history be assessed?
The criminal history of an applicant is only one piece of an applicant’s back-
ground check, but it plays an outsized role in conventional wisdom. Employers
may often wish to exclude all applicants with a criminal history, but this practice
is not grounded in theory. The following summarizes the theories that have been
put forward to help explain how a criminal history is, or should be, interpreted.
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Per theTheory ofUnintended Consequences ofPurposive Social Action (UCPSA),
assessors might make decisions aboutcriminal histories thatare intheinterest
ofmaking their jobs easier
Merton’s (1936) well-known theory has been applied to the evaluation of crimi-
nal histories of job applicants (see, e.g., Solinas-Saunders and Stacer 2015). This
theoretical framework identifies negative ramifications of the procedural elements
of decision-making, such as rationality, knowledge, energy, time, and error (Mer-
ton 1936). When faced with an abundance of information to review, under time
constraints that make a thorough review impossible, assessors may rely on esti-
mates or opinions to interpret criminal records, thereby rejecting applicants not
based on qualifications but on assumptions based on the criminal history alone.
Simply stated, hiring managers, when confronted with a criminal history, may
unfairly reject a qualified applicant, because that is the quickest and easiest deci-
sion to make.
To specifically counter the unintended consequences of criminal history back-
ground checks unfairly punishing ex-offenders, “Ban the Box” laws have prolifer-
ated (Solinas-Saunders and Stacer 2015). These laws remove from applications
the question that asks applicants to “check the box” if they have had prior crimi-
nal convictions. Thus, a reason for an immediate disqualification of ex-offenders
is removed. Criminal histories may be consulted, but only after initial decisions
have been made on someone’s professional qualifications. This theory reminds
scholars and practitioners that negative consequences of the background check
process are likely and should be managed.
According tolife course theory, theentire trajectory ofanapplicant’s life
hasvalue inabackground check, including, butnotlimited to, his/her criminal
history
The maxim that “a person’s criminal history record is a good predictor of his
or her future criminal behavior” (Bushway et al. 2011, p. 28) is challenged by
life course theory. This theory suggests that an ex-offender’s risk of reoffend-
ing decreases over time (Blumstein and Nakamura 2009). Bushway etal. 2011
demonstrate that the risk of reoffending not only reduces over time, but at about
10 years, ex-offenders “redeem” themselves and will likely not reoffend. Thus,
ex-offenders “age out” of crime, albeit younger people take longer to “redeem”
themselves than older offenders (Bushway etal. 2011).
Admittedly, more research is needed on the theory, as contrary conclusions
can be found in other studies. For example, Cornelius et al. (2017) argue that
people are unable to age out of crime, and Piquero (2008) suggests that desisting
from crime is difficult to distinguish from a hiatus from crime. Nevertheless, life
course theory provides important considerations to employers examining criminal
histories that are 10 or more years old.
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Rehabilitation Theory proposes thatapplicants can change their criminal
behavior inthefuture
This theory of punishment suggests that people serving time experience some reha-
bilitation during their incarceration and continue to be rehabilitated through employ-
ment after their sentence is completed, which decreases the likelihood that they will
return to crime (Creed 2008; Weiman 2007). Therefore, under the application of
rehabilitation theory, employers should consider the crime committed alongside the
time served by an applicant, the latter being a sign of potential rehabilitation.
Admittedly this theory is challenged by recidivism rates, which, in turn, give
employers, who want to avoid charges of negligent hiring, pause (Blumstein and
Nakamura 2009; Creed 2008; Feeley 2012). However, if the possibility of any reha-
bilitation is denied, employment becomes out of reach for these ex-offenders, who
could be further rehabilitated through employment (Weiman 2007; Young and Pow-
ell 2015). As a result, “it is actually impossible for a former offender who is subject
to criminal background checks in hiring to attain the same status he had before hav-
ing committed any crime” (Lee 2017). Thus, interpreting a criminal history of an
applicant has implications for not only the employer but the applicant as well.
Lessons
Criminal histories are vulnerable to misinterpretation, and the theories here suggest
that there are important societal consequences that arise from the lack of careful
consideration of these pieces of information. Significant research remains to explore
issues of assumptions made by assessors as well as the validity of those assump-
tions, but for purposes of policy and practice, criminal histories should be carefully
scrutinized in context of the passage of time since the offense occurred, the potential
rehabilitation while in the applicant was in jail, and any evidence of rehabilitation,
such as time off for good behavior.
Examining background check theories innancial industry
regulations
With a recognition that the theories reviewed above deserve more research, we
examine the laws and regulations that control background check processes in the
financial industry to identify the gaps between theory and practice and to illus-
trate how these theories can inform policy and practice. We chose to examine the
financial industry because background checks for applicants and employees have
been codified in law, regulation, and regulatory guidance. The financial indus-
try is legally subject to heightened scrutiny, because of their fiduciary respon-
sibilities and potential to inflict widespread economic harm (Ponemon Institute
2015). As a result, this industry has some of the most comprehensive regulations
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related to background checks. Observations from this “extreme case” (Huber-
man and Miles 2009, p. 12) can be illustrative of how these theories can provide
insight into the practices of other industries in the private sector.
The regulations that apply to a given financial institution are generally dictated
by its regulating body. For example, if an institution is regulated by the Federal
Deposit Insurance Corporation (FDIC), it is prohibited from hiring anyone who
has committed an offense described in Section19 of the Federal Deposit Insur-
ance Act. Likewise, an organization regulated by the Financial Industry Regula-
tory Authority (FINRA) must include a review of an applicant’s criminal history,
bankruptcy, civil litigation, liens and business records (FINRA rule 3110(e)).
The current laws and regulations are summarized in Table2 below.
A review of the background check process in the financial industry yields the
following conclusions:
Table 2 Financial industry regulations pertaining to background checks
Law or Regulation Requirement
Federal Deposit Insurance Corporation (FDIC) Act,
Section19
FDIC-insured depository institutions may not hire
individuals who have been convicted of criminal
offenses involving dishonesty, breach of trust,
money laundering, or drugs without the prior
written consent of the FDIC.
Financial Industry Regulatory Authority (FINRA)
Rule 3110(e)
FINRA-member securities broker-dealers “shall
ascertain by investigation, the good character,
business reputation, qualifications and experi-
ence of an applicant before the member applies
to register that applicant with FINRA.” Under
the rule, for new hires, firms must conduct a
search of “reasonably available public records”
to include criminal history, bankruptcy, civil
litigation, liens and business records” (Schoeff
2015).
Gramm-Leach-Bliley Act (GLBA), also known as
the Finance Services Modernization Act of 1999
“Financial institutions,” which are defined as com-
panies that offer financial products or services
such as loans, investment advice, or insurance,
conduct “pre-hire risk assessments” of applicants
for positions that have access to “consumer
information” (FTC 2006).
Secure and Fair Enforcement for Mortgage Licens-
ing Act of 2008 (SAFE Act)
SAFE Act employers, i.e., state-licensed mortgage
loan originators, are required to conduct a credit
background check on applicants for the position
of loan officers. SAFE Act employers must also
submit applicant fingerprints to the FBI for a
criminal background check. A license will not be
granted to applicants who have been convicted of
a financial crime, such as fraud, theft, or bribery,
including those using technology in a manner
that would be considered a cybercrime.
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Background checks are recognized asanessential human resource practice
innancial industry regulations; yetthemandates donotprovide guidance
forinterpreting background check materials
The validity of background checks as a human resource tool to help an employer
judge an applicant’s future behavior on the job is embraced in the financial industry
regulatory scheme. Although several regulations focus on screening for an appli-
cant’s criminal history, an applicant’s “good character, business reputation, qualifi-
cations, and experience” (FINRA rule 3110(e)) are also at issue. Thus, background
checks here are justified not only from a crime-control perspective, but also could be
considered consistent with both the ecology model and social identity theory, which
suggest that past behavior and experiences inform a person’s future behavior.
Yet, the regulations do not provide absolute guidance about how to interpret
records related to bankruptcy, civil litigation, liens, and business records. The ecol-
ogy model would suggest that an individual’s experiences be interpreted in the con-
text of their educational and professional trajectory, and social identity theory pos-
its that an individual’s behavior will be shaped by the formal and informal groups
of which they are a part. The current regulations are silent about the issue of valid
interpretation of an individual’s records, with exception of criminal records, which
we address further below.
Mandated nancial industry employers’ background checks requirements may
be theory‑based, butthelaws neglect other steps employers should take tofully
address potential employee crime
Overall, the requirement that employers pursue and applicants be subject to back-
ground checks is consistent with relevant theories. For example, the alternative
theory of misbehavior, which focuses on removing isolated “bad apples” from the
workforce, supports mandatorybackground checks. These backgroundchecks are
also consistent with routine activities theory, in that they work to reduce the pres-
ence of “likely offenders” within the organization. Yet the regulations’ reliance
on background checks as the primary way to address employee crime ignores the
importance in evaluating employees’ assigned activities and appropriate supervi-
sion. To fully address employee crime, financial industry employers should also
endeavor to reduce the risks for fraud or embezzlement and increase the presence of
appropriate supervision through comprehensive screening, surveillance and training
programs, enhanced by a strong corporate security presence.
Further, integrative social contracts theory (ISCT) emphasizes the ethical nature
of the relationship between employer and employee, which should provide a frame-
work to understand the role of background checks within an organization’s ethi-
cal context. Since the background checks are codified in regulation, they become
incorporated into the social contract between employer and applicant or employee,
becoming an express rules-based element of this contract. The standards to which
each party is held are clear. Employers are required to complete background checks,
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and applicants are required to submit to background checks. In certain prescribed
circumstances, such as conviction of a financial crime, such as is required by the
SAFE Act of 2008, applicants understand they will be prohibited from employment.
That said, outside of criminal history, the employer is not provided guidance from
the regulations on how to establish the ethical standards that control the social con-
tract and how to shape the role of background checks to reflect the organization’s
ethical rules.
Financial industry regulations are silent aboutwho should assess background
check information
The theories reviewed above about the role of the assessor and how they interpret
information are not acknowledged in the existing regulations. According to these
theories, assessors are likely to interpret information differently, making individual
assumptions which can negatively impact the hiring process; yet, these regulations
are silent about who should assess background information or how they should be
trained. This is problematic as background checks in this industry are often out-
sourced to a third party. Thus, the employer will not likely know the individual who
is assigned to assessing background information, and this causes the employer to
lose control of the process, very likely resulting in variousvariednegative outcomes
for the potential candidate, and in turn, the employer.
In the cases where background checks are performed “in-house” by employees
of the hiring employer, it is possible for the employer to have more control over
the assessor. They can hire assessors and train them, consistent with the theoreti-
cal perspectives identified in this work; however, today, there is little incentive for
the financial industry to train their assessors in this way. Since applicants can be
removed for specific criminal infractions, and employers can be fined for hiring such
applicants, the background checks conducted in this industry are, unsurprisingly,
largely focused on criminal histories. A singular focus on criminal infractions may
avoid the variability of assessors’ conclusions, butalso results in a missed opportu-
nity for financial industry employers to fully vet their employees and protect their
corporate security.
Until recently, nancial industry regulations provided little exibility
ininterpreting applicant’s criminal histories
As noted above, regulations specifically require financial industry employers to con-
sider the criminal background of employees during the hiring process. Accordingly
employers preemptively reject potential workers based on their past criminal history,
based on the theoretical assumption (i.e., alternative theory of misbehavior; ecology
model; routine activities theory; social identity theory) that these individuals pose
security and crime threats to the industry. For example, candidates who have com-
mitted past crimes involving dishonesty, breach of trust, or money laundering are
not permitted to work for an FDIC-insured depository institution (IDI) (FDIC 2018,
p.2).
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There are a few types of past criminal acts that the FDIC has identified as exemp-
tions to the law. These exceptions, known as de minimis offenses, are considered not
significant enough to prevent the hiring of otherwise qualified applicants. Initially,
the de minimis exceptions applied to actors who (1) committed only one offense;
(2) the fine was under $2500 and/or the jail term wasno more than three days; (3)
the conviction was five or more years prior; and (4) the offense didn’t involve an IDI
(FDIC Section19). In September 2018, the FDIC broadened the types of de minimis
allowed to include minor drug offenses, simple theft, and youthful offenses commit-
ted prior to the age of 21.
Applicants seeking to work for an IDI who don’t qualify for a de minimis excep-
tion due to more severe events in their criminal history need to apply to the FDIC for
a waiver. If an applicant has a significant crime in their background, the applicant
is most likely going to be removed from consideration as a job candidate, because
waivers are very difficult to obtain.
According to the FDIC, waivers are for “cases where the applicant has demon-
strated a record of rehabilitation sufficient to mitigate the seriousness of the offense.
The record of rehabilitation must be detailed, commensurate with the seriousness
of the offense, and demonstrate the individual is fit to participate in the affairs of an
IDI in any capacity” (2018, pp. 7–8). Despite this clear guidance, few waivers are
granted, with over 40% of waiver requests rejected or unresolved (FDIC 2018, pp.
7–8; Clozel 2019). The FDIC’s stance is that a clear record following a past crime is
not in itself evidence of rehabilitation. Instead, they request a significant amount of
evidence for consideration, including the applicant’s age at the time of the offense;
the amount of time that has elapsed since the offense(s); the full legal history of the
applicant including resume, employment history, educational achievements follow-
ing the offense, a record of service and/or volunteer work; and letters of recommen-
dation from those who are unrelated to the applicant and aware of their rehabilita-
tive efforts (2018, p. 9). The FDIC’s rationale for its stringency is they are unable
to “assess the degree of supervision and controls” of a given candidate, while they
are employed 2018, p. 7), and therefore must be very careful when issuing waivers
(2018, p. 7). Thus, neither employers or applicants can rely on receiving a waiver
during the hiring process.
IDIs are greatly incentivized to follow the FDIC’s rules and exercise little judg-
ment in the hiring process when it comes to criminal histories as those who violate
FDIC regulations may be subject to harsh penalties. Specifically, if an IDI employs
a person who committed a barred offense without a waiver, the employer can be
charged a fine of up to $1,000,000 per day for each day that applicant was working
(Federal Register, p. 68,353, section II; FDIC 2014, Section19 (B)(b)). Thus, if they
permit a seemingly “rehabilitated” employee with a criminal history that is not con-
sidered de minimis to remain employed at their firm without a proper waiver, they
will be penalized. This regulatory scheme runs afoul of several criminological theo-
ries discussed here. Specifically, employers are simply not encouraged to embrace
rehabilitation or life course theory, which would call for latitude on the part of the
organization in interpreting the criminal histories.
The penalty on employers is so severe that employers have applied the rule
barring criminal histories retroactively. For example, Wells Fargo conducted
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background checks on current workers and found cases where employees had com-
mitted crimes that were barred by the statutes. They fired these employees regard-
less of their longevity as an employee or their performance on the job. In two such
cases, the crimes committed by the employee were misdemeanors that took place
over forty years prior (Fales 2012; Ross 2012). While this action seems harsh, it was
legally supported. Many of these firings were contested yet upheld in appeals courts
due to the strict nature of the FDIC rules, which do not permit any exceptions for
applicable youthful crimes (Mulvaney 2018; Ross 2012).
Currently, the FDIC is considering additional amendments to provide employers
even more flexibility.4 In a proposed rule, the FDIC has stated that the current prac-
tices do not match the full spirit of the law, which intend to prevent the employment
of people who specifically had committed a crime that “violat[ed] public trust.”
Thus, the FDIC has proposed that minor offenses, youthful criminal offenses, and
offenses that result in a conviction should not be barred from employment as a viola-
tion of public trust (Heltman 2019). Specifically, under proposed amendments, de
minimis offenses would include include single convictions; convictions punishable
by less than one year in prison and/or a $2500 fine; convictions related to bad checks
(under certain circumstances); and convictions related to the presentation of false
or altered identification by individuals under the age of 21 (under certain circum-
stances) (Heltman 2019). Many advocacy groups, civic organizations, and IDIs have
been supportive of the proposed reforms to FDIC Section19, including J.P. Morgan
Chase & Co (JPM) (Clozel 2019). JPM also announced they were “banning the box”
in their firm’s hiring practices (Heimer 2019). Their support mirrors that of compa-
nies in sectors who have pursued hiring ex-offenders because they have proven to be
capable employees (Mullaney 2018).
If adopted, these proposed rules will not only reduce the FDIC’s administra-
tive work because fewer people will ask for waivers, but these rules are expected
to invite a broader range of applicants in the financial industry. It is speculated that
many potential applicants are deterred by the waiver process alone. JPM has pub-
licly stated that the waiver process is “complex and time-consuming,” and thus
many candidates simply “forego working in the sector” (JPM 2019). As a result, the
current statistics for approved and rejected waivers likely don’t reflect the number of
potential job candidates for this industry.
While banks want to be more flexible in their hiring, they also have to be mindful
of the potential reputational risks of hiring an ex-offender. The public’s perception
of a bank’s reputation weighs heavily in their success. Financial industry employ-
ers may not always be in a position to hire former offenders, because they simply
cannot afford the reputational risk that may result in hiring the “wrong” candidate.
Employee fraud and crime is viewed with great contempt and stigmatizes the organ-
ization. Firms have lost the ability to conduct business in various countries due to
employee fraud (Martin and French 2013). All of these contextual elements contrib-
ute to the social contract between employer and employee in this industry, whether
or notthese regulations are theoretically sound.
4 The FDIC published proposed rules in the Federal Register in December 2019, and public comments
were invited to be submitted through February 2020. Currently, the FDIC Board of Directors are consid-
ering the comments and how to proceed with the proposed amendments.
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C.A.Binns, R.J.Kempf
Conclusion
Today, it is important to understand the human resource need for background checks.
As illustrated in the cases at the beginning of this work, there can be serious ramifi-
cations for the organization when background checks aren’t performed in a thorough
manner. In both cases, the employee ultimately repeated their previous fraudulent
behavior. While it is important for employers to have information about previous
crimes committed by job candidates, it is also critical for employers to comprehend
their important role in the background check process to control potential bias on
both an institutional and individual level. The theories reviewed here can inform the
important role the employer plays from a corporate security perspective, as both a
stalwart protector of employees and an advocate against business crime. The theo-
retical perspectives in this sense can guide employers through the background check
process, even though, as our analysis shows, the example of financial sector laws are
not completely successful in that regard.
As discussed throughout this work, there are several important takeaways for
human resource and security practitioners. Assuming that background check pro-
cesses are consistent with constitutional rights to privacy and legal prohibitions
against discrimination, practitioners should consider the aforementioned theoreti-
cally-based guidance when conducting background checks. Yet, clearly more theo-
retical research on background checks needs to be done before employers can know
exactly who to hire (or reject) based on which types of evidence of prior behav-
iors. In particular, study is needed to determine whether non-criminal elements in an
individual’s history can help identify those applicants who are more likely to cause
harm to the employer and what is the relationship between past criminal behaviors
and work misbehavior.
Compliance with ethical standards
Conict of interest On behalf of all authors, the corresponding author states that there is no conflict of
interest.
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