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Background checks: worries about personnel integrity are creating a few worries of their own

CFO: Magazine for Senior Financial Executives, August, 2005 by Kris Frieswick

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Aside from looking for discrepancies between the application and the background-check report, the company has one basic guideline. "Typically, we don't hire people with felonies, because of the type of work that we do," says Nida Palpallatoc, director of human resources, alluding to the hospitality and housekeeping tasks that expose employees to guests and their personal belongings at close quarters. The background check is conducted only after a job offer is made. EEOC rules stipulate that employers cannot simply bar felons from consideration for a job unless there is a "business necessity" for doing so. Says Palpallatoc: "We have hired people with felonies before," if the felony wasn't job related. "Some have worked out. Some haven't."

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The company proudly displays plaques in all of its facilities informing potential candidates and guests alike that all employees are subject to criminal-background checks. "We post the plaques not just as a deterrent but also to let guests know they are safe," says Palpallatoc. There is no actual correlation between employees without felony convictions and safe guests, of course, a point that Palpallatoc concedes. "But it's a contribution toward that end;' she says.

For CFOs, there is a personal aspect to background-cheek policy. Because they hold such highly responsible positions, with their hands on the financial heart of the corporation, CFOs are more thoroughly checked than other employees, including other C-level employees.

"For finance people, I want to know everything," says Deming. "You're spending significant dollars to hire them, and the corporation is totally exposed to them." Peter Turecek, a New York-based managing director at Kroll Associates, the business-intelligence and investigative arm of Kroll Inc., specializes in such background searches, which he says routinely include interviewing everyone related to a candidate, up to and including drinking buddies.

BYPASSING THE C-SUITE Sunstone is one of the few companies that performs in-depth background checks on executives. Despite the fact that monetary-losses caused by executive fraud are 14 times greater than those caused by rank-and-file employee fraud or theft, according to the ACFE study, executives generally bypass the process.

"Many companies will do checks on a cashier, but not the C-suite officers," says Turecek. "A lot of high-level candidates come by word of mouth from executives. The last thing an HR director wants to do is shoot down a candidate that the board or CEO proposed. They don't want to run afoul of the old-boy network."

In fairness, background checks are least effective at the top. They might weed out executives who fudge their resumes, but it is unlikely they will identify the type of people who perpetrate the massive fraud that topples companies. The ACFE says that while background cheeks can help companies make informed hiring decisions, money may be better spent on tighter internal controls and anonymous tip lines for employees, vendors, and customers--which, it claims, is how most companies in its study caught fraud.

Business Services Industry

Background checks: worries about personnel integrity are creating a few worries of their own

CFO: Magazine for Senior Financial Executives, August, 2005 by Kris Frieswick

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