With respect to internal controls, an ounce of prevention
is worth a pound of cure.
Although effective internal controls
are a necessity for any business, no system is completely free from manipulation. One way to reduce the risk of an
employee defrauding a company is to
prevent potentially problem employees
from gaining access to a position of trust
or authority by performing a background
check on the individual.
Smart Business talked to W. Clay
Busker, senior forensic manager at
Tauber & Balser, P.C., about background checks.
How have background checks changed
over the years?
Traditionally, the human resources
department of a company would scrutinize a candidate’s résumé. However,
two factors have led companies to out-source this activity.
First, litigation against former employers has significantly curtailed the
amount and nature of information many
companies will release about a former
employee. Some companies will not
provide more than a simple acknowledgement that the person did work at
the company, thereby reducing the
effectiveness of verifying the résumé.
Second, the digitization of large
quantities of public records data has
greatly expanded the amount of readily available information. Now, it is
possible to expand the investigation of
the candidate beyond what is included
on the résumé to such information as
criminal record, credit history or driver’s license status. The expansion of
available data has resulted in specialized third-party providers being able
to obtain more accurate background
information faster and much more
cost-effectively.
Isn’t it standard procedure for most companies to perform a background check on new
hires?
For many jobs it is. However, the
nature or extent of the background
check is often a one-size-fits-all-type
approach. For example, the background check of a senior level employee, who has more ability to defraud a
company, is typically the same as that
performed for an entry level clerk.
So companies need to tailor the background check to the level of the employee?
Yes, the more authority or trust
required by the position, the more
thorough the background check
should be. For example, you may perform a criminal record search for all
of the previous counties/states a senior level candidate has lived in instead
of just the current one. The additional
information about the candidate
would be worth the marginal increase
in cost.
Furthermore, I have seen numerous
instances where companies do not
perform background checks of senior-level employees. When a company is
promoting from within, a background check is almost never performed.
Even if a background check was performed on an employee at hiring, the
current financial or legal situation of
the employee would be revealed by a
new background check. Knowing this
type of information may have an
impact on a company’s decision to
promote a current employee to a position of greater trust or authority.
Another time companies frequently
don’t perform background checks is
during a merger or acquisition. Even if
the backgrounds of the principals of
the merged/acquired company are
investigated, those of the other senior-level employees may not be. Since the
other company hired these individuals, you may not be aware of what type
of check, if any, was performed, or the
results of these checks. Even if the
results of these checks are included in
the personnel file, the person’s situation may have changed from the date
of hire.
Does it hurt morale to request internal
candidates to undergo a new background
check?
If this is a company requirement or
standard procedure for filling this
position, and not presented as a special circumstance for that one employee, it shouldn’t have any impact.
Furthermore, publicizing this policy
may have the additional effect of discouraging potential problem employees from applying for positions where
they would have an increased potential for defrauding the company.
W. CLAY BUSKER is a senior forensic manager with Tauber &
Balser, P.C. in the Forensic Accounting Services Group. He has
more than 10 years of professional experience providing forensic
and investigative accounting, internal corporate investigations,
damage calculations, corporate restructuring and due diligence
services to clients. He has worked with both publicly traded and
privately held companies of all sizes in a variety of industries.
Reach him at [email protected] or (404) 814-4934.