Risk management is essential to all organizations. To mitigate risks associated with hiring the wrong individual,
organizations continue to use credit and background checks to achieve a safe environment and protect corporate assets from theft. Nonprofits must also have a process in place for screening its volunteers. How effective are background and credit checks? Do they take the place of proper internal controls?
ACTUAL CASE
A Non-Profit organization performed the recommended background and credit checks on incoming employees. Despite these steps, one of its accounting staff embezzled approximately $100,000. Fortunately, the theft was accidentally discovered while the employee was out of the office. An attorney negotiated a repayment plan in exchange for not filing formal charges which allowed the former employee to secure another accounting position.
EMPLOYMENT SCREENING TRENDS
A major credit bureau influenced employers by purporting credit history reports can measure integrity and the propensity to steal. However, this evaluation is subjective and could be interpreted differently depending on the reviewer.
Previously, applicants with a criminal history were immediately eliminated from the interview process. We all have heard the adage, “once a thief, always a thief”. However, a credit report only measures one’s temporary economic situation at a finite point in time and a background check informs you of prior criminal history but not the individual’s propensity to commit a crime in the future.
Worker advocate groups have found these screenings to be discriminatory towards lower-wage workers with limited economic resources because they are the ones normally impacted. Each year, more states have adopted laws to restrict or eliminate credit checks and eliminate questions on applications regarding criminal activity, “Ban The Box” laws.
RECOMMENDATION
“We recommend that organizations implement strong internal controls and not rely on an individual’s perceived character.” The pitfalls with employer checks is inaccurate data or non-compliance with ever-changing regulations, resulting in lawsuits. Any organization that relies solely on background and credit checks is at significant risk of loss because people who “pass” credit or criminal checks can still steal from your company. In addition, these checks do not have an impact on the higher level workers in a position to significantly impact an organization’s “going concern”. Employers should not put procedures in place based on how much they trust an individual but to prevent unintentional errors or theft.
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Transitional Accounting Services acknowledges that this blog is for information only. These best practice recommendations should be implemented from a practical standpoint which requires an understanding of your organization. Let us know if we may be of further assistance.