Planning, Implementing, and Justifying an Employment Screening Process

Many experts agree that "past behavior is the best predictor of future behavior." For this reason if for no other, companies should be keenly interested in an applicant's background.

At many companies this is one of the stated reasons for instituting an employment screening process.

However, there are other reasons why companies have or are considering instituting an employment screening process, many of which are directly or indirectly linked to the loss prevention function.

Shrink Implications

The 2015 National Retail Security Survey (NRSS) states shrink losses amount to $37.4 billion for retailers, with 47 percent or $17.6 billion in shrink attributable to employee theft.

Safety Compliance

Approximately one million Americans were victims of workplace violence in 2003. The Centers for Disease Control estimates that workplace violence cost employers over $35 billion. According to the Occupational Safety and Health Administration (OSHA), homicides have been the second leading cause of job-related death in America since 1998. OSHA further states an average of twelve people have been murdered at work every week during this decade.

Liability Issues

A 2003 USA Today article stated that employers lost 79 percent of all negligent-hiring lawsuits with the average award exceeding $1.6 million. Education-related information is the most common piece of information that is falsified on an employment application with many applicants reporting a fictitious degree or certification.

Customer Service Considerations

The need to hire engaged employees translates to reduced turnover and increased productivity levels, thus resulting in superior customer service. An average company can invest anywhere between $5,000 to $75,000 to train and develop a new employee during orientation and the first ninety days of employment.

Different Criteria for Different Positions

In today’s litigious society, all companies need to ensure the competency, honesty, and reliability of their employees. For these and the reasons stated above, few progressive companies will argue against the benefits of having an adequate employment screening process. But what is adequate?

What is an adequate program for one company may be woefully inadequate for another. Because the screening criteria should be somewhat dependent on the employee’s role in the organization, what is appropriate for one position may not be appropriate for another position even within the same company, much less between two different companies.

For example, the screening criteria for an entry-level sales associate will likely be less stringent than that for a member of management. An employee who operates heavy equipment should be examined differently than someone who handles money.

Because of this, program designers should look carefully at the multitude of items that can be checked or verified during the employment process to determine which are appropriate for which positions. These include, but are not limited to, the following:

Taking Cost into Consideration

Because cost will always be a determining factor to any program undertaken by a retail company, research must be done to determine what level of a background provides a sufficient level of due diligence.

The various components of a background check should be treated as an a la carte menu. The most prudent screening process is one that places the lowest-cost step first and reserves higher-cost measures for those individuals selected as final candidates.

Some of the various types of lower-cost screening tools available include the following:

  •  Mutual associations and other shared databases with information contributed by member companies provide a low-cost approach for searching criminal and theft behavior. According to the 2005 NRSS, the average prosecution of dishonest employees is 35 percent. This indicates that 65 percent of dishonest employees involved in theft are not prosecuted. Since these individuals were not prosecuted, a criminal convictions search may not aid a company in making hiring decisions related to dishonest behavior.
  • Computer-based interviews provide a system for companies to collect basic application information and to ask screening questions that normally would be asked during a face-to-face interview. By using computer-based interviewing, companies can reduce the number of applicants requiring face-to-face interviews, thus reducing hiring expenses.
  •  Assessments conducted by computer or by traditional paper-and-pencil questionnaires can aid companies in identifying a potential employee’s attitudes and potential behavior related to key employment criteria. Depending on the type of assessment used, questions related to integrity, safety, customer service, and job skills issues are asked. Such assessments can be conducted via computer or telephone prior to initial interviews.

Typical Pre-employment Screening Steps

A sample approach that a company could use would begin by having applicants complete a computer-based interview when applying for a position. The individual would complete the application and computer-based interview either at an in-house kiosk or via the Internet.

During the application process, a series of qualification questions can be used to determine if a person meets the minimum requirements of the job. These include admissions of theft of cash or merchandise from former employers as well as safety violations.

At this stage of the application process, candidates are asked for an electronic consent to conduct a background check. With consent obtained, a mutual association search is conducted that validates the social security number used by the applicant and checks the theft report database submitted by association members for a possible match.

If there are no hits from the mutual association search, the candidate then completes a customer service assessment. Those successfully completing this initial process are then scheduled for face-to-face interviews and are given an integrity assessment.

Once candidates are selected for final employment consideration, their information is submitted for a criminal background check. This should be a multiple stage process, based on the position and geographic location for which the individual is being considered. At that point a candidate may receive a social security trace, national database search of criminal records, a felony-level criminal search for the county of residence, educational degree verification, and/or a professional certification/license validation.

Once a candidate has successfully cleared these searches, they move to the next phase of the hiring process, which includes a drug screening. Candidates successfully completing all phases of the process may then be offered a position.

Some retailers have gone to a consent/release form that allows a background investigation to be conducted at any time during the person’s employment. In order to permit these searches, a consent/release form needs to include an “evergreen” clause. This clause states that a background investigation may be completed during the application process or at any time during the individual’s employment with the company. A company’s legal and human resources departments need to be involved in reviewing the process for compliance with the Fair Credit Reporting Act (FCRA).

Some of the Legal and Regulatory Requirements

In determining the need and scope of an employee background screening process, the Fair Credit Reporting Act subsections 601-625 must be taken into account. The basic scope of the FCRA is to ensure information is provided “in a manner which is fair and equitable to the consumer.” Background screening companies or consumer reporting agencies must protect the confidentiality of the information while ensuring its accuracy, and that the information is used appropriately.

There have been several amendments to the FCRA since it was originally introduced, so it is important to ensure the company’s legal group is continually reviewing and giving direction on how to comply with the act. Some of the various subsections of the FCRA make it difficult for a business to conduct background searches. One of these is subsection 611, created by the 1999 Federal Trade Commission’s (FTC) opinion letter. This letter, also known as the “Vail letter,” effected how criminal background and reference checks are conducted.

In 2003 President Bush signed the Fair and Accurate Credit Transaction Act (FACT). The majority of the Act deals with “credit transactions and procedures to be followed by the large credit bureaus.” However some of the Act directly impacts how information is used when conducting employee investigations, including post-employment background checks.

In addition to the FCRA requirements, companies must also adhere to state requirements, which in some cases are more restrictive. Some restrictions include the types of convictions that may be considered in making an employment decision.

For example, in California most marijuana convictions are not allowed to be considered in the employment decision if the conviction occurred more than two years prior to the date of application. In several states, there is a seven-year limit on using most criminal convictions to make hiring decisions.

Because of the various governmental regulations, a company’s human resources, legal, and loss prevention departments must collectively participate in developing, administering, and maintaining a background screening program.

Administering the Program

Once a company determines whether to conduct criminal background screenings as part of its employment process, it must determine who will administer the program. Retrieving court records requires individuals actually going to courthouses around the country. A company would need to invest heavily in human capital to ensure the proper due diligence is conducted. If a company only employs a few people a year within a limited geographic area, this process may be viable. However, for the average company with locations throughout the country, this is not an option. Therefore, a consumer reporting agency is needed.

An in-house employee or department requests searches and acts upon the results, while a third-party administrator (TPA) conducts the actual searches. The company must ensure it is adhering to legal and regulatory requirements in processing and using the information collected and provided to the company by the TPA.

An additional issue to consider is whether the company will use a pre- or post-employment process. In a pre-employment process the criminal background screening is conducted before the individual is offered a position with the company. There are several advantages of a pre-hire program:

  • Expenses are reduced by not having to take adverse action on an individual who is already working in your company and for which the company has already spent time and money on recruiting and training.
  • Other employees’ morale is not impacted when they learn a coworker has been terminated for what they perceive to be “no apparent reason,” since the reasons are confidential.
  • Store management is not placed in an adverse situation that could potentially result in a hostile situation.

The potential disadvantage in conducting pre-hire background checks centers on the turnaround time, or how long the process will take before a job offer can be extended. This can result in a qualified candidate being hired by another company while waiting for the completion of the background screening. By choosing to use a post-hire background process the lag time associated with background checks does not adversely affect the hiring process.

A company needs to find a background screening vendor that has an established turnaround time that consistently meets the needs of the business. Each company must review both options before determining which method best serves its employment goals.

Measuring the ROI Associated with an Employment Screening Process

Since companies are in the business of making money, businesses have to determine how best to spend money and generate profits. It is reported by Dr. Richard Hollinger in his 2005 National Retail Security Survey (NRSS) that 47 percent of inventory losses are due to employees stealing from their employers, with the loss totaling $17.6 billion, or an average admitted loss by employee of $1,032.

When a company is determining whether it should conduct a criminal background check, internal losses must be considered. In the 2003 NRSS, Dr. Hollinger states that “no other form of larceny costs Americans more in money then employee theft.”

There are several methods for measuring the return on investment (ROI) of an employee screening program. Keeping in mind that we are in the prevention business and referring back to the comment made in the opening paragraph, “past behavior is the best predictor of future behavior,” a suggested ROI model would be to calculate the potential shrink implications associated with hiring a dishonest employee. This can be done by using the template shown here.

By following the employee screening process outlined in the template, the sample company experienced a potential $10,058,904 shrink prevention amount. This template excludes other potential savings such as the liability and expenses associated with accident and workers’ compensation claims related to an employee who may use illegal narcotics. A method for calculating this potential liability can be done by the following method:

  • Take the number of people who failed to pass a drug screening, for example, 3 percent of those tested.
  • Multiply that number by the average workers’ compensation claim at your company.

Hiring individuals who use illegal narcotics can result in an increased number of sick days, more accidents, and involvement in theft. Negligent hiring decisions, or those based on incomplete or inaccurate information, may result in companies’ having to pay large jury awards to an employee who should never have been hired in the first place.

A company must determine what is more cost effective-the use of an employee screening program in making hiring decisions or paying damages due to negligent hiring for not having conducted an appropriate employee screening.

In addition to potential jury awards, further business losses may occur because of the damage to the company’s brand or reputation. These losses may manifest themselves in decreased sales and customer loyalty.

Methods of Collecting Information

There are various methods for conducting searches and retrieving information. Many companies provide criminal database searches that are quick and inexpensive. However, these searches have limitations when it comes to accuracy. Since databases are reliant on the information submitted by courts and law enforcement, they are only as accurate as the information entered into them.

Prior to database searches, background checks were limited to sending runners to courthouses to search available court records. The courthouse search is more accurate as it relies on actual court records.

Another consideration is what and where to search. A company must decide what geographic area will be searched. It is easy for a company to search the current county of residence. However, in today’s transient society, a single county search may not be the answer. This is where database searches come in as they cover a large geographic area, in some cases the entire country. Databases contain information gathered from multiple county, state and federal agencies, including sex offender registries.

Therefore, each company must decide on the level of search conducted and the level of exposure it will tolerate. By blending the various search types, a company is able to prevent, or at least mitigate, potential losses due to negligent hiring while minimizing expenses.

Making the Hiring Decisions

All hiring decisions within a company should be made in a consistent and efficient manner. A standardized decision process should be established by the legal group that is in compliance with federal and state employment regulations.

A company’s legal, loss prevention, human resources, and store operations groups need to be knowledgeable in the screening process. Store operations should sign off on all LP-sponsored programs that may impact sales and the operations of the stores.

The magazine HRO Today stated in a 2005 article that companies have to comply with various laws and regulations in conducting background checks that have been created post-September 11th. These laws and regulations require companies to be more aggressive than in the past when employing people, especially for positions that affect national security.

This further strengthens the need for a centralized corporate policy as to what is and is not acceptable when it comes to hiring decisions based on employee background screening. Regardless of what method or level of background screening used, the standards should always conform to ethical standards and legal regulations.


AL VANEGAS is the manager of corporate investigations and technology for Lowe’s Companies. His duties include managing the company’s criminal background screening process. Vanegas has over twenty years experience in retail loss prevention with the last ten years at Lowe’s. During his career, he has held positions ranging from store detective to director. Vanegas can be reached at 704-758-6023 or at

CLAUDE VERVILLE is vice president of loss prevention, safety, and hazmat for Lowe’s Companies. He came to Lowe’s as director of investigations in 1993 and assumed his current position in 1998. Verville started his LP career as a store detective with Robinson/May Department Stores. He can be reached at 704-758-6024 or by email at