The case of Little Bo Peep: The jailhouse employee

When employment circumstances change and pressures mount, criminals might disguise red flags of misbehavior. Because past actions can be a useful indicator of future behavior, background checks provide a snapshot of an applicant’s criminal, credit and employment history. Here we discuss the importance of background checks and how to properly vet your applicants.

(This article isn’t intended to provide legal advice, but rather it’s a starting point for discussions with leadership, legal counsel and professional investigators. — ed.)

During my first supervisory position many years ago, I quickly discovered some problem employees among the 15 people I managed. I’ll refer to one as “Little Bo Peep.” Her seeming innocence belied a poor work attendance history that affected her performance and the team. Peep’s problems were symptoms of a much larger scheme.

Her previous managers had already placed her on restrictive leave and had given her written guidelines of expectations for reporting to work and managing leave. She was told her absence affected production and her team members — they’d complained that they had to complete her work duties while she was out of the office.

Regardless, my first goal was to get to know Peep before making any judgments. My second goal was to devise a plan to help her to perform her assigned job functions.

Peep confided in me that she often used her sick leave to care for an ill child at home. She also said she’d taken all her annual leave to attend court for personal reasons — I never asked for details, but I assumed the court dates related to her family situation. During the first few months I tried everything possible to assist Peep with time and attendance issues by offering her coaching and mentoring opportunities, and by addressing specific job goals.

But Peep continued to miss work. So, I reviewed her recent and previous doctor notes — I suspected that she’d forged and re-used the notes multiple times. I noticed copier speckles, dots and lines in the same places of the dates, times and doctor signatures on all copies with no variations or changes (other than the actual dates).

I confronted Peep about the altered documentation and told her only original doctor notes would be acceptable forms for proof of absence. She became quite confrontational and told me that she’d discarded most of her paperwork and didn’t know if she’d be able to provide the originals. I sensed Peep was going to admit to her lies when she asked about the consequences — a classic pre-admission indicator. But I didn’t need her admission because I had something better: court records.

An online search of the public court dockets revealed that Peep wasn’t having family issues — she was a convicted felon and still owed time to the local county jailhouse for these pre-employment offenses. She’d been using her annual and sick leave to serve time.

Our legal team ultimately fired Peep for inefficiency and negligence in the performance of her duties, and failure to maintain satisfactory and harmonious relationships with the public. I don’t know the exact amount the organization incurred in financial damages from Peep’s misdeeds, but it had to be significant because of the hours she missed and the legal fees for working her case.

If my organization had conducted background checks on Peep before it had hired her, it could’ve saved us all this grief.

Background checks: a vital internal control mechanism

Background checks can be a critical, but often misunderstood or overlooked, internal control mechanism. A proper and legal background check can highlight telltale signs of hidden behaviors that might be problematic for organizations. A background check is one of the most critical and significant risk-management tools organizations can use to protect themselves from inherent risks (before hiring), plus ongoing or residual risks (after hiring).

Negligent hiring claims occur when an injured party believes an employer should’ve known about an employee’s criminal or dangerous background. (See What Are Negligent Hiring Claims? by Susan M. Heathfield, the balance careers, Nov. 2, 2020.)

Background checks, which can help protect organizations from these claims, are one of the most cost-effective and proactive tools to stay ahead of employee problems that can lead to internal investigations. Reactive, post-fraud discovery investigations are costly, and the effects of fraud can be destructive to organizations that work hard to achieve and build great reputations. Prevention is key.

Fraudsters already employed in workplaces can cause serious liabilities and legal issues if they go undetected. They might commit occupational fraud against employers by misappropriating the organization’s property, assets or other resources.

There’s no perfect background check system — even a comprehensive and widely used government background system like the FBI’s National Crime Information Center (NCIC) isn’t perfect, accurate or even complete. (NCIC is an electronic clearing house that’s part of the FBI’s Criminal Justice Information Services division.)

Depending on laws and regulations (and with appropriate legal counsel), employers should consider looking at three main areas of background checks in the hiring process: an applicant’s criminal or civil litigation history, credit history and employment history.

Individuals or companies will use background checks to verify that applicants are who they claim to be. They search for applicants’ criminal records, education, employment histories and other activities.

The frequency, purpose and legitimacy of background checks vary based on employer, industry, firm, location and other operational and legal factors. This check often takes place when someone applies for a job, but it can also happen any time an employer deems it necessary, for example, before someone is promoted to an executive position.

Organizations complete background checks via comprehensive database searches, personal references, financial reviews and employees’ employment application forms. None of these methods are perfect; don’t confuse background checks with background investigations.

Some background checks are cursory and will simply scan the surface of what can be found in applicants’ backgrounds. Background investigations are more intensive and in-depth looks into applicants’ lifestyles — they search the previous 10 years (depending on the level of security needed or risk profile for the job at hand). Police officers and federal employees go through stringent and thorough background investigations.

Criminal history checks

A review of an applicant’s criminal employment often is an important step in helping employers identify key risks. Criminal history checks consider potential harm and the risks they might pose in certain job positions. For example, an individual with a DUI in their history wouldn’t be considered for a driver position but could work as a food handler.

U.S. state laws or regulations require those who work with vulnerable populations to undergo more rigorous criminal history checks usually to protect the public health, welfare, safety and security of children and adults. Employers must decide the distinguishing circumstances and assess the potential risks in the selection of employees in the hiring process.

When there are criminal findings on applicants, the job specifics determine whether their previous crimes fall within crime categories and subcategories that would make them ineligible for the job. Criminal history checks reveal applicants’ criminal pasts, including convictions, sentencing and all prior arrest records.

Most U.S. states have laws for handling records that direct employers in the hiring practices of potential applicants who’ve been arrested or convicted of felonies and some misdemeanor crimes. Whether you’re hiring for private- or public-sector positions, it’s always best to check with your organization’s legal team. Occasionally, civil matters (lawsuits) are filed in lieu of criminal fraud actions, so those might also be useful to search.

The European Union (EU) also applies regulations to its member-states and rules to business beyond obligating privacy and consent of potential employees. For instance, the General Data Protection Regulation (GDPR) frames rules designed to give EU citizens and others more control over their personal data, including fines and penalties for non-compliance. (See What is GDPR? Everything you need to know about the new general data protection regulations, by Danny Palmer, ZDNet, May 17, 2019.)

Credit checks

Credit checks are legal under U.S. federal law but must be conducted in strict compliance with the U.S. Fair Credit Reporting Act (FCRA). (See Fair Credit Reporting Act and Background Checks, by Alison Doyle, the balance careers, Feb. 28, 2020.) The U.S. Equal Employment Opportunity Commission (EEOC) enforces these rules. The FCRA permits employers to request credit check history reports on job applicants and existing employees.

Employers must follow certain criteria when obtaining credit checks on job applicants, including their written permissions, and must provide ample time for applicants to identify or dispute any errors found in their credit reports. Employers can act based on information contained in reports but are required by law to notify applicants in writing of the reasons for adverse actions that put applicants at equal employment opportunities disadvantages. The EEOC website includes reasons why employers might not choose to hire, promote or retain applicants.

Employment history checks

Employment history checks verify information and confirm questions surrounding dates of employment, salaries and rehire eligibility. Organizations contact previous employers and ask basic questions about the employees’ soft skills, whether they were excessively late or absent, and why they left or resigned. It’s the first measure of trust between employers and applicants, ensures applicants have the exact experience they’ve provided and identifies any abnormalities noted on their applications or in their résumés.

Employment history checks provide insights that help employers understand future retention patterns, productivity risks and indications of problems. Some organizations have adopted policies that verify dates of employment but won’t share additional details about employees who’ve left their organizations because they fear lawsuits. This certainly can make hiring more difficult for potential future employers.

Don’t assume applicants are telling the truth on their applications — they might conceal and omit relevant information. Positive verification can expose areas that applicants might try to hide.

Employers need to carefully follow state and federal laws and regulations that protect employees’ rights if they want to catch fraudsters who claim to be someone they’re not. Many states’ and cities’ Ban-the-Box ordinances, plus the federal Fair Credit Reporting Act and Equal Employment Opportunity Act, require employers to remove criminal-history questions from employment applications. (See What Is a Ban-the-Box Law? NOLO; Fair Credit Reporting Act, Federal Trade Commission; and the U.S. Equal Employment Opportunity Commission Overview.)

These laws mostly apply to the public sector but have been also extended to the private sector. They protect applicants convicted of past crimes from automatic disqualification during the selection process. FCRA and EEO laws also suggest when employers can check applicants’ criminal histories. Working closely with competent legal counsel can help in this area.

In some cases, employers can check for criminal histories after conducting first interviews; others must wait until they’ve extended job offers. (See What Employers Should Know About ‘Ban-the-Box’ Laws, HR Resolutions.)

The EU doesn’t have laws like Ban the Box that specifically prohibit organizations from asking about criminal history during the hiring process. The EU does prohibit discrimination on grounds of religion and belief, age, disability and sexual orientation through the Employment Equality Directive. (See The Employment Equality Directive, Jan. 31, 2008.) As mentioned earlier, the EU has adopted GDPR as its comprehensive data protection law (similar to FCRA).

Conduct legal, ethical checks to prevent or minimize fraud

No system holds a magic key for preventing crooked employees from wheedling their way into applicant hiring processes. But it’s just as important to protect those who are innocent or eligible for hire.

Hiring the wrong person can cost time and money, damage an organization’s reputation, and sometimes results in regulatory or governmental action. In extreme cases, people could die because of a problem employee, like a nurse who steals medicine meant for patients or a bus driver who has a long history of safety violations. Fraudsters can also cause significant financial damage. Witness the case of Little Bo Peep.

Employers should pay closer attention to employee absenteeism and attendance when considering possible occupational fraud schemes — they might reveal deeper damage to organizations if left undetected. Often, this occurs when employers highly trust their employees or when inexperienced or poorly trained supervisors fail to properly correct issues early.

Employers should be wary of time management, attendance and other hidden liabilities before they become major problems. According to the 2020 ACFE Report to the Nations, asset misappropriation involving employees stealing or misusing the employing organization’s resources accounts for a median loss of a $100,000 per case, the lowest amount among the various categories of occupational fraud. Yet employers who underestimate these other “lesser” types of occupational fraud are less likely to identify problems early before they grow. Conducting legal and ethical background checks can identify small red flags that, left unchecked, could become expensive and corrosive liabilities.

Theresa Hicks, CFE, is director of background investigations in a department of human services at a state office. Contact her at Theresa.l.hicks@gmail.com.