Ground Rules on Background Checks

By Susan J. Wells Feb 1, 2008

HR Magazine, February 2008 Members of the background-checking industry strive to implement standards for quality and ethical operations.

Human resource professionals responsible for pre-employment screening soon will have a yardstick to help them in their research and selection of background-screening partners. The National Association of Professional Background Screeners (NAPBS), an industry group based in Morrisville, N.C., plans to unveil a comprehensive, six-pronged certification and accreditation process for member firms in April, coinciding with the association's 2008 annual conference in New Orleans.

Industry standards should address a lingering and longstanding concern among employers: the absence of a concrete benchmark to vet and verify the quality of the background screeners they choose. The certification process is the culmination of three years of study, says Michael Coffey, president and founder of Imperative Information Group, a Fort Worth, Texas-based employment-investigations and consulting company, and a director and board liaison of the NAPBS Ethics & Accreditation Committee.

Through the accreditation program, NAPBS members want to identify "gold standard" pre-employment background-screening firms that excel in the areas of consumer protection, legal compliance, client education, data quality, verification and business practices, says Coffey, a former HR manager.

Taming a Wild Ride

When NAPBS was founded in 2003, it counted about 200 member companies. Now, the young but increasingly dominant and influential association boasts 650 members. The group was launched with a mission of bringing some order to a far-flung and fast-growing industry that had mushroomed in size and scope after heightened post-Sept. 11 security concerns and well-publicized corporate ethics scandals drove demand for increased background-screening.

Indeed, 85 percent of HR professionals surveyed reported that their organizations conduct--or hire outside agencies to conduct--background investigations on potential employees, according to separate 2006 and 2004 polls addressing background-checking practices among members of the Society for Human Resource Management (SHRM). That's up from 51 percent who said they did so in 1996. "A perfect storm of events grew the industry, and it grew largely without regulation, standardization, organization or coordination," says Lester Rosen, an attorney and founder of Employment Screening Resources Inc., a pre-employment background-screening company in Novato, Calif. He chaired the steering committee that founded NAPBS. "It truly was the 'Wild West' in a lot of ways," he says.

Taming that territory was a tall order, admits Rosen, author of The Safe Hiring Manual: The Complete Guide to Keeping Criminals, Terrorists and Imposters Out of Your Workplace (Facts on Demand Press, 2007).

Along with maturation of many well-established and highly professional investigations firms came a number of sub-par operators spying quick opportunity, some hawking cheap but incomplete background checks in minutes. (Type "background search"' into an Internet search engine and you'll get scores of companies pledging "instant" or "nationwide" background checks.) Critics contend that some of those firms simply restate old information bought from private data brokers--with no guarantee the data are current or verified for accuracy.

To discourage such bad apples and improve the reputation of professional screeners who promote and follow best practices, NAPBS says it wants to see better standards across the board. To that end, it worked quickly after forming to establish a code of conduct to which members must adhere, and it built educational compliance tools and monthly seminars into membership benefits. The group also plans to seek input on its new certification standards from employer groups including SHRM, security professionals and employment attorneys, Coffey says, before inking the final document.

Quality Assurances

What will the certification cover? Here's a peek at what to expect:

  • Consumer protection--ensuring that background-screening providers protect information privacy and document the safeguards they put in place.
  • Legal compliance--ensuring strict compliance with state laws and the Fair Credit Reporting Act, the main federal law that governs "consumer-reporting agencies," as background-screening providers are defined.
  • Client education--making sure employers and other clients fully understand what services they're buying when engaging a background-screening company.
  • Court research and data products-- improving the standards applied to the scope, quality and verification of court researchers and data sources used in checks.
  • Verification services--ensuring privacy practices of reference-checking policies and contacts.
  • Business practices--ensuring professionalism in business operations (including certifying that background checks are conducted on staff), proper insurance coverage and confidentiality policies.

The NAPBS proposals are "excellent and necessary," says Pamela Devata, a senior associate labor and employment attorney with Seyfarth Shaw in Chicago who specializes in background-screening compliance and hiring guidance for employers. "It can be a daunting task for employers to choose a background-screening partner--there are so many companies out there competing for business," she says. "But having some real, definable standards in place will help in making that critical decision."

HR's Priorities

In fact, the industry's standards come as more HR professionals now say they want to emphasize quality and accuracy over cost when selecting background-screening partners. Accuracy was ranked as the most important criterion--over turnaround time, cost and customer service--in the selection of background screeners by 65 percent of 277 HR professionals surveyed last summer by Kress Inc., a background-investigations and employee-screening company based in Houston. Ninety-four percent of those polled said they completely agree that the accuracy of each screen is important--and is worth the time it takes.

"Ensuring the accuracy of the information that a pre-employment screening gives me is essential," says April Dowling, PHR, human resource manager at Alabama Central Credit Union, a 10-branch organization based in Birmingham. "That information could mean I turn someone down for a job, and if it's incorrect, I could be turning away the best employee we'd ever have."

Another survey suggests there is room for improvement in employers' satisfaction with background-screening partners. Two-thirds of 273 employers polled by the National Institute for the Prevention of Workplace Violence, in Lake Forest, Calif., said they outsource background screening to an external service provider. The 2005 survey culled respondents from SHRM and the American Society of Industrial Security. While 66 percent of those companies reported being "extremely or very satisfied" with the level of service provided by background-screening firms, 25 percent said they were only "moderately satisfied" and 9 percent were dissatisfied.

"Employers have quality alternatives out there, and they're making the comparisons," says Cherie Smith Homa, managing director at KPMG Corporate Finance LLC, an investment banking and advisory services firm in Baltimore that tracks the industry. "In terms of customer loyalty, there's a definite willingness to change--or threaten to change--their background-screening providers."

Fragmented Industry

Yet making the right choice is increasingly challenging, Homa acknowledges. Where once there were dozens of companies offering background checks, there are now at least a thousand vendors in the industry; its annual revenues are estimated at $2 billion to $3 billion and grow at 5 percent to 7 percent a year, according to recent research by her firm.

The industry's structure is highly fragmented, Homa says, with a small number of mega-providers, a limited number of mid-size companies and a large number of small companies. The top four players--USIS, First Advantage, ChoicePoint and Kroll--account for about $1.4 billion in annual screening revenue, according to a December 2007 report. The majority of companies have screening revenues of less than $2 million, she says.

Many of these companies rely on public-record and court researchers--often legal-research companies, networks of independent contractors and investigators who do the legwork to verify the validity of background data retrieved.

Truth or Consequences

There are no independent studies on the overall rate of errors in background checks. And many screening companies either don't track or don't publicly report error rates--even though they probably know the percentages of screening reports disputed or resolved, according to Coffey of Imperative Information. "Good firms are absolutely watching that type of data all the time," he says, counting his own firm among those that do. But independent research and anecdotal evidence suggest that mistakes do happen regularly, contends Beth Givens, executive director of the Privacy Rights Clearinghouse, a nonprofit education and advocacy organization in San Diego. Officials at her organization frequently get calls from job applicants and employees who say they have been denied employment because of errors in background checks.

A factual error in a criminal background check, for example, nearly cost Bobby McMeekin Jr. of Lubbock, Texas, a better job in early 2007 as a supervisor at a bank call center when the check turned up a felony drunk-driving conviction of someone else. The problem: The screening agency had confused McMeekin with a convicted man with the same surname. After checking the conviction records himself, he got a letter from the court to clear his name and got the job.

Of course, the consequences could be more severe when real criminals slip through with clean records. A 2004 study by criminology researcher Shawn Bushway of the University of Maryland Population Research Center resulted in a startling error rate for a test he conducted for a criminal records check. Bushway, also an associate professor at the University at Albany-SUNY School of Criminal Justice, and his colleagues engaged an online background-screening company to search Virginia county courts for the records of 120 current parolees whose names the researchers had obtained from state correctional officials. Only 56 names came back showing any criminal record, his experiment found.

Spotty participation by the nation's 3,100 county courts, along with a hodgepodge of data formats, can make national and state crime databases vastly incomplete or out-of-date, and help lead to such misleading results, observers say.

In fact, contrary to popular belief, there is no national database of felony convictions that's sold to private data firms. There are some multi-jurisdictional databases, but even those are largely considered to be backup or secondary tools, as data pulled from them generally must be verified for accuracy and current status at the courthouses.

In some states, the counties report data to a state law enforcement agency. In others, counties may sell data to private information brokers. But some counties refuse to sell, package and report data to third parties, or put limits on what's made electronically available. These shortcomings are well-known in the background-screening industry, but employers need to be just as knowledgeable about the limitations of data they purchase.

The NAPBS certification standards aim to address that through morethorough client education and communication, and they also attempt to catch and reverse weaknesses in the data retrieval system before problems arise.

For example, because the industry often relies on individual subcontractors to carry out court research, the NAPBS standards will ask screening firms to conduct reference checks on the researchers, confirm and reconfirm identifying information, and conduct "tests" to prove accuracy, Coffey says. "A test would include sending researchers out on a court run with known records to see that they return the accurate and full information without cutting corners or inserting mistakes," he says.

The Limits

Privacy advocates welcome the background- screening industry's current efforts, but they also point out what they view as inherent limitations.

"The industry recognizes the inaccuracy problem, and to the extent that they're establishing ethical practices, that's great," says Lillie Coney, associate director of the Electronic Privacy Information Center, a public interest research center based in Washington, D.C. "But it needs to be done in the context of a regulatory structure that helps ensure that the standards benefit the public--not just the industry members."

Coney points to state medical licensing boards as an example. These agencies include both state regulators and members of the medical community; they set forth clear, strict conduct rules; and they can impose serious consequences for members who violate them, including suspension or revocation of licenses.

"Self-regulation is a wonderful idea," she says, "but there's often not much leverage associations can hold unless there's a professional licensing methodology with real consequences for violations." Certification under the NAPBS' plan will be a voluntary undertaking; there won't be any enforcement from the association for not achieving it, Coffey says. However, companies will be required to allow an on-site audit of their operations and practices as part of the certification process. And the motivation to earn and keep the recognition will be clear, he says. "Employers will simply prefer to do business with a certified firm. The certification process is a rigorous one--and the firms that meet the standards are going to be better companies because of it."

Employers will be able to evaluate background-screening companies against one another, Coffey says, easily sorting the non-accredited from the accredited firms. "Our 'seal of approval' will soon become the baseline standard for employers seeking a background-investigations partner."

Susan J. Wells, a business journalist in the Washington, D.C., area and a contributing editor of HR Magazine, has more than 20 years of experience covering business news and workforce issues.

Web Extras

SHRM webcast:
Hot Topics in Background Screening
(SHRM Online Staffing Management Focus Area)

SHRM articles:
Find the Right Screening Partner To Fit Your Needs
(SHRM Online Staffing Management Focus Area Library) 

How Deep Can You Probe?

Service-Level Agreements: Words To Verify By
(Employment Screening Resources)

SHRM survey report:
2004 Reference and Background Checking 

Web site:
National Association of Professional Background Screeners 

Federal report:
Using Consumer Reports: What Employers Need to Know
(Federal Trade Commission) 

Sample RFP:
Background-screening services
(Employment Screening Resources)

New Criteria for Selecting Background Screeners

When selecting a third-party provider for background screening of potential employees, apply the same level of due dilige nce as you would for any other key business partner, such as a law or accounting firm. Among the tips offered by those interviewed for this article:

  • Confirm that the company is a member of the National association of Professional Background Screeners and is in compliance with all proposed requirements of its certification process.
  • Review audited financial statements to determine viability, internal controls and reputation.
  • Have legal counsel review the contract for language protecting the confidentiality of information obtained from applicants and for safeguards to prevent identity theft.
  • Ensure that the provider's breadth of services matches your company's screening needs. For example, some screeners search for criminal or civil records only at the local or state level, rather than in all pertinent local, state and federal jurisdictions.
  • Ask potential background-screening providers about their error rates and resolution rates.
  • Confirm the company's customer service structure. Does it have account managers who interact one-on-one with clients? Or does it use the arguably less-desirable call center approach?
  • Consider the types of screening information truly relevant to the prospective hire's performance of the job, or to the special needs and requirements of your industry.

HR Pro's Responsibility

Even with the promise of higher standards for background-checking vendors, it will remain up to employers to probe and verify any red flags that crop up during pre-employment screens.

Last year, for instance, inaccurate information showed up twice during screening checks of two prospective hires at Claremont Savings Bank, a community bank in western New Hampshire with $300 million in assets that conducts background, credit and reference checks on every candidate--from the custodian to the president.

One case involved an information technology professional who applied for a job last May. The bank's third-party screening company returned a 56-page report listing convictions in North Carolina. The applicant shared the same name and birth date with the convicted criminal in the report but had never lived or worked in North Carolina.

In this case, Beverly Widger, SPHR, senior vice president of human resources at the 100-employee bank, called state courts and agencies to check the information. She learned that the person's Social Security number didn't match that of her applicant and that the individual whose many violations were listed in the background report was actually in jail. The IT applicant had a clean record and was hired.

"HR must always treat any negative results with caution and vigilance," says Widger, a member of the Society for Human Resource Management's Employee Relations Special Expertise Panel. "You have to take the initiative to investigate thoroughly and do the extra research needed to confirm the reports you're getting."

The bottom line: "Even though you have a screening firm, there are going to be times when you're going to have to do it yourself to fully ensure that you make the right decision," she says.


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