Why Small Business Owners Can't Afford to Skip Background Checks – Part I
It might be tempting as a small business owner to bypass background checks and screenings to save time and money. However, this short-term thinking can lead to long-term consequences that affect everything from workplace safety to your business’ reputation.
The Startling Statistics
Consider this: 22% of small businesses have experienced employee theft. Fraud disproportionately impacts small businesses due to fewer anti-fraud controls and limited resources. While you can't always predict misconduct, background checks serve as a crucial line of defense.
This three-part blog series will provide a comprehensive overview of background checks for your small business. In Part I, we’ll explore their importance and when they’re most critical. Part II will delve into the different types of screenings, their benefits, and potential drawbacks. Finally, Part III will guide you on implementing background checks effectively.
Reasons Why Background Checks Are Non-Negotiable
Background checks are far more than a formality – they’re an essential step in due diligence when hiring or promoting someone. They help you:
Improve your quality of hires by making more informed hiring decisions.
Reduce turnover by identifying potential red flags early.
Ensure cultural fit and alignment with company values.
You can potentially prevent issues like employee fraud and workplace violence by conducting thorough checks, which can be devastating for small businesses.
Small businesses are more susceptible to billing schemes because there’s typically one employee performing multiple roles with no oversight…
The High Cost of Employee Misconduct
Did you know that employees are 15 times more likely to steal from a small business than non-employees? The U.S. Department of Commerce reports that nearly a third of business failures are related to employee theft or fraud. Organizations lose about 5% of revenue to fraud each year. These crimes can take various forms:
Time Theft: Using paid company time to conduct personal business. This is the most common form of employee theft.
Larceny: Outright theft of cash, property, or inventory by an employee.
Embezzlement: Theft of cash, property, raw materials, or inventory from an employee in a position of trust, like an accountant or company executive.
Billing Schemes: Creating false accounts and paying the vendor (who is actually the employee) for nonexistent goods or services. Also called “skimming.” Small businesses are more susceptible to this crime because there’s typically one employee performing multiple roles with no oversight, lack of internal controls, or a high level of employee trust within the organization.
Payroll Schemes: Falsifying timecards to receive compensation for more hours than worked or writing payroll checks to ghost (or “phantom”) employees.
Inflated Expense Reports: Padding expense reports by adding items that were never incurred or not business-related.
Information Theft: Stealing business opportunities by supplying proprietary and confidential information such as customer lists or trade secrets to a competitor.
When Background Checks Are Necessary
While it's best practice to screen all potential employees, background checks are particularly vital when:
Hiring for or internally promoting into roles involving handling finances/cash, confidential information, or vulnerable populations such as the elderly.
Safety is paramount, such as driving or operating machinery.
Working in regulated industries that legally require specific screenings such as childcare and education, healthcare, and transportation.
Conclusion
Pre-employment screenings aren't just an expense—they're an investment in your company's future. By conducting thorough background checks, you're not just protecting your business; you're building a foundation of trust and security that will serve you well as your company grows.
Stay tuned for Part II, where we'll explore the different types of background checks and their specific benefits and risks for small businesses.
Disclaimer: The information provided on this website does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available on this site are for general informational purposes only. Information on this website may not constitute the most up-to-date legal or other information.
