THE     INSURANCE    AGENT’S      ROLE       IN      LOSS PREVENTION     THROUGH      EMPLOYMENT  SCREENING
                  BACKGROUND    CHECK    LOSS     PREVENTION

Since the past is the best predictor of the future, the best way to prevent losses  is to avoid hiring employees that are likely to cause them.

Having their insurance agent review the thoroughness and legal compliance of the client’s employment screening practices, shows the client that the agent is playing an active role in bringing attention to reducing claims frequency and severity. 

Every business understands the benefits of hiring the best employees.

But businesses also know that the cost of a bad hire is incalculable.

 it is critical when hiring, to thoroughly screen and obtain background information on job candidates.

in that connection, an agent may want to offer a quick review of the thoroughness of the coverage and legal compliance of the background checks his insured is using. 

Even if the agent determines the background check process is adequate and compliant, the interest shown in this often overlooked area of loss prevention, will likely be appreciated by the insured.               

HOW BIG IS THE PROBLEM ?

While employee theft and embezzlement are the most frequent causes of losses, cyber related losses can be the most devastating to a company.

Here are some statistics on insider cybercrime in businesses:

  • Number of incidents

    Between 2020 and 2022, Ponemon reported a 44 % increase in insider threat-related security incidents. I

    n 2022, 67 % of companies experienced 21–40 insider threat incidents per year, and in 2023, that number increased to 71 %.

  • Vulnerability
    According to Cybersecurity Insiders’ 2023 Insider Threat Report, 74 % of organizations are at least moderately vulnerable to insider threats.
 

SOME THINGS TO KNOW ABOUT EMPLOYMENT SCREENING BACKGROUND CHECKS.

A good background check begins with a Social Security number address history trace.

This tells the background check company where the applicant has lived and where to look for possible criminal records.

Other than the NCIC, which is available only to law enforcement, there is no national database of criminal records that includes All Federal, state and county criminal records.

Even that database relies on the timely reporting of arrests and criminal proceedings by the various 3,143 counties to  the states and they often don’t report criminal records on a timely basis.

There are some commercially available criminal records databases available, but they contain only data from some states and are  outdated, incomplete and unreliable.

ALL BUSINESSES ARE CONCERNED WITH EXPENSES

But, for about the cost of a $35  ink cartridge, a quality background check that includes a check of county, state and Federal criminal records can be completed.

Many Federal crimes, such as Fraud, drug trafficking, embezzlement or using a computer to lure minors, are reported only in the Federal court records systems

And will often not be reported at all in state or county criminal records.

Any background check that does not include a check of Federal criminal records will miss about 10 percent of all criminal records.

Some background checks also include a check of the Federal watch lists, as well as check of the sex offender registries in all 50 states.

In addition, both the employer and the background check company must carefully comply with the Federal (FCRA)  Fair Credit Reporting Act. 

https://www.eeoc.gov/laws/guidance/background-checks-what-employers-need-know 

So a  quick review by the insurance agent of the background check process being used, should ensure that the employer is accessing the best information available in order to avoid a bad hiring decision.

          HELPING  PREVENT EMPLOYEE  DISHONESTY

While insurance for employee dishonesty helps you recover from losses, employers need to implement sound risk management practices to prevent or at least control employee dishonesty.

Keep in mind that in most incidents of embezzlement (theft by a person in a position of trust), the people involved often possess the following characteristics. They:

  • Are trusted and long-term employees
  • Embezzle property rather than money
  • Have been doing this for a long time
  • Rarely take vacations or time off
  • Have debt or gambling problems
  • Act in collusion with outside people

With a good employment screening system and internal controls, you can reduce or eliminate opportunities for employee dishonesty in the first place.

It is critical, when hiring, to thoroughly screen and obtain background information on job candidates, to the legal extent possible.

In states where obtaining credit reports as well as criminal reports, workers’ comp records and other background information is legal, the federal Fair Credit Report Act (FCRA) requires employers to obtain the candidate’s written consent.

You must also let them know you may reject their application based on what’s in the report and if you do, you must provide a preliminary notice of adverse action.

Then, if the applicant is rejected based on the information obtained, you must notify the applicant notice once your decision is made, by sending an “adverse action notice.

Providing notice not only gets you off the hook for violating any privacy rights or concerns, but candidates with something they want to keep private will take themselves out of the running. For full details on “What Employers Need to Know” about complying with the FCRA and laws enforced by the Equal Employment Opportunity Commission, visit https://www.eeoc.gov/eeoc/publications/background_checks_employers.cfm

In addition to obtaining background information, where possible, an effective employee dishonesty risk management plan will also:
reduce employee theft costs.

57 % of fraud is committed by company insiders or a combination of insiders and outsiders. 

22 % of small business owners have had their employees steal from them.

20 % of data breaches are caused by company insiders.

Every effort must be taken to ensure that bad employees are not hired.

A thorough background check plays a crucial role in loss prevention efforts within organizations.

Let’s explore why.

Risk Mitigation

Background checks help identify potential risks associated with hiring candidates.

1. By examining criminal records, credit history, and employment verification and driving records, employers can assess the likelihood of an applicant engaging in fraudulent or harmful activities

2. 
For loss prevention roles, this is especially important.

3. Employees in positions of trust often have access to sensitive information, valuable assets, or cash.

4. Ensuring their trustworthiness through background checks minimizes the risk of internal theft or fraud. 


5. Insider threats occur when employees misuse their access or authority for personal gain or harm the organization.

6. Background checks help identify individuals with a history of dishonesty, violence, or other concerning behaviors.


7. In loss prevention, where employees handle security protocols, surveillance, and investigations, preventing insider threats is paramount. 

8. A thorough background check can reveal red flags early on in the hiring process.

9. Maintaining Reputation and Trust. Organizations strive to maintain a positive reputation and build trust with customers, clients, and partners

10. 
Hiring individuals with questionable background can tarnish that reputatio10. A comprehensive background check ensures that employees represent the company’s values and ethics.11. In loss prevention, where public perception matters, maintaining trust is essential.

Compliance with Legal Requirements:

11. Many industries have legal requirements for background checks, especially those related to security, finance, and vulnerable populations (e.g., healthcare or childcare)

Reducing Employee Turnover:

12. Hiring the wrong person can lead to increased turnover, which is costly and disruptive. Background checks help select candidates who are a good fit for the organization.

13. In loss prevention, where teamwork, reliability, and integrity are critical, minimizing turnover ensures consistent security practices and effective risk management.

Remember, a thorough background check isn’t about being overly cautious; it’s about making informed decisions that protect the organization, its employees, and its asset.

It’s a small investment with a large return.

INSURANCE AGENT REVIEW AND CHECKLIST OF THE BACKGROUND CHECK PROCESS.

A.  Make sure the background check being used includes a check of Federal criminal records, as well as county and state criminal records in every jurisdiction that the applicant has lived in.

B.  Make sure that it includes a check of all Federal watch lists.

C.  Make sure it includes a check of the sex offender registries of all 50 states.

D.  Make sure that the applicant is providing signed permission for the background check process.

E.  Check to confirm that the proper preliminary and final notices of adverse action are being complied with.
Review the thoroughness of the background check.

A.  Make sure it includes a check of Federal criminal records as well as county and state criminal records in every jurisdiction that the applicant has lived in.

B.  Make sure that it includes a check of all Federal watch lists.

C.  Make sure it includes a check of the sex offender registries of all 50 states. T

D.  Make sure that the applicant is providing signed permission for the background check process.

E.  Check to confirm that the proper preliminary and final notices of adverse action are being complied with for applicants not hired based on the background check.

Review the thoroughness of the background check.

A.  Make sure it includes a check of Federal criminal records as well as county and state criminal records in every jurisdiction that the applicant has lived in.

B.  Make sure the background check includes a check of all Federal watch lists.

C.  Make sure it also  includes a check of the sex offender registries in all 50 states.

D.  Make sure that the applicant is providing signed permission for the background check process.

E.  Check to confirm that the proper preliminary
and final notices of adverse action are being complied with.

The review will only take a few minutes.

Usually the agent will be reviewing this process with the owner and/or the HR hiring manager.

Depending on the organization, often most things will be being complied with.

Even if it is determined that the business is using a quality background check source  and everything on the Agent’s checklist is being complied with, the client will surely appreciate their agent’s attention to this important part of the hiring process as it relates to loss prevention.

References: 

Apr 4, 2024 — The insider threat .

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Disclaimer
None of the information contained in this web site should be construed as legal advice. All forms, policies, information and procedures should be reviewed by your legal counsel before being used in any way.by the  

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