Every employer knows the costs of a bad hire: 62% of employers report having been affected by a bad hire in the past year. The impacts are in time, money and morale. The financial costs are severe: according to CIFAS, the average total cost of internal fraud was £483,000 in 2013, the average cost of a redundancy settlement £12,000 and the cost of a UK Border Agency fine for an illegal worker £20,000. As a result, a bad hire can cripple an SME or an already-frail business. Bad hires, of course, cannot be eliminated altogether, but they can be minimised. To quote CIFAS directly:
“Such costs are unavoidable…but organisations should not regard such risks as a ‘given’. On the contrary, the findings demonstrate that investment in prevention is preferable to paying out additional costs incurred as a result of internal fraud. Comprehensive fraud prevention strategies combined with appropriate HR procedures must be the cornerstone of an organisation’s work.” (The True Cost of Internal Fraud)
At Onfido, we submit that this should be the attitude of employers not only to fraud, but to the risks of bad hires in general. Comprehensive and systematic background checks of prospective employees are vital as a cornerstone in the prevention of fraud and as protection from costly mistakes, and can and should be adopted as standard practice in the UK.
The scale of the challenges UK businesses are facing in recruitment is great. Putting theft and illegal workers to one side, there is substantial risk of simply hiring an unqualified applicant. 34% of applicants provide fake references and a third of respondents to a Graduate Prospects survey admitted to knowing someone who had lied on their CV. Steven D. Levitt, the co-author of Freakonomics, suggests the percentage of applicants lying on their CVs may be greater than 50%. There is no shortage of notable cases in the media. Perhaps the most brazen and successful was that of Dennis O’Riordan, a man who practiced as a barrister after fabricating a two degrees from Oxford University and another at Harvard, as well as inflating the quality of his original degree from the University of East Anglia. These false qualifications acquired him very well-paid and high profile positions – Mr O’Riordan became general counsel to Sumitomo Finance and head of legal for the Republic National Bank of New York, as well as a well-paid lawyer in a number of internationally renowned firms and chambers.
Theft and fraud are, likewise, an epidemic: there are 20 million false identity documents in circulation and 863,000 illegal migrants in the UK. Employee theft accounts for 30% of business failure, with fraud as a whole costing the UK economy as much as £80bn a year – more than the annual profits of BP and Shell combined. 9.2 million people in the UK have criminal records, or around 30% of the UK’s thirty-two million person workforce. Nonetheless, UK employers are doing little to prevent individuals with relevant criminal histories from being employed in positions of sensitivity or responsibility, or in roles where honesty is at a premium – fewer than half of UK employers engage in pre-screening. Take the very recent case of Shaikh Khan, a manager for Barclays Bank who was recently caught stealing tens of thousands of pounds from the accounts of wealthy and vulnerable Barclays customers. Mr Khan had both lied on his CV and concealed a history of convictions for dishonesty in order to obtain his post – something that could have been easily averted by a relatively inexpensive background check.
How can these risks be managed and prevented? Clearly there have to be systems in place to prevent employee malfeasance and minimise the costs of bad hires at every stage. However, the best systems are always proactive and prevent the damage from done in the first place – and are usually cheaper and less messy. The United States is the example to follow here: 96% of US employees are now screened as a matter of course, to our 48%, and this practice has been adopted only in the last 10 years as the technology and data has become available. Background checking has proven to be of an enormous benefit to US employers: in a report published by HR Management Magazine, the resultant net annual Return on Investment of the dollars spent on background checking was 937.2%. According to the US Small Business Administration, for every dollar an employer invests in employment screening, the return on investment ranges from $5-16, resulting from improved productivity, reduced absenteeism, lower turnover – and decreased employer liability. The economics of background checking are simply too striking and beneficial for employers to continue ignoring.
In the UK there is still a reluctance to follow in this example, despite the obvious benefits. There is a feeling that background checking is only for ultra-high value individuals, or for individuals for whom background checks and screening are required by law. However, the same pressures that are at work on US employers are at work in the UK too, and now a technologically sophisticated and simple technique for dealing with them has been proven to work. Digitalised personal data is available to reliable providers of background checking services, as is the technology to process it affordably, efficiently, and accessibly to every employer. Doing so can only improve trust and the security of employers – and is only a matter of time.
Eamon Jubbawy is a cofounder of Onfido, an employment screening company offering a data-driven platform to help employers make fast, informed decisions on who they can trust.