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Background Screenings: How Do They Work?

Updated: Feb 2, 2023

Every job seeker will at some point during the recruitment process hear something along the lines of “We’ll get back to you once the background checks are done.” Background screenings or background checks are basically investigations into whether a job seeker is unqualified for an opening due to a record of criminal conviction, poor credit history and so on.

Why Do Background Screenings?

Background investigations and reference checks are the main tools for employers to secure information about potential hires from sources other than applicants themselves. If not done correctly, it can cause long term damage to companies that hire applicants with doubtful credentials (more than 46% of resumes contain at least one discrepancy). What’s more, a bad hire costs on average as much as 2.5 times their monthly salary.

A non-exhaustive list of things that background screenings aim to verify and check:

  • Identity of candidate

  • Previous work experience

  • Criminal convictions

  • Education history

  • Social media content

  • Character references

It can be daunting for recruiters to perform such screenings, and that’s why there are third party organisations that specialise in these investigations. Should you rely on these agencies, though?

Why Outsource Background Screenings?

1. Complex Regulatory Compliance

Investigating the backgrounds of local applicants might be fairly straightforward, but the legal intricacies surrounding the processes get more rigorous when they involve foreign candidates. To ensure compliance with regulations in various countries, outsourcing can be a good idea.

2. Time Saving

Background screenings take valuable time that HR departments can spend on other tasks, like payroll or even recruiting another candidate. External screening companies also have access to resources that enable them to obtain information more quickly and accurately.

3. Objective Reporting

Recruiters and interviewers that have met and talked to candidates in the course of doing interviews may have preconceived notions of said candidates. Getting an external screening company to do background checks can reduce or eliminate these biases.

Questions for Your Background Screening Vendor

After much consideration, you decide to pull the trigger. You’re going to get a specialist in to properly perform background checks. Now the question is, which one? There are numerous background screening companies out there, how will you know which one to choose? To aid your decision, here are some of the questions you should be asking these companies before you make the leap include:

  1. How much does it cost? Are there any hidden fees?

  2. What are turnaround times like?

  3. What are the options to order a background screen, are there online/manual options?

  4. Can the third party agency handle complex cases?

  5. How secure are the agency’s data servers?

  6. Do they comply with Data Protection legislation in different countries?

Companies Can Be Vetted Too

Establishing a relationship with another business is fraught with high-stakes risks. You want to know that you can trust a company when you’re dealing with them, and there are any number of news stories of the unwary getting defrauded. That’s why corporate due diligence background checks are often done in the commercial world. Here are some common purposes of doing a corporate background check:

1. New Vendors and Clients

Engaging new vendors and accepting new clients are significant business endeavours and it’s natural to want to better understand them before entering into a relationship with them.

2. Mergers and Acquisitions

Scoring intel on the executives, officers and key personnel can net you invaluable insight into a business.

3. Commercial Loans

Due diligence is sometimes done to make sure that a company has the ability to repay loans.

Red Flags to Look Out For

There are a couple of things that should set off alarm bells in your head when they pop up in due diligence background checks. Granted, these don’t cover everything, but notable red flags include:

  1. Supposedly better financial performance compared to industrial peers

  2. Discrepancies between claimed and actual credentials and experience

  3. Frequent transactions with entities located in high-risk, offshore financial centers may indicate money laundering or corruption

  4. An absence of staff or a permanent business purpose is a hallmark of shell companies

  5. Overly complex business models that involve unusual legal entities, excessive managerial lines of authority and cannot be explained easily

Finding out that there are problems with a soon-to-be business partner might set plans back a little but in the long run, it will save you a lot of grief and more importantly, money.

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