Background Checks Pay for Themselves

Oct. 26, 2004
Think you're not at risk for workplace violence, employee theft or a major criminal act? Think again.

Sol and Lin Toder visited the Pennsylvania State Capital in Mid-October as part of an eight-year quest to honor their daughter Nan. The Toders, supported by Representative Tom Stevenson (42nd district) are pressing legislators for a bill known simply as Nan's Law, which if passed will become state law. Nan's Law, if enacted, would require Pennsylvania's hotel owners to conduct background checks on employees having access to hotel guest rooms. But that's not all the Toder's want. In the capitol's rotunda is a large poster board of Nan Toder placed next to a poster of a giant padlock and keys. It is the Toder's objective that Nan's Law becomes a national model, "unlocking Nan's Law nationwide," for state legislators across the country to ensure guest security through mandated background checks.

Who was Nan Toder?
You can find her picture on the web; the site is simply She was 33 years old and training for a new job the night she booked a room at a Hampton Inn hotel in Creekwood, Ill. She was a part-time aerobic instructor and workout enthusiast; we know that she requested a 5:30 a.m. wake-up call to get an early morning workout on the night of Dec. 12, 1996.

Why security might have concerned her we will never know, but in addition to locking her door, she placed her heavy suitcase against it. That's where the maids found it when they tried to push open the door the next morning. It was also the clue that told investigators she had not let her killer in. Someone could only have entered and exited through the door to the adjoining room. It would have been someone with a key, someone with the time and ability to tamper with the locks between them.

The inn's maintenance chief, Christopher Richee, was a curious man. His friends knew he owned a machete, the type of weapon used to kill Nan, though the murder weapon was never found. To the local police he was known for harassing former girlfriends. He had a record for weapons violations, auto theft and burglary. He once told the hotel's manager that he liked to pull wings off birds to watch them die and throw cats into wood-chippers. His former employer stated that he suspected him of a major burglary. Richee was convicted after a friend testified the maintenance chief had given him a bloody towel to dispose of. In 2002 he was sentenced to life without parole.

The Toders now have $4.6 million to back up their crusade. It came in settlement from sources related to ownership and management of the hotel. The hotel's security was at issue, but the overriding concern was the fact that Christopher Richee, Nan Toder's killer, was given access to rooms and computer information on guests without ever having been background checked. Jason B. Morris, president of Background Information Services Inc., of Cleveland, Ohio, testified at a hearing that a background check on Richee would have revealed charges that included stalking a woman and harassing a witness. "Checking criminal records in the county where a subject lived, worked and went to school is likely to turn up evidence of a criminal history if one exists, and credit bureau records can weed out false Social Security numbers," Morris said. Kendra Ruhl, who chairs the Pennsylvania Tourism and Lodging Association's human resources committee, testified against the bill, stating that it would unfairly burden the State's small businesses, suggesting a better strategy might be encouraging Congress to pass a federal law.

Security executives have been getting more involved in boardroom decisions for the past 20 years and exponentially since 9/11. If you're not already onboard with the benefits of whole organization background-checking, you may want to consider the impact it would have on internal security at large, and start lobbying the organization's executives for funding.

There will undoubtedly be those who disagree, even some human resource executives decry the difficulty of obtaining meaningful information from former employees, not to mention the expense and cost in man hours. And it's always been of questionable benefit to spend money vetting employees in a 50 percent turnover climate. But a quick look at the statistics might galvanize the more hardened opponents in your favor. Employee theft costs American businesses 6 percent of gross annual profits according to the National Association of Fraud Examiners. That's $30,000 dollars a year to a business with profits of $500,000, and $300,000 dollars a year to a business earning $5 million. That's $919 per every U.S. employee, with 30 percent who take from their employers regularly and another 40 percent who will take under the "right" set of circumstances. They cost the American family an additional $440 dollars at the cash register each year; employee thefts amount to 4 percent of food sales at an annual cost of $8.5 billion says the National Restaurant Association. A simple fraud scheme typically lasts 18 months, is committed by a nine-year employee and nets $127,500. The average white-collar crime nets $500,000. A half million employees miss two million days of work each year due to workplace violence. That's the equivalent of $55 million in lost wages alone. Sexual harassment settlements average $250,0000 each. In 2002, employers paid out over $300 million in settlements from Equal Employment Opportunity litigation. Jury Verdict Research Inc. reports the average jury award for employment practice liabilities at $218,000 and the Society for Human Resource Management (SHRM) found that over half of America's employers had been sued at least once by an employee. And that's not the half of it. The U.S. Department of Labor reports a whopping 75 percent of business crimes go unnoticed, hidden in the quagmire of shrinkage, discounts, returns, spillage, breakage, overhead and a thousand other terms that accountants use to interpret dishonesty.

Risk managers and security professionals have long known that organizations suffer greater losses to internal theft, fraud and litigation than to strangers. The Association of Certified Fraud Examiners published in their 2004 Report to the Nation that losses of annual gross revenues to internal fraud and theft have climbed from $400 billion in 1996 to $600 billion in 2002 to $660 billion in 2004. The FBI calls it the fastest growing crime in America. One instance of fraud or theft, one instance of harassment or violence leading to litigation of negligent retention, one instance of injury leading to litigation of negligent hiring would negate the expense of hundreds, if not thousands, if not all background checks for an organization. At a minimum, we should want to know that employees with access to guest rooms have no prior convictions for violent crimes, that drivers have no convictions for operating under the influence, that childcare workers -- including employees who baby sit for guests -- have no prior record as sex offenders, that financial employees have no history of embezzlement, and the list of "no's" goes on and on.

But there's always the money factor. A tiered system might be considered where new hires receive local criminal background checks. The cost runs around $18. All management employees and employees with guest information and room access might receive a full background check at state and federal levels. The cost will be around $40. All drivers, money handlers, security personnel and childcare workers would require the additional scrutiny their positions deserved.

Ninety percent of America's executives polled by the Department of Labor said they were certain they had internal crime problems, and not for lack of good policy and security. The survey also told us that the number one defense against organizational crime was applied policy and procedure and that the least effective was internal surveillance. The best policy and procedure begins at the organization's front door and with high impact statements warning candidates that the organization conducts thorough background checks, including criminal checks. This has been proven to encourage candidates with a "past" to self-opt out of the process. They aren't worried. They'll find an employer they know won't check.

ADP Screening and Selection Services from Avert, in its fifth annual Hiring Index based on calculations of 2.6 million background verifications in 2001 revealed that:

  • 44 percent of employment records showed a difference of information between what the applicant provided and the past employer reported
  • 13 percent of these differences in employment records were received with negative remarks from the past employer in regard to the applicant's work habits, attendance, behavior, termination or other unfavorable conduct.
  • 23 percent of credential records showed a difference of information between what the applicant provided and what the credential provider reported.
  • 4 percent of the differences in credential records were negative remarks from the credential provider in regard to a disciplinary action or complaint filed on the license number/holder. For example, negative remarks on a physician's license may include a suspended or revoked license due to patient neglect, dispensing incorrect prescriptions or dosages, malpractice or other unfavorable conduct.
  • 41 percent of educational records showed a difference of information between what the applicant provided and what the educational institution reported.
  • 11 percent of past employers referenced the applicant as being ineligible for rehire.
  • 41 percent of applicants had one or more moving violations, a DUI or DWI, or had a suspended driver's license.
  • 13 percent of applicants had four or more moving violations, a DUI or DWI, or had a suspended driver's license.
  • 5 percent of applicants had a criminal record in the last seven years.
  • 33 percent of applicants had credit records showing a judgment, lien or bankruptcy, or had been turned over to a collection agency.

In 2001 only:

  • 6 percent of manufacturing entities conducted background checks
  • 3 percent of health services conducted background checks
  • 8 percent of food service entities conducted background checks
  • 4 percent of business service entities conducted background checks
  • 5 percent of transportation entities conducted background checks.

Large firms (over 1,000 employees) were only 1 percent more likely to conduct background checks than small firms (1-49 employees.)

I think it's time to find out who is working for us, and we shouldn't need Nan Toder's wakeup call to tell us so.

About the Author: George D. Shuman, CPP, is retired from law enforcement in Washington, D.C. He was a loss prevention director for an historical New York Resort property for a number of years. He has also served as a human resources director for an international hotel management company, and director of operations for a luxury resort consortium in Massachusetts. His current venture, Shuman Associates, draws on his background and provides security, HR and operational consulting. He can be reached via or by phone at (814) 241-2399.