Imagine hiring for a chief accounting position or a chief financial officer who will be steering a company’s fiscal decisions, activities, and assets to the millions of dollars. The candidates are reviewed, shortlisted, and compiled to the best five. They all have glowing resumes, sterling references, and deep employment experience in the given field. However, six months after the key candidate is chosen the HR office gets a call; it’s a collection agency enforcing a lien on the hired candidate to garnish his paycheck for a judgment. Surprised? This sort of scenario happens more often than people think, and it is entirely preventable with a pre-employment credit report check.
The Basics of a Credit Report
Anytime someone is being hired for a key financial position an organization needs to be on solid ground that the individual isn’t a personal financial risk coming in the door. One of the best ways to do this is with the use of a credit report. Produced by independent credit agencies that compile activity data and public information about every individual utilizing banks, credit cards, loans, and financial tools in the U.S., credit reports provide a key look into the personal financial behavior of a candidate before they are hired. The typical credit report will provide a summary of how a person manages his or her finances as well as what kind of liabilities they have in terms of loans and borrowing. Their accountability behavior will be visible as well in terms of whether everything is paid on time or whether they’ve had trouble keeping up with commitments. And it will include any judgments such as liens and bankruptcy filings as well.
The specific details provided will include contact information for prior employers which may flag career stops that the candidate left out of their application package, legal judgments like bankruptcy, credit history, and payment patterns, delinquent liabilities due, and credit inquiries other agencies have made, which could signal a sudden spike in seeking additional credit to solve a personal problem.
The Implications are Multiple
The primary vulnerability of someone in financial trouble being in a key financial position is the temptation to solve their personal problems at the expense of the company’s assets and liabilities. Time and again, people in financial crises have stumbled and embezzled money, stolen assets, and misused business resources to alleviate their own personal problems. That kind of risk can put an entire company into legal trouble with tax agencies, compliance, accounting audits, and even criminal charges.
Additionally, people with security clearances become targets for conversion by parties who would like to have access to confidential or secured information. Such persons in financial struggles could become susceptible to being financially helped in exchange for what their security clearance can provide access to.
A pre-employment credit report check allows an employer to hire a candidate with eyes wide open about their potential susceptibility to solve their personal financial problems the wrong way. It can also help avoid a security leak or weakness before the breach occurs in the first place.
Compliance Still Matters
Every employer should be aware, however, credit reports are not arbitrarily available. Many states have restrictions on how they can be used, who can access them, and for what reason. Employers should be prepared to be able to show a nexus between the need for the information and the hiring needs as well as justification such as financial sensitivity and security. Companies should also be prepared to protect the information collected, keep it secure, and have means for confidential disposal after the records are no longer necessary to retain. Failure to maintain these kinds of procedures with credit reports could put a company in hot water with privacy invasion, liabilities for personal data, and exposure to external audits. So, it is important to have a solid understanding of how to handle credit reports for hiring before getting started with their usage.
Pre-Employment credit reports can be a life-saver of prevention for companies with sensitive financial positions as well as similar roles in other disciplines. So, companies thinking about getting started with adding this resource to their hiring process should definitely seek out expertise in setting up their additional validation process correctly. An ounce of additional care in process development can save a boatload of headaches from good intentions gone wrong.
Image Credits: Amy Hirschi