The trouble with background checks

[Guest guest]

This isn't related to autism or vaccines, but still troubling..

especially on the heels of Bush's signing of the genetic database,

the NY bill to mandate vaccines (after an NY county opens the first

hearings into vaccines IN THE COUNTRY??? WTF!??)..

Jim

The Trouble with Background Checks

Employee screening has become a big business, but not always an

accurate one

(May 29, 2008)

by Chad Terhune

Theodore Pendergrass was shocked in November, 2006, when the

Walgreens (WAG) pharmacy chain rejected his application for a store

supervisor job. The company told him a background-screening firm

called ChoicePoint (CPS) reported that a past employer had accused

him of " cash register fraud and theft of merchandise " totaling

$7,313. " I wanted to cry, " Pendergrass says. The $4 billion business

of background screening is booming. Companies large and small are

sorting mostly mid- and lower-level job applicants based on

information compiled by ChoicePoint, its major rivals, and hundreds

of smaller competitors. Some employers have grown more vigilant about

hiring since the September 11 terrorist attacks. Others like the

efficiency of outsourcing tasks once handled by in-house human

resources departments or bosses who simply picked up the phone

themselves. Whatever their motives, employers are becoming more

dependent on mass-produced background reports that rely heavily on

anonymous, and sometimes inaccurate or unfair, sources.

Pendergrass' difficulties stemmed from a previous job at Rite Aid

(RAD). By late 2005, when he was 25 years old, he had reached the

first rung of management as a shift supervisor in a Rite Aid store in

Philadelphia. His bosses trusted him to oversee cashiers, bank

deposits, and merchandise deliveries. Then, in January, 2006, a store

official accused him of stealing goods and underpaying for DVDs. He

denied the accusations, but the official said police were waiting

outside to arrest him if he did not confess. Pendergrass wrote a

statement but wouldn't admit to theft. He was soon fired anyway.

Later, at a hearing for unemployment compensation, Pendergrass was

vindicated. A state labor referee ruled that Rite Aid had not proved

its allegations and awarded him nearly $1,000 in benefits. But Rite

Aid had already submitted its theft report to a database used by more

than 70 retailers and run by ChoicePoint, the largest screening firm

for corporate employers in the U.S. Based in a leafy Atlanta suburb,

ChoicePoint says it checks applicants for more than half of the

country's 100 biggest companies, including Bank of America (BAC),

UnitedHealth Group (UNH), and United Parcel Service (UPS). Because of

Pendergrass' tainted ChoicePoint file, retailers CVS Caremark (CVS)

and Target (TGT) also rejected him for jobs.

Pendergrass, now 27, makes lattes at a Starbucks (SBUX) in

Philadelphia. The coffee chain doesn't use a screening firm for entry-

level hires. Pendergrass earns $17,000 a year, or 30% less than he

did at Rite Aid, and fears his career has been derailed. " I worked

hard in that store, and none of this stuff was true, " he says. " I

would be locked up somewhere if I stole $7,000. "

Rite Aid declines to comment. A ChoicePoint spokeswoman says the

company's background report merely conveyed information provided by a

former employer.

FAT PROFITS

Background screening has become a highly profitable corner of the HR

world. At the screening division of First Advantage (FADV), based in

Poway, Calif., profits soared 47% last year, to $29 million; revenue

grew 20%, to $233 million. HireRight (HIRE), based in Irvine, Calif.,

reported that earnings jumped 44%, to $9 million, last year on

revenues of $69 million. To grab a piece of this growing market,

Elsevier Group (RUK), the Anglo-Dutch information provider, agreed to

acquire ChoicePoint for $4.1 billion in February—at a 50% premium to

its stock price.

Industry surveys show why Elsevier was eager to expand its

screening business. In a 2004 study by the Society for Human Resource

Management, 96% of personnel executives said their companies conduct

background checks on job candidates, up from 51% in 1996. Two-thirds

of larger companies say they outsource screening, and many now vet

current employees in addition to applicants.

Screening often goes far beyond the familiar checking of public

criminal records. For $60 to $80 per applicant, ChoicePoint and its

rivals assemble digital dossiers of educational degrees and credit

histories as well as interviews with friends, past bosses, and

colleagues. Call-center workers wearing headsets inquire about work

habits, personal character, and drug or alcohol problems. Just by

dint of their heft and permanence, the proprietary data caches they

compile can seem authoritative, even though the information sometimes

contains errors, innuendos, or outright falsehoods.

" You won't believe what people tell you, " says Beth Gotshall,

who has done interviews since 1999 at Employment Background

Investigations, a midsize firm in Owings Mills, Md. She and

colleagues have collected comments from a father who said he would

never rehire his son because he had missed so much work at a family

business. Another former boss accused an applicant of stealing and

demanded Employment Background help find him. (The firm declined.)

" We put everything in there, " Gotshall says while juggling employment

checks for retailer Ikea, a Pittsburgh medical clinic, and a Texas

engineering firm. Her boss, Kurland, chief executive of

Employment Background, says the company goes to great lengths to be

accurate. " We have a huge responsibility to mankind, " he adds.

But Lester Rosen, a veteran in the industry and president of

Employment Screening Resources in Novato, Calif., says: " Essentially,

it's the Wild, Wild West. It's an unregulated industry with easy

money and not a huge emphasis on compliance or on hiring quality

people " to do the screening.

Theron , a 61-year-old unemployed truck driver in Middleville,

Mich., is waiting for his name to be cleared in a database used

widely in the transportation business. In May, 2006, a U.S. Labor

Dept. administrative law judge ruled that was wrongly

terminated by Marten Transport (MRTN) for making legitimate

complaints about the safety of his 18-wheel truck. He had hauled

loads for the Mondovi (Wis.) company for only two weeks before being

fired in June, 2005. The judge awarded him more than $31,000 in

damages and back pay and ordered Marten Transport to delete " any

unfavorable work record information " in a report compiled by USIS, a

large screening company in Falls Church, Va. Once an arm of the

federal Office of Personnel Management, USIS was privatized in 1996.

It still screens government workers and runs an employment-history

database used by 2,500 transport companies called Drive-A-Check, or DAC.

Despite his legal victory, 's DAC report still says Marten

Transport dismissed him for " excessive complaints " and a " company

policy violation. " " No one will hire me, " says , who withdrew

$50,000 from retirement savings to support his wife and himself.

Trucking company J.B. Hunt Transport Services (JBHT) " told me I had

excessive complaints and wouldn't hire me. I told them I won my

case. " Hunt declines to comment.

Marten Transport has appealed the Labor Dept. ruling. A company

attorney, DiTullio, says it would be " fraudulent " for the

carrier to remove the reference to excessive grievances from 's

DAC file. " That was an accurate portrayal of what led to his

termination, " DiTullio says. Marten Transport has addressed 's

safety concerns, he adds.

Griffith, 47, won a similar Labor Dept. ruling in October, 2003,

against his former employer, Atlantic Inland r. The

administrative law judge ruled that the company wrongly fired

Griffith in December, 2001, for complaining about the safety of his

truck and ordered Atlantic Inland to remove unfavorable information

from his DAC record.

Someone at Atlantic Inland—it's not clear who—had told DAC that

Griffith was terminated and not eligible to be rehired because of his

grievances. The company eventually deleted that information in

January, 2004—more than two years after it was posted. During that

time, Griffith says, it was hard to find trucking work. The Aiken

(S.C.) resident turned to lower-paying odd jobs, although he recently

got back behind the wheel making deliveries for a nursery. " Truck

drivers live and die by DAC, " he says. " They can ruin a driver's

career with a few clicks of their mouse. "

LIVING IN FEAR

USIS declines to comment on any specific cases. Gripes about its

database have made " DAC " a popular verb in the industry, with drivers

lamenting they have " been DAC-ed. " Responding to the anxiety

surrounding the database, USIS officials have defended their methods

on radio interview shows aimed at truckers. They argue that screening

is legally required, generally accurate, and keeps bad drivers off

the road.

But Turley, director of market development and communications

at USIS' commercial-services unit in Tulsa, concedes that no system

is immune to mistakes and misuse. " There is a chance somebody who

holds a grudge will put negative information in the database, " she

says. " We are not trying to blackball drivers or ruin their chance to

get a job. " When a driver disputes a background report, USIS asks its

sources for proof supporting negative comments, she says. USIS

doesn't seek such evidence up front. " Ideally that would be a good

solution, " Turley says, but it could dissuade past employers from

submitting information in the first place.

The federal Fair Credit Reporting Act covers background screeners,

but it hasn't been aggressively enforced. The law says screeners must

use " reasonable procedures " to ensure " maximum possible accuracy. " It

also requires employers to give a copy of background reports to

rejected applicants. An applicant can dispute the information, but

the Federal Trade Commission has said employers must wait only five

business days before hiring someone else, meaning that objections

frequently become moot. Lately the agency has focused more on

identity theft than on screening, Kuehn, assistant director

for privacy and identity protection, says.

ChoicePoint has run into trouble because of how it has disseminated

personal data. A 1997 spin-off from credit bureau Equifax (EFX), the

company stumbled in 2004, when it offered a $40 software package at

Sam's Club (WMT) stores that allowed small businesses to obtain

personal information on applicants. The company dropped the product

after privacy advocates pointed out that it wasn't verifying whether

users had a business license and a legitimate purpose for searching,

as opposed to snooping on a neighbor or old boyfriend.

Then, in 2005, it came to light that ChoicePoint had given identity

thieves pretending to be small business clients seeking background

checks access to people's addresses, Social Security numbers, and

dates of birth. ChoicePoint agreed in 2006 to pay a $10 million civil

penalty to the FTC and $5 million more to compensate 160,000

consumers whose information had been compromised.

LURING CONSUMERS

Today, ChoicePoint bills itself as the gold standard in screening.

" The big issue for us is making sure we're doing things as accurately

as possible, " says Bill Whitford, a senior vice-president. The

company conducts 10 million background checks annually and estimates

it has about 20% of the U.S. market. " The number of complaints vs.

transactions is very low, " says , vice-president for

consumer advocacy. The FTC has logged 695 complaints against

ChoicePoint since 2005, some of which related to the identity-theft

episode. USIS had the second-highest total, with 89.

ChoicePoint now is trying to draw consumers as clients. It sells a

preemployment self-check to people who want a preview of what an

employer would learn about them. These reports cost from $24.95 to as

much as $75, depending on how customized they are. Savvy consumers

can save themselves some money: Under federal law, individuals are

entitled to a copy of any background report compiled by a screening

company for a minimal fee, generally $10 or less.

Along with price, screening firms compete on speed. HRPLUS, in

Evergreen, Colo., offers five reference interviews within 72 hours.

At Employment Background Investigations, a whiteboard hanging on a

cubicle wall recently celebrated the clearing of 1,025 applicants in

one week by a group of about two dozen screeners, a company record.

Screening firms say their services are vital. In many industries,

they argue, employers don't seek prosecution of minor infractions but

are willing to report them to employment databases. USIS says its

retail records have identified more than 30,000 applicants with

histories of theft in just the past few years. All theft reports are

re-verified with the employer that submitted them before being shared

with an inquiring company, USIS says. But mistakes occur, and once a

worker is flagged, it can be nearly impossible to work again in retail.

Two screening companies got it wrong in the case of Ingrid Morales.

In 2001, Morales, then 26, was fired after only a month as a makeup

artist at a Saks Fifth Avenue (SKS) store in Boca Raton, Fla. Saks

cited a report supplied by a retail database, now owned by USIS, and

a smaller Florida screening firm, Merchants Security Exchange. The

screeners said she had been terminated from a Burdines department

store in 1995 for " unauthorized taking of merchandise " valued in the

hundreds of dollars. Morales denied the theft allegations. But it

wasn't until she sued Burdines and the screening firms in federal

court later in 2001 that the information was corrected. USIS deleted

the negative reference, and Merchants Security changed her file so

that it noted merely a company " policy violation " in connection with

her use of an employee-discount card.

A judge dismissed her suit in 2003, ruling that she had not been

defamed by Burdines, a part of what is now Macy's, and that the

screening firms hadn't violated the law. A spokesman for MAF

Background Screening, previously known as Merchants Security, says

that " mistakes do happen " and that the Morales case illustrates why

applicants should review their background reports. USIS and Macy's

decline to comment.

Morales, now 33 and the mother of three children, says that her

firing and inability to find work again at store cosmetics counters

put her family in a financial bind for several years. Her husband's

construction business has since taken off, and she helps manage it

from home. But she's still bitter about the background report. " It

ruined my whole career, and I felt very humiliated, " she says. " They

can put whatever they want in your file, and you can't get work. "

Terhune is a senior writer for BusinessWeek based in Atlanta .

Xerox Color. It makes business sense.

Advertising | Special Sections | MarketPlace | Knowledge Centers |

Terms of Use | Disclaimer | Privacy Notice | Ethics Code | Contact Us

| Careers

Copyright 2000-2008 by The McGraw-Hill Companies Inc. All rights

reserved.

McGraw-Hill Logo

close