A closer look

The January issue of Garden Center tackled the topic of employee theft, and noted several high-profile examples involving large sums of money. However, the retail reality is that a very large number of employees steal smaller amounts of money or merchandise from their employers. This theft adds up, and employees are often never caught.
Long-term and recent research on employee theft strongly reinforces its frequency and the substantial impact it can have on employers, particularly small employers. For example…

• According to retail-industry research, employee theft is one of the most significant threats to employers. In 2007’s National Retail Survey, 47 percent of retail shrink is due to employee theft versus only 32 percent being attributable to shoplifting.
• U.S. Department of Commerce estimates that 30 percent of business failures result from employee theft.
• A 2006 report by the Association of Certified Fraud Examiners showed that businesses with fewer than 100 employees suffered a median of $190,000 in fraud losses.

Addressing the problem
This eye-opening information should compel garden center owners to address ethical issues when evaluating job applicants. This is further reinforced by research in the HR arena, which shows that 40-70 percent of job applicants embellish or outright lie on their resumes. Other sources of information are crucial if an employer wants to minimize the impact of employee theft on their bottom line. Some of the tools that are helpful to address these issues are reference checks, criminal background checks, interviews and written integrity testing.

Reference checks
Reference checks are a very important part of any applicant screening process. Unfortunately, reference checks are time consuming and costly to conduct. In addition, an applicant’s previous employers often provide very little information for fear of defamation claims. Many younger applicants will not have any previous employment experience, which precludes gathering any insight from prior employers.

Criminal background checks
Since past behavior is a good predictor of future behavior, criminal background checks can help determine whether a prospective employee will steal from an employer. If an applicant has a recent conviction for a theft-related crime, then it should be a legitimate and useful basis for denying employment.

But these reports are not foolproof. ADP’s 2007 Annual Screening Index indicates that only 5 percent of criminal background checks reveal a conviction. And of these convictions, many are not theft- or job-related crimes. Since research and the general experience of retailers consistently shows that about 25 percent of the workforce poses a significant risk for counter-productivity, obviously a 5 percent or less rejection rate of job applicants doesn’t come close to eliminating problems.

Another problem with criminal background checks is that they exhibit a disparate impact on the basis of race. As a result, the Equal Employment Opportunity Commission (EEOC) has indicated that it will pay close attention to an employer’s rejection of applicants on the basis of criminal convictions. Another limitation to criminal background checks is their use with younger job applicants. In the vast majority of cases no information regarding juvenile convictions will be provided, since juvenile records are typically sealed by the courts.

Credit checks
According to the Society for Human Resources Management, up to 60 percent of employers use credit checks to help assess trustworthiness of their job applicants. Even though conducting credit checks is a common practice, there is little concrete evidence to prove their effectiveness in screening job applicants.

Credit checks are coming under fire from legislators particularly in light of the bad economy and its impact on people’s credit. To date, a handful of states (Illinois, Washington, Hawaii, Oregon) have enacted laws that specifically restrict an employer’s use of credit checks, with similar measures being recently introduced in many other states and the U.S. Congress. Also, like criminal background checks, they tend to exhibit disparate impact (on the basis of race and gender).

Interviews
Interviews are a standard piece of the hiring processes and can be very useful when conducted by trained professionals using a structured format. While interviews can be useful to help identify falsehoods on an applicant’s resume, they generally are very poor predictors of ethical behavior.

Therefore, an employer should ensure that its interviewers are well trained, unbiased and focused on uncovering resume misrepresentations.

Written integrity testing
Written integrity tests have been used by employers for over 40 years. These tests have been developed to predict whether an applicant will take part in various forms of workplace counter-productivity (e.g., theft, absenteeism, illegal drug use, not working during working hours).

Research in the area of personnel psychology has consistently shown that these tests are extremely effective in predicting workplace counter-productivity. In addition to this strong validity evidence, integrity tests have been shown not to exhibit disparate impact.

These tests have been administered to millions of job applicants over the past four decades and have not been a lightning rod for litigation (only about 35 challenges). And for each of these challenges, the EEOC or the relevant state human rights agency has found in favor of the employer.

Written integrity tests are relatively inexpensive compared to the other hiring procedures discussed in this article. They can be easily and quickly administered either online or via pencil and paper. As a result, high-risk applicants can be screened out before time and money are wasted on interviews, credit checks, criminal background checks and reference checks.

Garden center owners who are interested in using a written integrity test need to be sure to select a scientifically supported assessment. Employers should look for a publisher with appropriate professionals on staff (industrial psychologists, employment attorneys, measurement specialists), as well as documentation of the test’s validity. An employer should also look for a publisher who is a member of the Association of Test Publishers.

David W. Arnold is general counsel for Wonderlic Inc., where he is involved with legal issues concerning privacy, negligent hiring, employment testing and equal employment matters. He also serves as general counsel for the Association of Test Publishers.