Credit checks reduce the risk of employee theft and fraud

February 24, 2011

Regarding your editorial "Credit where it's not due" (Feb. 21), the idea that credit reports are used for most job applicants is simply not true.

While the Society for Human Resources Management notes that 60 percent of employers might use credit reports, only 15 percent of job applicants actually have their credit report reviewed. They are primarily applicants whose job involves some sensitivity, such as handling money or valuables, dealing with personal data, etc.

I'm aware of only one study cited by those who oppose the use of credit reports for employment. It was done in 2003 by Jerry Palmer and Laura Koppes of Eastern Kentucky University. However, their study focused on employee responsibility, the ability to meet deadlines, dependability and related employee characteristics. Yet that's not how employers use credit reports. Instead, they use credit reports to measure the risk of loss to their business.

A study by Edward Oppler and others in 2008 did show a correlation between using a credit report for employment purposes and what Oppler described as "counterproductive work behavior," defined as theft and related behaviors.

In short, Oppler concluded that employees with financial history concerns were significantly more likely to engage in counterproductive work behavior than those without financial concerns. In fact, a job applicant with a troubled financial history was almost twice as likely to engage in counterproductive work behavior as an applicant who lacked any financial history issues.

The Association of Certified Fraud Examiners notes that employee thefts accounts for nearly $1 trillion annually. The average theft totals more than $175,000, but that number increases to $200,000 for organizations with less than 100 employees.

The top two red-flag warnings present in these crimes were instances where the fraudster was living beyond his or her financial means or experiencing financial difficulties. That's important because employee fraud and theft can very well determine whether a small business survives or not.

For these reasons, CDIA members feel that credit reports should be one of the resources available to employers in the hiring process.

Norm Magnuson

The writer is vice president for public affairs at the Consumer Data Industry Association in Washington.

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