Is your organization or HR department avoiding or delaying background screenings for potential employees in order to save money? If so, take a moment to consider the direct and indirect costs of a bad hire.
A recent CareerBuilder survey shows that 42% of U.S. employers responding to the survey experienced at least one bad hire within the preceding year that cost their company $25,000 or more, while 27% of respondents report bad hires that cost their company $50,000 or more in direct cash outlays.
Bottom-line costs for hiring and training, employee compensation, severance, fraud, errors and missed business opportunities add up quickly, making the investment for background screenings seem minute by comparison.
Hidden Expense
A 2014 study by the Association of Certified Fraud Examiners (ACFE) reveals the extent and the price of employee fraud. The typical organization loses approximately 5% of annual revenues to fraud. Globally, this amounts to nearly $3.7 trillion if applied to the Gross World Product. The median loss was $145,000 with 22% of the cases involving losses of at least $1 million. In 40.7% of instances, the fraudulent activity was carried out by employees or managers who had been with the company for one to five years. Roughly seven percent of fraud was attributed to new employees with less than one year on the job.
Aside from the outright loss of dollars, you also have to factor in lost productivity, lost time while recruiting and training another worker, and the negative impact on other employees, customers and—depending on the seniority of the bad hire—your vendors and channel partners. If the employee is a key executive and there is fraud or theft involved, your company’s image can be seriously damaged.
How Bad Hires Happen
Bad candidates often slide through the hiring process and get the job. But how? Statistics show that at least 21% of companies do not perform thorough reference checks. While most firms conduct personal interviews and may even do testing before hiring anyone, the information job candidates put on their resumes or communicate in face-to-face interviews rarely presents the full picture. Even the best potential employees tend to inflate their skills or accomplishments, and many individuals even in order to look more qualified or to conceal negative data.
• 27% of job candidates misrepresent their educational history
• 70 million Americans (1 in 4) have criminal records that they may, or may not reveal during the hiring process
• 33% (on average) of all job applications contain discrepancies regarding work history, job titles and employment gaps
• applicants often exaggerate the scope of their responsibilities and some even claim to work for companies they never worked for.
The end result of forgoing a background screening could be theft, embezzlement, workplace violence or sexual harassment—any or all leading to a lawsuit.
If you are a small businesses, you still face the same everyday risks of employee violence, fraud and theft that larger organizations must deal with, and these risks can come with significant costs. In fact, the Association of Certified Fraud Examiners reports that hiring the wrong candidate can cost a small businesses with fewer than 100 employees roughly $190,000. Bad hires are expensive for everyone.
David Goldberg, CEO at SurveyMonkey advises organizations to use resumes and interviews to reject candidates while relying on checks and references to hire people. Professional third-part screeners such as Advanced Research Systems (ARS) offer comprehensive pre-employment checks designed to mitigate hiring risks and help you make sound, highly informed hiring decisions.
Contact ARS today to learn more.
ARS is interested in hearing about your hiring challenges and mis-hires. If you have a story to tell, or questions to ask, send us an email (email address) leave your comments here.