I. INTRODUCTION
The FDIC issued a Financial Institution Letter (FIL-46-2005, June 1, 2005), entitled Guidance on Developing an Effective Pre-Employment Background Screening Process, to assist financial institutions in formulating an effective risk-management tool by providing management with a degree of certainty that information provided by prospective job applicants is accurate and that applicants do not have a criminal background. The Guidance may be accessed by going to www.fdic.gov and searching for FIL-46-2005. A pre-employment background screening process, if used effectively, has the potential to reduce employee turnover by verifying that job applicants possess requisite skills, certifications, licenses or degrees. An effective screening process may also serve to deter theft and embezzlement and prevent litigation over hiring practices. The Guidance also advises an institution to verify that contractors are subject to screening procedures similar to those used by the institution.
II. PRE-EMPLOYMNET BACKGROUND SCREENING
While development and implementation of an effective screening process involves some costs, the FDIC warns that the lack of a process may cause an institution to incur significant expenses from recruiting, hiring and training unqualified persons based upon their skill sets or backgrounds. These employees may then have to be terminated for the inability to perform assigned duties or for other reasons. In addition, the Guidance notes that § 19 of the Federal Deposit Insurance Act prohibits any person who has been convicted of any criminal offense involving dishonesty or a breach of trust or money laundering, or has agreed to enter into a pretrial diversion or similar program in connection with a prosecution, from becoming or continuing as an institution-affiliated party; owning or controlling, directly or indirectly, an insured institution; or otherwise participating, directly or indirectly, in the conduct of the affairs of an insured institution without the prior written consent of the FDIC.
Note: Consultants who participate in the conduct of the affairs of an institution may be subject to § 19.
FIL-46-2005 recommends a pre-employment background screening process be established by all financial institutions that “at a minimum, uncovers information regarding a job applicant's convictions and program entries to ensure that only appropriate persons are employed, or that an application for FDIC consent is sought, if applicable.”
Management responsibilities include: developing a risk-focused approach to determine when pre-employment background screening is considered appropriate or when the level of screening should be increased (based upon position and responsibilities associated with such position); considering the sensitivity of the position or access level of an individual staff member that may call for additional background screening, including verification of references, experience, education and professional qualifications; verifying an applicant's identity; implementing an on-going approach to screening for specific positions, as circumstances change, or for acomprehensive review of departmental staff over a period of time; and developing a policy that addresses appropriate actions when a pre-employment or subsequent screening detects information contrary to what an applicant or employee provided.
III. OTHER BACKGROUND SCREENING
Whether a third-party service provider is hired to perform pre-employment background screening or such screening is done in-house, an applicant’s name should be compared against each federal banking agency’s listing of persons who are or were assessed civil monetary penalties (CMPs) or have been permanently removed or prohibited from banking. Such a review is one of the first steps in background checks on any potential employee. The FFIEC provides links to each federal banking agency’s enforcement action website, which may be accessed at: www.ffiec.gov/enforcement.htm.
Cease and Desist Orders (C&Ds) are public records that are also accessed through the above-referenced link. C&Ds are generally issued against an institution and contain the subject of any strictures, prohibitions or limitations. Although an institution is not prohibited from hiring a person who has been assessed CMPs or performed duties in an institution subject to a C&D, management should determine an applicant’s role in any possible misconduct and provide appropriate oversight of that person.
The FDIC notes that it is common practice among financial institutions to require applicants to complete written applications rather than submitting resumes. Unlike a resume, a standardized application form can provide legal protection (e.g., resumes may contain information irrelevant to a hiring decision). A written application, signed by the applicant, stating that untruthfulness or material omissions are grounds for termination and providing that by signing the form, the applicant attests to the accuracy of the information, further protects an institution, particularly from applicants who fail to disclose criminal convictions. While a conviction is not necessarily a valid reason to automatically reject an applicant, the failure to disclose or lying about a conviction may become the basis for disqualification. A standardized application also allows information collected from applicants to be compared and more readily identifies inconsistencies. If management uses a third-party service provider, a standardized application should be used to allow the provider to collect data required for the screening process (e.g., previous addresses for a certain number of years; sufficient information to verify previous employment; supervisor’s name; and gaps in employment history). For positions requiring a specific degree, an authenticated copy of the college transcript is appropriate.
IV. DUE DILIGENCE IN SELECTING BACKGROUND SCREENING PROVIDERS
Due diligence should be used when selecting a third-party background screening service provider. Before contracting with such a provider, management should obtain and review audited financial statements to determine the provider’s viability, internal control environment and reputation. Legal counsel should review the proposed contract and determine whether the contract contains language protecting the confidentiality of information obtained from applicants. Management should discuss with the third-party service provider its own hiring and employment process and ensure that information obtained in the screening process is not provided to any other entities or persons or sold for profit by the provider. Management should ask about safeguards that the provider uses to prevent identity theft. Finally, an institution’s board of directors or an appropriate board committee should formally approve the provider before entering into a contract.
If a provider searches generally for criminal or civil records only at the local or state level, rather than in all pertinent local, state and federal jurisdictions, the FDIC believes that it is important that the provider is willing and able to review records in each jurisdiction where an applicant has previously lived and worked.
V. DISCLOSURE REQUIREMENTS
Although pre-employment screening is used to verify information provided by an applicant, the process must comply with the Fair Credit Reporting Act (FCRA), since information regarding an applicant’s credit, character, general reputation, mode of living and personal characteristics are included. Credit reporting agencies (subject to FCRA), collect and communicate this type of information for employment purposes. Therefore, prior to ordering a consumer report, an institution is required to disclose, in a separate document, that it will obtain an applicant’s consumer report for employment purposes and obtain an applicant's written consent to do so.
If employment is denied based upon consumer report information, the applicant must be provided with the name, address and telephone number of the consumer reporting agency furnishing the report, a statement that the consumer reporting agency did not make the decision to take adverse action and is unable to provide the consumer with the specific reasons why the adverse action was taken and provide the applicant with a notice of the right to obtain a free copy of the consumer report and to dispute with the consumer reporting agency the accuracy of any information in that report. If an applicant believes the information is incorrect, the applicant can inform the screening agency, which must remove or correct errors or unverified information within the time provided by regulation. An applicant has a right to inspect their application files.
For some background screening companies, an applicant provides information directly to a provider’s system and gives consent directly to service provider. Results are then accessible only to the potential employer.
VI. CONCLUSION
A pre-employment background screening process assists management in the hiring of qualified applicants and may reduce turnover (by verifying an applicant’s requisite skills, certification, license or degree for the position), deter fraud and avoid litigation. Although pre-employment background screening is not error free, the process gives greater assurance that an applicant’s representations are accurate. Management is urged to develop written criteria for a risk-focused approach to determine when pre-employment background screening is appropriate or under what circumstances or what positions warrant increased screening procedures (based upon the position and responsibilities associated with the position). Prior to engagement, an institution’s consultants who participate in the conduct of affairs of an institution should also be subject to the established screening process. Third-party contractors used by an institution should have screening procedures similar to those used by the institution.