Home Articles Why even start-ups, not just big corporations, should be running background checks

Why even start-ups, not just big corporations, should be running background checks

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Hire the right people, and you set yourself and your team on a path to grow both a reputable business, and create an impressive organisational culture that candidates would be thrilled to be a part of. Hire the wrong people, however, and your firm suffers – especially if an individual with previous wrongdoings or discrepancies on his or her resume go undetected.

Given the incredibly competitive and dynamic nature of the start-up arena, and the fact that talent usually makes up the core resource of a new start-up, it is imperative that companies leave no room for ambiguity when it comes to their people, especially with the high levels of innovation, precious intellectual property, and first-move advantage at stake. To ensure that new hires do not put the company at risk, it’s becoming more and more commonplace for huge, global corporations to include background checks as part of their hiring processes.

Just this May, ridesharing company Uber – which was once one of the most well-known start-ups – announced that it would be conducting continuous background checks on all registered drivers with their consent. Information such as the driver’s sex offender registries and driving records would be monitored to ensure the safety of their customers. But what about sprouting start-ups? Are their circumstances any less risky when compared with larger companies which seemingly have it all to lose?

Startups are not safe from fraud

If anything, reality is quite the contrary. According to a 2018 report by the Association of Certified Fraud Examiners in the United States, smaller businesses were reported to lose almost twice as much per fraudulent scheme due to their lack of anti-fraud controls implemented. The study also monitored 2,690 cases of occupational fraud incidents across organisations globally, which, put together, amounted to a monstrous $7 billion of losses.

For example, founder and CEO of music streaming service Edge Music Network (EMN), Elizabeth Vargas, previously hired a chief technology officer (CTO) to help with the business. Unknown to her, the CTO had set up a shadow company which allowed him to profit off her business, siphoning funds that amounted to a total of $600,000. The fraud took two years to be detected and forced Vargas to almost completely restart the business. Beyond the business, the incident also shook the confidence of investors who had initially placed their trust in her, leading to their exit from the business.

Indeed, even the very upper echelons of a business aren’t necessarily safe havens. Earlier this year, Isaac Choi, founder and CEO of technology start-up, WrkRiot, admitted to using fake and misleading claims about his prior education, financial and professional background in order to entice prospective employees to join the company. According to federal prosecutors, Choi went by at least four different names and exaggerated statements regarding the company’s financial performance.

How can background screening help start-ups tend to their own gardens and cultivate productive teams, even as they look to bring in investors and other stakeholders that will be willing to plant their seeds – in the form of funding and support – to grow the business?

Background screening helps to secure the credibility of a start-up and the trust of investors

A common hurdle faced by start-ups is securing the support of investors who can provide that initial capital required to accelerate the company’s growth and expansion. From the investor’s point of view, aside from the product or service and the value proposition a start-up brings to the negotiation table, a chief consideration is the team and the people that make up the business.

Who are the founding members? What are their experiences and level of expertise? Do they really have the qualifications they say they have in order to bring to life the ideas they are pitching to me? These are all points of assessment in determining the level of risk they are willing to accept and the amount they are willing to plant in the business.

Mandating background checks for both candidates and existing employees will help validate the credibility of a start-up and its people, lending a sense of authority and authenticity when selling itself to investors. After all, people are one of the few, if not the only asset, that define a start-up in the beginning stages.

Background screening acts as a guard against fraud

Especially in start-ups, where employee roles can often be unclearly defined, this could potentially result in an oversight of checks and balances in company finances as well. This lack of supervision creates an opportunity for cases of internal theft or embezzlement to occur easily within the company.

In fact, HireRight’s 2018 APAC Employment Screening Benchmark Report found that three quarters (74%) of survey respondents said that background screening had uncovered issues that would have otherwise gone unnoticed by their organisation, with common discrepancies cited being employment history, educational credentials and criminal convictions. Continued background screening of existing employees can act as a deterrence to guard against the risk of internal fraudulent schemes.

Background screening promotes a culture of safety and security

Perhaps a key trait that start-ups are known for is their flat organisational structure and closely knit environment. However, this circle of trust between the employer and employee can easily be breached. Cases of workplace violence or theft can damage the overall work environment of a start-up, leading to decreased morale and overall company culture.

Here’s where background screening can help: Knowing that every other employee had gone through the same screening process that they have, thereby creating an added sense of safety and security for new hires when they enter the company.

With employee experience being a key priority for companies in 2018, establishing background screening practices can put employees at ease in the company, which can lead to higher perceived job security and lower turnover rates for the business.

Background screening leaves no room for setbacks, especially where employees are concerned

In the context of tech start-ups, a business can often manifest as a value proposition expressed in the form of pieces of code and apps that can be easily replicated. Thus, while a bad hire can often be detrimental to medium-to-large organisations, start-ups stand to lose everything should a rogue employee walk through the doors and take with them the company’s IP and ideas to start their own competing businesses.

Moreover, valuable resources are wasted on finding a replacement for that specific individual. A case of fraud might possibly lead to negligent hiring lawsuits, which can – in turn – result in irreparable damage to the reputation or existing funds of the business. The reputation that a company has worked diligently to build can be easily destroyed in seconds, and might also be near impossible to rebuild. With the already lean team and financial capabilities of a start-up, it would be prudent to invest in measures to prevent such cases from even happening in the first place.

Think of it this way: establishing background checks as a key part of your hiring process can not only protect the company and its employees, but also your investors and customers. Knowing that prospective and existing employees in the company are continuously screened helps assure stakeholders that the workplace is a safe and secure environment for all.

In light of the risks that can arise from a lack of background screening processes, it stands to reason why establishing checks on both prospective and existing employees can play a critical role in contributing to the success of a start-up.

Steve Girdler is the Managing Director of EMEA and APAC at HireRight, a world leader in on-demand background employee checks. Steve is responsible for building deeper customer relationships and driving HireRight’s growth outside the U.S. Steve joined HireRight in April 2013 with a background in executive management, business development, marketing, and product development with expertise in the resourcing, HR solutions and professional services industries. During his tenure, Steve has expanded HireRight’s global footprint in the Middle East, India and Asia Pacific and tripled revenue in the regions as well.

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