When an airline handling company with warehouses in the Midwest and Southeast was plagued with cargo theft, its insurance firm called in Pinkerton Consulting and Investigations to find out what was going on. In the course of its investigation, the security consultants learned that local police suspected that an organized gang had infiltrated the warehouses.

"We went back to the company and told management that the police suspected that a number of people on their staff were members of an organized gang, but management didn't believe us," recalls Barry Wilkins, Pinkerton's managing director of global supply chain security.

The local police, though, had provided Pinkerton with a list of suspects. Among those on the list were the shipping and receiving manager and the inventory control manager. "Within two years, the gang had infiltrated these senior-level positions," Wilkins explains. "Management told us, 'But we do background checks.' Well, it turned out that they were only doing them within the state of Illinois, and the organized crime ring was being imported from New York."

These days, few would argue with the need to conduct pre-employment checks on warehouse workers. In addition to age-old concerns about theft, warehouse managers today worry about workplace violence and the threat of terrorism. But as Wilkins' story illustrates, if a company wants to protect itself and its customers, it's important to do the right kind of background check.

How much and what kind of information you need to adequately screen a potential employee depends on the position for which they're applying. Employers should screen applicants for entry-level warehouse jobs for the five most common types of illegal drugs, suggests Albert Bueno, president of General Information Services, a pre-employment screening agency. He also recommends conducting a criminal history check in every county where an applicant has lived or worked in the last five years, and checking motor vehicle records if driving is required for the job.

To that list, Wilkins would add verification of employment history, academic records, citizenship or immigration status, and prior addresses. For those types of checks, a social security number is a valuable tool.

Don't assume, though, that the social security number an applicant provides is valid. Standard Corp., a third-party logistics company, doesn't—and with good reason. When the company recently ran a background check on a job applicant, it found that the social security number the applicant had provided on his application actually belonged to a deceased person. "Management was very interested in hiring this applicant," says Human Resource Generalist Elizabeth Coleman. "If a background check had not been run, we might never have detected that. And this is just one of several examples."

Social security number verification also serves as the starting point for criminal record checks. A thorough check can be difficult, as private citizens don't have access to a truly nationwide database of criminal records. Furthermore, some court records still aren't automated, and some states don't aggregate records at the state level. Instead, background checks must be performed county by county.

In spite of those difficulties, experts recommend looking beyond the applicant's current residence. "If an applicant has a criminal record, it is easy for them to move one county over," says John Tabor, director of security for National Retail Systems, a provider of logistics management services. "A check of the current address won't turn up any priors."

Tabor knows that from experience. Until recently, NRS ran a criminal background check only in the county where an applicant resided. But after Tabor linked some thefts to employees with larceny convictions in other counties, he expanded that check to include all counties where an applicant has lived in the past seven years. That extra effort has paid off: The number of applicants rejected due to background-check results has doubled, from one or two to three or four out of every 10 applicants.

Companies that want an additional "safety net" can turn to pre-employment screening agencies that scan criminal records in many states. First Advantage, for example, checks records from 38 states, while General Information Service can check 46 states.

For senior management positions, due diligence may also require checking references and educational credentials. How much deeper a company should go depends on the position and the industry, as well as on federal and state privacy laws. For positions with fiduciary responsibility, for example, companies may want to conduct both civil court and credit checks. As Dan Purtell, supply chain security division president for First Advantage, points out, "You don't want someone handling your payroll who has filed for bankruptcy three different times."

Although it's important to carefully investigate job applicants, employers don't have free rein to dig up every piece of information about a potential employee, warns Michele Ballard Miller, a principal with employment and labor law specialists the Miller Law Group. Any type of pre-employment test, including drug and physical capability tests, must comply with applicable state and federal laws, including privacy, anti-defamation, and anti-discrimination laws, she explains.

Some states, for example, prohibit companies from considering arrest records when making hiring decisions because not everyone who's been arrested has committed a crime. There's more leeway when it comes to criminal convictions, Miller says, although some states restrict employers to reviewing only recent convictions or those that are job-related.

The federal Fair Credit Reporting Act (FCRA) places restrictions on the acquisition and use of information for consumer reports, including those generated by pre-employment screening services. It's important to be familiar with the FCRA, says Henry Nocella, an independent security consultant and former vice president of security at Best Foods. "You have to know who may perform the checks and under what conditions. And you have to get the permission of the applicant before you can perform the checks," he says. "If the check turns up negative information, you need to know what recourse you can take and what information you have to supply to the applicant."

Legal considerations will also come into play if a company fails to conduct an adequate background check on an employee who subsequently commits an act of workplace violence. One example: In 1998, a warehouse employee shot and killed his supervisor and then himself after the supervisor threatened to fire him. The employee had a history of violence, and the company was sued for negligence because it hadn't conducted a background check before hiring him.

According to Steve Millwee, president and CEO of security consultants Securtest, the employer testified that it had not performed a background check because of the cost. Millwee, who served as an expert witness in the case, estimated that a basic investigation would have cost no more than $75. He also calculated that by not conducting background checks on potential new hires, the company had saved itself around $11,000 in the three years prior to the incident. The average negligent-hiring case, by contrast, settles for about $500,000—and can cost millions if the case goes to trial or involves a homicide.

Most companies either use a third-party provider to conduct background and criminal history checks or an online research service that allows them to do it in-house. The turnaround time for a report can range from 24 hours to two weeks, depending on how extensive the check is, how many places the applicant has lived, and how automated the records are.

Costs can vary from $30 for a low-level search to around $200 for a comprehensive investigation, says First Advantage's Purtell. The typical cost for a basic package that includes a social security number verification, county criminal investigation, and a national scan ranges between $60 and $100.

The number of pre-employment screening companies has mushroomed in the last 10 years. A buyer's guide published by the Society of Human Resource Management, for example, lists about 140 vendors. For that reason, Miller stresses, companies need to choose their providers carefully. "It's no defense to say that you got the information from XYZ agency if it turns out that the only reason why that agency exists is because you gave them your business," she says.

In addition to checking references, experts recommend assessing the provider's credentials, what type of records it checks, and whether it adheres to applicable federal and state laws. Not all are as knowledgeable as one would expect. Standard Corp., for example, found several vendors that were unaware of the FCRA's requirements for notifying applicants of adverse information. Bueno also recommends asking whether the provider conducts background checks on its own employees.

Some companies choose to receive the raw reports to review themselves. At electronics distributor Avnet, for example, human resource professionals review those reports. If they decide that an applicant requires further review, they ask the security and legal departments to get involved, says Ed Rana, director of asset protection.

Other companies have the provider rate applicants based on pre-established criteria. At Standard Corp., after the company makes a conditional job offer, HR enters the applicant's information into General Information Services' system. Within 72 hours, the provider notifies Standard whether an applicant has passed, failed, or requires further review. Only when an applicant requires further review does a manager look at the actual background report. Otherwise, reports are stored in the provider's database to help maintain applicants' privacy, explains Coleman.

Pre-employment screening needs to be fairly and consistently applied. One company that subscribes to that philosophy is TechData, a distributor of computer hardware and software products. TechData conducts criminal history checks for all applicants who meet a position's qualifications, says Vice President of Loss Prevention and Security Dan Dunn. The company requires the same level of background checks for all employees, including temporary workers.

To make sure its screening process would be fair and meet all the necessary criteria, Avnet established a cross-functional team with representatives from operations, human resources, legal, and security and risk management to design that process, says Rana. "You certainly want to respect the law and operate under the confines of the law, but you also want to do what is good HR practice and involve the input of other areas. This way, they all had a stake in it. They know how it is being done and why."

Ultimately, a consistent and thorough screening process benefits not only the employer and its customers, but also the applicants themselves.

"It's just good business practice to want to attract and retain the best and brightest people. Part of the due diligence for that is noting the character of the people you're hiring," Rana explains. "Good employees want to work with other good employees, and they want to know that they are working in a safe environment."