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Spotting Red Flags, Achieving Business Success

When you apply for a new job, the hiring officer will run a background check on. When you apply a loan from a bank, the manager will look at your credit history. When you visit another country, the immigration officer runs a derogatory check on you.

When you’re a business owner, you also need to know about business partner compliance checks.

For your business to grow, forging partnerships is imperative. Even small businesses need the services of other entities to achieve their own goals. The resulting alliance is a win-win strategy; all parties need to benefit from one another. If one or two partner fails in one aspect, the whole business will dwindle.

What is a Business Partner Compliance Check?

The term “business partner” is any commercial party with external business ties to the company. This includes, but not limited to, consortium partners, consultants, auditors, suppliers, contractors, distributors, sales agents and customers.

Can you imagine if any one of your business partners underdelivers? What if a consultant gives the wrong advice? How would you react to a supplier that provides substandard quality? Is there poor credit history among any of your partners?

For your business to thrive in a competitive world, these are valid concerns. When your partner, for instance, engages in illegal or improper conduct, you may be held liable as well. A company, whether how small or complex, needs to perform compliance screening on all its business partners.

A business partner compliance check is therefore a measure to verify compliance to all requirements as applicable by law. This concerns regulations and policies like money laundering, human trafficking and customs bribery. The extent of what laws should be followed depend on the country; the United States has The Foreign Corrupt Practices Act of 1977 and the United Kingdom has the UK Bribery Act, for instance.

The goal of a business partner compliance check is to protect the company from potential liabilities and negative reputation. This procedure determines a risk before it becomes an actual problem.

There is no one-size-fits-all compliance check as companies utilize their own screening procedures or hire the services of a professional firm that specializes in these checks. Most of the time, companies exceed their country’s legal requirements for business partner compliance checks.

The Concept of Due Diligence

By definition, due diligence is the process of investigating any commercial entity before a major event or milestone, such as contract signing. Although the term is heavily used in legal contexts, it is a central concept in business partner compliance checks.

Through data collection, verification, and evaluation, you will be able to identify potential risks or red flags that should bear weight in your decision-making.

As a businessman or manager, you practice due diligence by investigating every aspect of a potential business partner. From the largest consortium partner down to the last customer—every business should look into its partner’s corporate responsibility, financial performance and client feedback.

The Business Partner Compliance Check vs Other Procedures

It is worthy to note that there are other measures to investigate a business partner: the business partner background check (or company background check), and the business partner integrity check.

The “Fishy” Business Partner

So what makes a shady business partner? Once you have the results of your compliance checks, here are common red flags that you should look out for:

● History of deception, bribery, corruption, money laundering, human trafficking, terrorism and other illegal acts

● Poor feedback from co-vendors, contractors or customers

● Refusal to comply with requirements and instructions

● Close ties with government officials resulting in unnecessary recommendations

● Non-transparency in financial transactions

● Failure to provide complete and correct invoices

● Ludicrous quotation for services or demanding advance payments

● Absurd proposed outcomes that seem “too good to be true”

The Benefits of Business Partner Compliance Checks

Performing business partner compliance checks may exhaust a lot of resources, but not without benefiting the company as a whole.

The advantages include:

● Proper management of business relationships through a structured and transparent approach

● Prompt risk classification allows for identification of potential problems that may arise when working the the business partner

● Effective use of an IT application process with compliance checks ensures transparency and efficiency of the results

No matter how financially exhausting and time-consuming this process is, companies see it as a wise investment. The benefits of a compliance check far outweigh its weaknesses. Can you imagine your business suffering from a standstill, or a huge drop in sales, or angry customers—because of one business partner who failed to do their part? It’s true that it takes years to build a reputation, and only minutes to shatter it. Even when you’re still starting, make it a point to perform routine compliance checks to all your potential business partners.

There are many consulting, auditing and security firms that specialize in business partner compliance checks. The rates vary across different countries and the extent of the compliance check. Many firms will be happy to personalize it as your own tool, specifically for your company’s needs and goals.

A bad hire is a liability. It is a waste of resources and a threat to the organization. According to the US Department of Labor in 2003, a bad hire costs the company about 30% of the employee’s salary in the first year. Losing thousands of dollars because of a single employee is no laughing matter. The figures are overwhelming, and no business wants to suffer because of a bad hire.

Although bad hires are not 100% preventable, you can significantly lower the risk of hiring the wrong candidate through criminal record checks. By conducting this check as part of your recruitment process, you can identify the applicants with a criminal history, and move on to interview those who passed the check.

A criminal record check is the process of obtaining information on a person’s criminal history which includes warrants, convictions, and arrests. This is most commonly used by human resource managers for recruitment.

HireRight estimates that in 2017, 85% of hiring managers spot false declarations on applicant resumes. What are the odds that one applicant or two has a criminal record? Criminals are now so elusive, and those with a past troubled record can be very evasive even when they have been off the hook.

You need to know why a criminal record check is so important today, and why you should do it as part of a comprehensive selection process. Here are frequently asked questions about criminal record checks:

“Are criminal record checks and person background checks the same?”

Both checks contain information on an individual’s criminal history or absence thereof.

However, criminal record checks are more comprehensive because they focus exclusively on criminal history. If you need an overview of an applicant’s overall background such as educational qualifications, past employment, credit history, and criminal records—a regular background check will do. If your concern is on the criminal history alone, a criminal record check will provide you with the information you need to look into the individual’s previous or current offenses.

“What is the significance of criminal record checks?”

Complacency is the silent killer of business.

You may think that no person with a criminal record will ever have the guts to apply for a job, but don’t be surprised if a criminal record check on one of your applicants generates a hit for workplace theft.

Through criminal record checks, you avoid employees with convictions like violence, theft, fraud, embezzlement and substance abuse. The goal is to determine any past or present criminal record that threatens your organization and employees. You need to prevent potential losses due to worker theft, and avoid lawsuits for negligent hiring and workplace violence. A safe workplace is the best workplace.

Conducting criminal record checks also speaks a lot about your company as far as recruitment is concerned. Do you do a routine check during the selection process? Do you repeat the check when offering a promotion to a current employee? Do you conduct a check every few years or so? Hiring and maintaining employees with zero criminal history mirrors the quality of employees, increases your company’s success, promotes your brand and magnifies your revenues.

“What are the limitations of criminal record checks?”

One disadvantage of criminal record checks is that some states do not disclose all information pertaining to criminal records. California, for example, only displays the convictions and not the arrests of the individual concerned. The extent of information disclosure depends on the policies of a certain country or state.

This is why it’s recommended to employ third-party experts in criminal record checks. If your company’s legal department is unable to obtain criminal record checks, trained investigators can do so on your behalf. Not only are they knowledgeable about where to get information, but they are trained to obtain records legally. They also have access to other resources that are otherwise not available to the public.

“What can you expect from criminal record checks?”

A criminal record check is an effective tool used by investigators and security experts to make sure that you practice reasonable care and due diligence in your selection process. Criminal record checks are so thorough, that you are able to get hold of information that a regular background check may not reveal.

A typical criminal background check starts with the person’s personal details, such as the complete name, aliases, physical description (height, weight, skin color, eye color) and distinct characteristics (moles, tattoos, scars). Results reveal all these details including outstanding warrants, convictions, arrests, and prison terms.

Investigators obtain records from courts, police and law enforcement agencies. They can also get information from international agencies such as that from INTERPOL to verify international warrants.

Once you have the information at hand, then you have the confidence to make an informed decision about the applicant’s chances of getting hired.

“Do I need to conduct criminal record checks?”

Small and medium enterprises need to protect their businesses as they can be an easy target for criminals to apply, believing that criminal record checks are too costly for small business owners. Although many countries allow their own people to conduct criminal record checks on themselves, these records do not often display the details of the offense committed, if any.

For large corporations, criminal record checks should not be neglected. A bigger company entails a bigger brand to protect, and an even bigger name to carry. It only takes one bad hire to tarnish the organization’s reputation and risk the safety of all employees.

If you run a business dealing with children or seniors, or operate a trade in health care, pharmaceuticals and financing, a criminal record check is an absolute necessity.
A simple criminal or police clearance from your local government is not enough. Rather, a comprehensive investigation by a trained security provider is essential. A thorough check will provide you with information not found in state databases, such as that from academic institutions, previous employers, professional and civic organizations, and other establishments for any record of misdemeanors.

Results of criminal record checks can be analyzed with findings of pre-employment screenings, person background checks, online dating background checks, and nanny background checks to gain a deeper insight on potential employees and their relationships with other people.

The cost of criminal record checks vary, starting from roughly $100 and may increase depending on factors such as the location where records are obtained, cost of records, the extent of the check, and difficulty of the investigation.

By now, you may be contemplating how much it will cost you to perform routine criminal record checks. The cost is quite steep, especially if you are still starting—but it’s a small price to pay. What do you get in exchange for the accuracy and reliability of criminal record checks? You get the best hires for your organization.

Pre-employment screening has become a standard procedure in the hiring process. A survey by HR.com and the National Association of Professional Background Screeners found out that 96% of employers run background checks on their applicants.

Your employees bring your company’s brand with them, and their work ethic speaks of your company’s reputation. If you belong to the 4% who doesn’t perform pre-employment screenings on applicants, perhaps the reasons below will convince you to do so:

1. Due diligence avoids liability.

Based on a friend’s recommendation, you hire a driver for your starting tourist services business without running a pre-employment screening. Days later, you both land at the local police department because of an accident involving the car driven by your employee. The police showed you his past records of driving under influence (DUI). He has a string of police records, and a history of refusing rehabilitation for his alcoholism.

Complacency breeds neglect, neglect breeds failure, failure breeds liability—and liability will cost you your business. By practicing due diligence in background-checking your applicants, you avoid liability.

2. Many applicants lie in their resumes.

According to a 2017 survey by CareerBuilder, 75% of hiring managers find false information in applicant resumes. Many jobseekers put a white lie or two in their previous work descriptions to make them sound more appealing, and some even go as far as fabricating their academic qualifications and certifications—with supporting documents that turn out to be fraudulently obtained.

So how do you sort out the truth from all the lies? You run a pre-employment screening, and look into the educational background, work experience and character references—and if there is one glaring inconsistency, go to the next applicant.

3. Employee theft is a real issue.

No one wants a theft for an employee, but it is a rampant problem. According to cFirst, 75% of employees steal at least one instance, 55% of these are managers, and 30% of business failures stem from workplace theft. Appalling, isn’t it? Even the Assocation of Certified Fraud Examiners say that businesses lose about 5% of total revenues every year due to employees stealing money and inventory.

Workplace theft also goes beyond cash and equipment as far as intellectual property is concerned, as in the case of employees or managers stealing a colleague’s idea such as manuscripts, drawings, proposals, videos and articles.

Running pre-employment screenings on all applicants filters out those with existing records on theft and fraud. Depending on the extent of the crime, your pre-employment screening provider can acquire records from the police, court and the federal bureau to look into the criminal history of the applicant. Even verification with an applicant’s former employer can reveal plenty of relevant information.

4. Drug use is prevalent.

Drug abuse in the workplace is disastrous—to the employees, business and the country. According to a 2011 report by the National Institute on Drug Abuse, the United States lost around $740 billion due to crimes and diseases related to drug abuse.

Drug users become less productive at work and are a negative influence to their colleagues. They are also prone to involvement in other offenses due to their drug problem, such as workplace theft, violence and bullying.

Whether distribution, possession or actual use of drugs, no employer wants an employee slapped with any of these charges. Apart from pre-employment screening, the hiring process requires a mandatory medical exam that includes drug testing performed by recommended laboratories. In fact, many companies are now doing regular drug testing to maintain a drug-free workplace.

5. Bad hire has its consequences.

Hiring an employee without running a pre-employment check is a bad hiring practice, and it has its consequences. Take for example Zappos, a famous American shoe and clothing retailer: CEO Tony Hsieh once said that bad hires cost his company a whopping $100 million, according to Business Insider.

Mis-hires are actually more disastrous than what you think. An unqualified manager selects a team of his own, spawning bad habits and influencing other employees. When you take out the bad manager from the equation, should you also drag along the employees? Top-level executives and the human resource management should deal with this seriously. You don’t want to be dealing with bad hires, but it’s difficult to reset bad behaviors and make sure they don’t revert to their old ways. Employees may also suffer from a loss of morale.

In the end, the company hires another employee in place of the bad hire, but only after a more careful selection process. Re-recruitment may be beneficial, but definitely not when it’s done due to a mis-hire. Hiring people doesn’t come cheap—the average company in the UK spends around £3000 per hire.

6. Employees should be safe in their workplace.

The ultimate goal of pre-employment screenings is workplace safety—at all times, in all areas, for all the employees. An employee who encounters an injury resulting from a violent colleague, for instance, may hold the company liable. Depending on the country’s laws on workplace safety, additional charges may also be filed.

If you own a business, or belong to the top management of a corporation, you don’t want a sex offender walking freely in the hallway, or a overstaying foreign worker negotiating with clients in your behalf. All employees, from the top level down to the last worker in the hierarchy, should feel safe and protected from internal threats.

The Bottomline

Although pre-employment screening is not required in all countries, there are laws that protect the privacy of applicants. You can certainly run a background check on any of your employees, but there are legal ramifications especially when it is done without consent. In most cases, companies perform the pre-employment screening as a matter of risk management—and when they do, they do it with the applicant’s informed consent.

Most companies may not have the resources to perform pre-employement screenings their own, but there are background check providers who can do all the work. A basic pre-employment screening may cost more or less $200, but the final rate depends on the country or state, the extent of the check and the number of applicants to be screened.

What is a few hundred or even a thousand dollars for pre-employment screening, when you can prevent disasters worth millions of dollars due to a rogue employee or two? What is the time and effort spent in checking every employee’s background, when your mind is at peace knowing you’ve chosen the right people to run your company? Pre-employment screening protects your business’ best interests and makes sure your goals are met without compromising employee satisfaction.

Do you believe that background checks involve individuals only? Think again. If companies can do a little digging on individuals, it can happen the other way around, too—though it’s not a common practice. What’s common is companies investigating other companies due to business partnerships, agreements or conflicts.

Do you run your own company? Do you hold a position of trust in a large corporation? Here are important facts you should know about company background checks—and why you should consider it.

Fact 1: Businesses, corporations and organizations should be duly registered.

This is a fact that doesn’t need much explanation. Whether it’s a big corporation with 500 employees or a social enterprise manned by a five-man team, it’s only legal in every sense of the word when everything is registered or licensed down to the tiniest detail.

If you want to forge a partnership with a restaurant who has a legitimate business registration but does not issue official receipts to their customers, you need to take a few steps backward—and never look back. This is a common result in company background checks. Misrepresentation and failure to comply with country or state requirements have severe ramifications.

Fact 2: Court records reveal previous or current lawsuits.

According to a July 2018 CNN news article, pharmaceutical giant Novartis recalled the heart drug Vasartan from Germany and other European countries due to findings stating that the 2,300 batches sent contained a carcinogenic impurity. Can you imagine the legal consequences that the manufacturer may face because of this?

If your company background check reveals that there is no history of a lawsuit, well and good. If there is a dismissed lawsuit in favor of the company, take it with a grain of salt. Let your corporate lawyer analyze it to identify possible risks if you propose a partnership.

There is no perfect company, and even large corporations face a handful of complaints on a regular basis. A thorough company background check can give you an informed choice to push through any plans of partnering or merging.

Fact 3: Top-level executives tell a lot about the company.

Whether it’s the CEO, Director, President or Board Member of a leading corporation, or the investor or proprietor of a small yet lucrative business—doing a background check on these VIPs is a helpful add-on to a company background check. Their distinct status and exceptional skills and experience reflect how a company is doing, especially in the aspect of employer-employee relations.

Part of doing a background check on these individuals is knowing their past affiliations. Where did they obtain their academic degrees? Are they in good terms with former business partners? How do they handle employee grievances? What do former and current colleagues say about them?

These questions tell a lot about how they work and how well they handle the company, and the answers can help you arrive at the best decision.

Fact 4: Online footprint mirrors a company’s best and worst practices.

You don’t need a security firm to perform a quick Internet search on a certain company or group. Social media is a popular platform where people can share virtually anything.

When a retail store becomes known for its excellent customer service, people will share about it online. In comparison, when an ill-behaving waitress gains exposure, people will still rant about it online. When the content is exceptionally engaging, regardless if it puts a certain business in a good or bad light, it becomes viral and leaves a virtual footprint that will stay for a long time.

You do need a security firm to perform a company background check on how a business handles negative news and reviews online. Companies nowadays form a social media management team to make sure their online presence remains positive.

Fact 5: A face-to-face encounter gives more clues about the company and its dealings.

It’s true that there are always two sides of a story. Even in company background checks, interacting with the representative tells a lot about the company. This gives the company a chance to personally raise, explain or propose important matters to you.

A sit-down chat can gauge how well the business representative responds to your questions. You can also personally profile the company and assess how you can work with them in the future. Did the representative come on time? Is the company results-driven? Is the company professional in all of their corporate dealings?

When you feel at ease speaking with the manager of a certain business that you would like to work with, it makes decision-making easier. This is another helpful supplement on top of a typical company background check.

Considering all these facts about company background checks, you will need the expertise of a security firm or agency who can provide this service to you. A comprehensive background investigation of a company will require a lot of records requested from several government offices and private firms. Like persons background check, expect to see results in aspects like business registrations, labor complaints, credit history and criminal history.

A company background check is a recommended measure when planning to do business with other companies. If you are a business owner or hold a top position in a corporation, you know that a thorough screening of all possible business associates is a must. Before forging any partnership or agreement, a company background check is therefore a smart investment to ensure that your business remains thriving and reputable.