|
|
|
Agency Tips on New-Hire Screening
New Guidance Issued on Developing the Process
By John S. Burnett, BOL Guru
Guru BIOS
How well does your bank screen its job applicants? Could you unknowingly hire someone who's been convicted of dishonesty, breach of trust, or money laundering? Are you aware that having someone on your staff with that sort of background could cost you millions of dollars in fines?
The FDIC's June 1, 2005, Financial Institution Letter (FIL-46-2005) provides guidance on developing effective pre-employment background processes, designed to provide bank management with a comfort level that information provided by job applicants is true and correct, and that the applicant does not have a criminal record. Although the agency addressed its guidance to FDIC-insured institutions, the advice is applicable to all depository institutions.
The guidance also includes information on resources that can be used in background screening, recommendations for due diligence in selecting third parties to perform background checks, and reminders concerning compliance with the employment provisions of the Fair Credit Reporting Act.
Section 19 prohibitions
Section 19 of the Federal Deposit Insurance Act prohibits certain persons from being institution-affiliated parties; owning or controlling, directly or indirectly, an insured institution; or otherwise participating in the conduct of the affairs of an insured institution without first obtaining written permission from the FDIC. The "barred persons" include anyone who has:
- been convicted of a criminal offense involving
- dishonesty,
- a breach of trust, or
- money laundering; or,
- agreed to enter into a pretrial diversion or similar program in connection with a prosecution.
Consultants who participate in running a bank may also be subject to the Section 19 prohibitions.
The FDIC's Guidance requires that all insured financial institutions have in place pre-employment screening processes that will at least uncover information about applicants' convictions and program entries, to ensure that no barred persons are employed without first applying to the FDIC for consent. Failing to obtain the FDIC's permission to hire such an individual can result in penalties of up to $1 million per day for the duration of the violation, or imprisonment for up to five years, or both.
Risk-focused approach recommended
The FDIC recommends that bank management develop risk-focused programs to determine when pre-employment screening is advisable, or when the level of that screening should be enhanced. For example, institutions should decide which positions and responsibilities are more sensitive or have higher levels of access that warrant additional background screening. References, experience, education and professional qualifications should all be subject to varying levels of verification, depending upon the position or responsibility involved. Identity verification is another item of concern.
Effective programs, suggests the FDIC, will include on-going screening for specific, higher-risk, positions. To be adequate, any screening policy must provide for appropriate actions when pre-employment or subsequent screening detects disparities in the job application.
Screening resources
The Guidance includes reminders of resources that can be used to facilitate the pre-screening process, whether it is completed in-house or by a third party on behalf of a bank. The FDIC suggests that a first step in the process include a check of the FFIEC's links to the federal banking agencies' enforcement action websites at http://www.ffiec.gov/enforcement.htm.
Also available from the FFIEC's website are links to agencies' Cease and Desist Orders, which are public records. It notes that, although banks are not prohibited from hiring individuals involved in institutions subject to C and D orders, an applicant's role in any possible misconduct should be determined and appropriate oversight provided if the individual is hired.
In addition, FBI's Fingerprint Service, offered in conjunction with the American Bankers Association (ABA), allows institutions to submit fingerprint cards that can be compared against a criminal database, and to be informed if a criminal record is discovered.
Applications, not résumés
The FDIC suggests that applications, rather than résumés, be used in the hiring process. Résumés often include information that cannot be used in the evaluation process (such as personal data or membership information). Written applications, on the other hand, can include a statement that untruthfulness or material omissions will be grounds for termination, and that the applicant's signature on the form attests to the accuracy of the information supplied. This provides the institution with clean and sufficient reasons for disqualification or termination if criminal convictions or other serious discrepancies are discovered.
Using third party screeners
Institutions are reminded in the FIL that due diligence is expected in the selection of third-parties to perform pre-employment screening, just as it is when third-party providers for traditional banking services are engaged. Banks need to be assured of the service prover's financial viability, internal controls, and reputation. The proposed contract must include language to protect the confidentiality of applicants' information. Bank management should be comfortable with the service provider's own hiring and employment practices. Assurances should also be obtained that data obtained from the process will not be provided or sold to other persons, and that the provider has safeguards against identity theft.
Providers should also be capable and willing to complete background checks using records in all jurisdictions in which applicants have worked or lived, and at appropriate local, state, and federal levels.
FCRA requirements
The Fair Credit Reporting Act includes protections for individuals applying for employment, and the FIL includes reminders of those requirements.
If a bank (or its third-party service provider) will request a credit report as part of the pre-screening process (or subsequent to hiring), it must first provide a separate document that informs the applicant that the institution will be obtaining a consumer report for employment purposes, and obtain the applicant's written consent.
If the applicant is rejected based on information in the consumer report, the applicant must be provided with the name, address, and telephone number of the consumer reporting agency that furnished the information, a statement that the consumer reporting agency did not make the decision and cannot provide the specific reasons for the adverse action, and a notice of the applicant's right to obtain a free copy of the consumer report and to dispute its accuracy with the consumer reporting agency. Applicants also have a right to inspect their application files.
Pre-employment screening is not without cost. The more thorough the effort, the greater the expense. But a well-conceived, risk-focused approach to the process can prevent costly hiring errors, such as hiring individuals ill-equipped for their responsibilities or unwittingly hiring persons subject to Section 19 who can cause the bank to incur substantial fines.
Prudent lending starts with credit checks of applicants. Prudent hiring practices demand no less.
First published on BankersOnline.com 06/02/05
Privacy Policy Disclaimer Recommend This Site ! Contact Us
BankersOnline is a free service made possible by the generous support of our advertisers and sponsors. Advertisers and sponsors are not responsible for site content. Please help us keep BankersOnline FREE to all banking professionals. Support our advertisers and sponsors by clicking through to learn more about their products and services.
|
|
|
Print Friendly!
Email This Article!
Discuss NOW!