Due to the increasing costs associated with workplace embezzlement, fraud, violence, and other unethical business practices, the need to manage hiring and personnel risk has never been of greater importance than in today's business environment. The process of verifying past employment, education, and criminal history is an essential facet of many contemporary corporate risk management programs. The pre-employment screening industry is a small, highly fragmented sub-industry of the much larger Business Process Outsourcing (BPO) sector, a space dominated by a handful of large companies accounting for almost 25% of the industry's total revenue. Total revenue for the pre-employment screening industry is forecasted to be approximately $4 billion in 2007 with the top five playersU.S. Investigations, First Advantage, ChoicePoint, Kroll and ADPaccounting for approximately $900 million in annual revenue. HireRight, Axciom, and Accurate Background are examples of some of the more prominent mid-size companies in the industry.
Pre-employment screening is the process of verifying a potential employee's character, general reputation, and personal characteristics. It may include any of the following: criminal background check, investigation of civil records, asset and bankruptcy records, credit reports, and driving records. Background checks also usually include verification of any licenses, education achievements, employment history and personal and professional references.
Pre-employment screening has become an important practice for all employers due to the increasing costs associated with negligent hiring lawsuits and the threat of workplace violence. Consider the following figures:
On average in U.S. businesses, at least half of all new hires don't work out and it costs $7,000 to replace a salaried employee, $10,000 to replace a mid-level employee and $40,000 to replace a senior executive (Recruiting Times) Workplace violence costs employers $36 billion annually (Pinkerton Security Study) Annual losses stemming from computer breaches in Fortune 1000 companies amount to $59 billion, including inside and outside breaches (with inside jobs costing businesses an average of $450,000)
The above statistics can be greatly reduced by observing the practice of screening any potential employees. In addition, many employers seek to reduce their costs even further by outsourcing pre-employment screening and allowing their human resource (HR) departments to focus more on strategic functions. By outsourcing this function to a pre-employment screening company, an HR department can take advantage of cost savings due to the screening company's economies of scale and more sophisticated screening technologies. The Society of Human Resource Managers (SHRM) estimates that almost 80% of all employers use pre-employment screening companies to some degree.
Poised for Growth
Pre-employment screening companies have seen double-digit revenue growth over the last several years due to several factors, including an increase in negligent lawsuits, the global terrorism threat post 9/11, the strong U.S. job market, and new government regulations such as the Patriot Act and the Voluntary Guidelines on Workplace Safety and Security implemented by the Food and Drug Administration advising employers to perform background checks on potential employees. According to a survey of pre-employment screening companies conducted by KPMG, almost 90% of respondents project growth in the pre-employment screening industry in excess of 10% for the next 12 months with almost 60% forecasting growth of greater than 25%. Forecasts call for the industry to grow at a 25% to 35% clip over the next 12 months with most of the growth stemming from small and mid-size firms. While the majority of growth at smaller firms continues to come from the addition of...