U.S. Sentencing Guidelines & Background Investigations

The U.S. Sentencing Guidelines provide seven points as to what makes up an effective compliance program. Using these points, we have provided an explanation as to how each point implies that background investigations should be an integral part of an effective compliance program.

1. The organization must have established compliance standards and procedures to be followed by its employees and other agents that are reasonably capable of reducing the prospect of criminal conduct.

Relates to Background Check: One of the easiest ways to reduce the prospect of criminal conduct at a company is to not hire criminals in the first place. This is easily accomplished by conducting a thorough background investigation on all employees and prospective employees to weed out those that have prior criminal records. A company needs to develop a policy of conducting background checks on all its employees (officers and directors included) as well as all applicants, and must administer and enforce that policy evenly and fairly. In addition, a company needs to establish compliance standards and procedures that reduce the likelihood that certain offenses may occur because of the nature of its business. If because of the nature of an organization's business there is a substantial risk that certain types of offenses may occur, management must have taken steps to prevent and detect those types of offenses. For example, in the insurance industry it is a federal offense to employ anyone who has ever been convicted of a felony involving dishonesty or breach trust. The one sure way to find out if someone has a felony conviction on his or her record is to conduct a background investigation. Therefore, companies in the insurance industry should have compliance standards and procedures that include background checks on their employees and agents. Also, providing insurance to clients requires agents, among others, to handle clients' money. This opens up the possibility of fraud or theft of those funds. One way to reduce the prospect of criminal conduct would be to not hire anyone who has a history of theft or embezzlement.

2. Specific individual(s) within high-level personnel of the organization must have been assigned overall responsibility to oversee compliance with such standards and procedures.

Relates to Background Check: A company's background investigation process must be documented and should be reviewed and monitored by high-level personnel within a company and not done in a haphazard manner.

3. The organization must have used due care not to delegate substantial discretionary authority to individuals whom the organization knew, or should have known through the exercise of due diligence, had a propensity to engage in illegal activities.

Relates to Background Checks: All employees, to some degree, have discretionary authority. Therefore the Sentencing Guidelines are basically saying to a company, "Conduct background checks on employees and applicants before giving them the authority to act on your behalf." No matter what the business is, whether selling insurance or handling toxic waste, the Guidelines put companies on notice to know the backgrounds of the people they are hiring.

4. The organization must have taken steps to communicate effectively its standards and procedures to all employees and other agents, e.g., by requiring participation in training programs or by disseminating publications that explain in a practical manner what is required.

Relates to Background Checks: The background investigation process must be documented and training provided to all end users. This can be accomplished by using some of the same requirements found in the Fair Credit Reporting Act regarding notice and privacy.

5. The organization must have taken reasonable steps to achieve compliance with its standards, e.g., by utilizing monitoring and auditing systems reasonably designed to detect criminal conduct by its employees and other agents and by having in place and publicizing a reporting system whereby employees and other agents could report criminal conduct by others within the organization without fear or retribution.

Relates to Background Checks: The first step in monitoring and auditing is at the time of hire or contract. Again, the easiest way to detect criminal conduct is by conducting a background investigation before hiring the person. Background investigations should be part of a company's compliance standards, and the person reviewing the background investigations should have the authority to act upon what he/she finds in the report.

6. The standards must have been consistently enforced through appropriate disciplinary mechanisms, including, as appropriate, discipline of individuals responsible for the failure to detect an offense. Adequate discipline of individuals responsible for an offense is a necessary component of enforcement; however, the form of discipline that will be appropriate will be case specific.

Relates to Background Checks: When using background investigations in establishing selection criteria and during the selection process, they must be applied in a consistent manner. This will help a company develop a consistent enforcement policy and avoid what could be construed as "spot checks." If a company screens all of its employees and applicants in a fair and consistent manner, the company will be able to apply its standards and, if needed, its disciplinary code in an equally fair and consistent manner. This, in turn, may help a company avoid an extra penalty for applying its rules and/or discipline in what may be perceived as a discriminatory method.

7. After an offense has been detected, the organization must have taken all reasonable steps to respond appropriately to the offense and to prevent further similar offenses -- including any necessary modifications to its program to prevent and detect violations of law.

Relates to Background Checks: Like all aspects of a company's compliance program, background checks should not remain static. Companies should be willing to modify their compliance programs, including when and how thorough a background check should be, in response to any new violation of the company's established procedures or standards, or local, state and federal laws.