Week 6

Further Beyond the Basic Background Check: Predicting

Future Unethical Behavior

RICHARD G. BRODY, FRANK S. PERRI, AND HARRY J. VAN BUREN

ABSTRACT

In this paper, we analyze the ethical issues of using honesty and integrity tests in employment screening. Our focus will be on the United States context: legal requirements related to applicant privacy differ in other countries, but we posit that our proposed balancing test is broadly applicable. We start by discussing why com- panies have ethical and legal obligations, based on a stakeholder analysis, to assess the integrity of potential employees. We then move to a consideration of how companies currently use background checks as a pre- employment screening tool, noting their limitations. We then take up honesty and integrity testing, focusing par- ticularly on the problems of false positives and due process. We offer a balancing test for the use of honesty and integrity testing that takes in three factors:

Richard G. Brody is Douglas Minge Brown Professor, Anderson School of Management, Department of Accounting, University of New Mexico, Albuquerque, NM. E-mail: brody@ mgt.unm.edu. Frank S. Perri is an Attorney, Legal Department, County of Winnebago, Winnebago, IL and Adjunct Professor in Forensic Accounting and Fraud Investigation at DePaul University, Chicago, IL. E-mail: [email protected]. Harry J. Van Buren is Rust Professor of Business Ethics, Anderson School of Management, Department of Organizational Studies, University of New Mexico, Albuquerque, NM. E-mail: [email protected].

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Business and Society Review 120:4 549–576

© 2015 Center for Business Ethics at Bentley University. Published by Wiley Periodicals, Inc., 350 Main Street, Malden, MA 02148, USA, and 9600 Garsington Road, Oxford OX4 2DQ, UK.

(1) the potential harm posed by a dishonest employee in a particular job, (2) the linkage between the test and the assessment process, and (3) the accuracy and validity of the honesty and integrity test. We conclude with impli- cations for practice and future research.

W ith high unemployment levels in many countries, com- petition for jobs—and especially for elite positions—is fierce and companies have a wider selection of appli-

cants than ever before. This poses a selection problem: how do companies begin to identify the right individuals to hire? Various assessments are available to help a company select the right people. Background checks, one commonly used assessment tool, are a standard practice among companies for screening potential employees, but they do not always uncover the truth because there are several practical limitations associated with these searches (Brody 2010).

For instance, Al Dunlap, the former CEO of Sunbeam, neglected to mention during his interview process the fact that he was fired from Nitec, a paper-mill company in New York, and Max Philips and Son, a waste company in Wisconsin, on his resume (Byrne 1999). Search firms verified his employment history as part of a background check, but unfortunately for Sunbeam, the company failed to uncover those two dismissals. After Dunlap was ousted as CEO of Sunbeam in 1998 for engi- neering a massive accounting fraud, it was uncovered that he had acted in a similar manner during his time at Nitec. Dunlap is certainly not the only individual to have left out key infor- mation on his resume.

Faced with an increasingly competitive business environment and business failures due to fraud, employers are turning to employment testing, specifically honesty/integrity assessments, as a way to protect themselves. Since at least the middle of the last century (Ash and Maurice 1988), many employers, including the military, have utilized these assessments to assist in the hiring process. Honesty/integrity assessments are potentially useful supplements to the standard background check. As opposed to a background check, which only looks into a person’s

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past, honesty/integrity tests may potentially be more indicative of future behaviors. These tools can help to identify and select better workers and can help improve the quality of an organization’s overall performance.

However, in contrast to other employment screening tools, honesty/integrity tests also pose ethical concerns and practical limitations. Unlike other screening tools such as drug tests, the accuracy of honesty/integrity tests is less than certain. Drug tests, for example, measure previous use of illicit substances. The use of illicit drugs often, but not always, is detectable using urine, hair, and blood tests (Phan et al. 2012). When drug use is ascer- tained using such testing, it is because pharmacological markers can be detected. While not all drug use is detectable using current methods—and there is the potential for false positives (Moore 2012)—the validity and reliability of drug tests are fairly high relative to psychometric instruments such as honesty/integrity tests.

Honesty/integrity tests may accurately predict proclivities toward dishonest conduct, or they may yield either false positives or false negatives. Honesty and integrity tests might be seen as violating the privacy of potential employees. The use or nonuse of any pre-employment test, we argue, must balance the legitimate interests of organizations with the legitimate interests of individu- als applying for employment.

In this paper, we analyze the ethical issues of using honesty and integrity tests in employment screening. Our focus will be on the United States context: legal requirements related to applicant privacy differ in other countries, but we posit that our proposed balancing test is broadly applicable. We start by discussing why companies have ethical and legal obligations to assess the integrity of potential employees. We then move to a consideration of how companies use background checks as a pre-employment screening tool, noting their limitations. We then take up honesty and integrity testing, focusing particularly on the problems of false positives and due process. We will offer a balancing test for the use of honesty and integrity testing that takes in three factors: (1) the potential harm posed by a dishonest employee in a particular job, (2) the linkage between the test and the assessment process, and (3) the accuracy and validity of the honesty and integrity test. We conclude with implications for practice and future research.

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ORGANIZATIONAL LEGAL AND ETHICAL OBLIGATIONS RELATED TO EMPLOYEE INTEGRITY

A threshold question to consider is why potential employers have legal and ethical obligations related to the assessment of employee integrity. Delving into an employee’s past conduct—much less his or her psychological makeup—may seem to some to be an unwar- ranted intrusion into personal privacy. We suggest that organiza- tions have legal and ethical obligations to assess employee integrity, but these obligations are balanced by a variety of other ethical obligations.

Legally, organizations face liability for the actions of their employees. Under the United States Sentencing Guidelines (USSG; Kelly-Kilgore and Smith 2011; McGreal 2010; Nanda 2011), organizations can be held criminally liable as organizations for the actions of their employees. Under the legal doctrine of respondeat superior (also referred to as the master–servant doc- trine), organizations are legally responsible for the actions of their employees when (1) employees are acting on behalf of the orga- nization within the scope of their employment-related duties, (2) the actions of employees were meant to benefit the organization, and (3) the actions of employees are imputed back to the organi- zation (Plimpton and Walsh 2010). Such liability can be either civil or criminal; here, we focus on criminal liability. The USSG, modified several times since their creation in 1991, codifies this common law obligation and specifies (1) under what conditions an organization can be criminally indicted and (2) what factors miti- gate or intensify criminal penalties for organizations. Because organizations are potentially at risk of being held liable for the behavior of individual employees, organizations have an interest in assessing the integrity of employees.

The USSG are not unique in extending liability for the actions of individual employees to the organizations by which they are employed. The U.S. Foreign Corrupt Practices Act (Giudice 2011; Maurer and Maurer 2013) extends liability for bribery in another country by an employee to the organization employing that individual even when the organization had antibribery policies in place that the employee violated (Koehler 2012). As a matter of law, it is well established that organizational policies related to legal compliance may be mitigating factors that affect the

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likelihood that an organization will be held civilly or criminally liable for the behavior of individual employees acting in contra- vention of both law and organizational policies, but the existence of organizational policies related to legal compliance is not a shield against all such liability.

The nature of an organization’s ethical obligations related to employee integrity is less clear cut than those related to legal liability, but we propose that these are more compelling. Here, we suggest that managers owe a duty of care (Freeman 1994; Quinn and Jones 1995) to the organization’s stakeholders, particularly owners (whether shareholders or some other category of equity investor) and other employees, that includes reasonable and prac- tical steps to assess the integrity of potential employees and to act based on those assessments. While the duty is care is often understood as a legal standard that is applied in corporate gov- ernance (Langevoort 2005), we suggest that in the present context, it also functions as an ethical standard related to assess- ing the integrity of potential employees. Because of preexisting stakeholder relationships and ethical obligations, it follows that organizations have ethical obligations to ensure that potential members thereof do not harm the interests of other stakeholders.

When employees act in ways that violate legal and ethical obligations (i.e., they act without integrity), there is considerable harm that accrues to the owners of the organization. It is well established that reports of illegal behavior cause negative abnor- mal stock returns and other financial harms to corporations (Frooman 1997; Wood 2010). The effects on corporate reputation that occur when employees engage in violations of the law— brought about in large part because stakeholders such as com- munities, customers, employees, and suppliers change their behavior in response to such reports in ways that harm share- holder interests—are significant (Heymann 2011; Sheehan and Stabell 2010). Because the illegal and unethical behavior of employees is frequently imputed back to the corporation as a matter of law and stakeholder action, it follows that shareholders have an interest in employee integrity.

As we will discuss in a subsequent section, however, organiza- tions also owe ethical obligations to potential employees related to due process in the screening process. These ethical obligations mean that organizations do not have carte blanche to do whatever

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they want with regard to gathering information about potential employees. The legitimate interests of organizations must there- fore be balanced with the legitimate interests of potential employ- ees, a topic to which we will turn in a subsequent section. However, we start our analysis by considering the use of back- ground checks as a pre-employment screening tool and some of the associated problems with them.

Background Checks as a Pre-employment Screening Tool

One way that organizations have sought to protect themselves from dishonest employees is through the use of background checks. Hiring managers, human resources, and other individuals involved in the employee selection process “all have a stake in preventing their organization from becoming victims of unethical behavior, be it white-collar or other” (Martin and Austin 2010, p. 437). The majority of companies rely on background checks to screen job applicants, especially before a hiring decision is made. A background check may include, among other things, an edu- cational and professional credentials check, a media check, a credit check, a reference check, and a criminal record check. Brody (2010) discusses several areas of interest in the prescreening process.

Resume Verification Companies routinely verify a potential new hire’s resume to ensure that any information presented is not fictitious in nature or an embellishment of some sort. In particular, companies verify past employment and any degrees or professional credentials listed on an applicant’s resume. Many people also exaggerate titles, duties, or responsibilities in previous positions. A quick call to the previous employer will verify the information. The more serious misrepresentations would include listing academic degrees or awards that were never earned.

Media Search With the proliferation of the Internet, today’s employer can merely type a job applicant’s name into a search engine and find out all kinds of information about the person. Some information, such as

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that contained in a LinkedIn account, may be beneficial for an employer to see. Many employers (Kluemper 2013) are engaging in such information gathering.

Credit Check Checking an individual’s credit report is typically included as part of most background investigations. A company wants to hire someone who is both in good financial standing and financially responsible, especially when the individual will have access to its assets in the course of employment. If an individual has declared bankruptcy, has been caught violating tax laws, or has judgments, liens, or foreclosures against him or her, the risks associated with hiring this individual are dramatically increased. Another red flag is candidates living beyond their means, as these individuals will have to find a way to maintain their lifestyles, which can include engaging in dishonest behavior. In the current economic downturn, excessive financial burdens have become a major issue for many job seekers and a threat to companies as individuals become desperate to make ends meet. However, the validity of this tool has been questioned, as sometimes an applicant has poor credit for reasons beyond his or her control (Kuhn 2013).

Reference Check Companies often conduct reference checks as part of the back- ground screening process, collecting information about an appli- cant’s on-the-job reputation, competency, and what former colleagues think of that person. Most references provide positive feedback about the candidate in question, however, even if the employee’s performance was substandard or the employee was discharged for engaging in wrongdoing. The reason for this is the fear of defamation and privacy lawsuits. Consequently, employers are reluctant to reveal anything other than the most basic infor- mation and generally provide only the date of employment and title. This can be frustrating when a company wants a candid assessment of a potential candidate.

Criminal History Many companies have added criminal background checks to their employee screening process, but criminal information is not easily obtainable. Information is not always updated in a timely manner,

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such as cases that are not entered into public record for months or years after the case has been litigated. In addition, there is no national system in place to provide all of the information that should be reviewed and a criminal record will not always be found. The fact that there is no national system makes conduct- ing a criminal background check particularly difficult when a candidate has lived in several different states.

Current Company Actions Related to Background Checks What do companies typically include in their background screen- ing processes? The Society for Human Resource Management reported that “80 percent of companies said they run a criminal check on applicants before hiring, up nearly 30 percent from 1996—making the practice as common as checking references or prior work histories” (Bonné 2004, para. 2). In addition to a criminal check, companies also relied on additional background screening. A survey of 270 companies reported that “more than half verify education records and nearly half check motor vehicle records” and also that “35 percent run credit checks on possible new hires” (Bonné 2004, para. 5).

Considering the prevalence of background checks as a prescreening employment tool, applicants ought to tell the truth as a matter of personal prudence. Many other examples of resume-padding exist, and given the current fierce job market and surging unemployment rate, resume lies are becoming common- place. As job applicants attempt to stand out from others, “some are tempted to fudge their resumes a bit” (Witham 2010, p. 38). In particular, a recent CareerBuilder.com survey found that “38 percent of those surveyed indicated they had embellished their job responsibilities; 18 percent admitted to lying about their skill sets; 12 percent indicated they had been dishonest about their start and end dates of employment; 10 percent confessed to lying about an academic degree; 7 percent said they had lied about the companies they had worked for; and 5 percent disclosed that they had been untruthful about their job title” (Witham 2010, para 3).

Limitations to Background Checks

Background checks are a necessary first step for companies, but many problems will not be uncovered as part of this process.

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There are substantial concerns about the validity of background checks. In terms of predicting the potential for an applicant to engage in wrongdoing, the validity of background checks is largely a function of available information, meaning that some people who are potential wrongdoers based on their previous histories will not be classified as such by potential employers. There is also the potential for background checks to have low validity in the other direction: predicting that someone is prone to wrongdoing when that person does not differ from other potential employees in that regard. We take up both challenges to validity in this section, in addition to considering (1) the potential for disparate impacts and discrimination related to background checks and (2) perceptions by employees that such checks are being conducted in an unfair manner.

Validity in Terms of Inadequate and Unavailable Information Missing information in informational databases poses a challenge to the validity of pre-employment background checks, creating the possibility of a false negative. When a company conducts a crimi- nal background check, only those offenses for which the applicant was prosecuted and convicted will be uncovered. Therefore, if an individual commits fraud at a financial institution but is not prosecuted, that fraud will not be revealed on a background check when he or she attempts to get a job somewhere else.

In addition, locating an applicant’s criminal history is not as simple as television crime dramas generally portray. It is not possible to type someone’s name or social security number into a “master criminal record database which compiles an instant rap sheet on the individual, including details of every offense ever committed, alias names, and a recent picture from their driver’s license” (Jones 2011, para. 4). The National Criminal Information Center (NCIC) database, which is operated by the FBI, is the real-life version of a criminal record database, and it has its share of problems. For one, there are thousands of local jurisdictions around the country, and data are not always uploaded as quickly as it should be. Also, it is a federal offense in most cases for employers or screening agencies to even access the NCIC data- base (Jones 2011).

In addition to limitations with criminal background checks, there are also issues with conducting reference checks. In today’s

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working world, reference checks frequently fail to provide employers with meaningful information. Prior employers are hesitant to reveal negative information about their departing employees for fear of defamation lawsuits, and many employers either refuse to give any reference, or they provide neutral information such as the dates of employment and job titles (Stabile 2002). Thus, it is difficult for the hiring employer to get an honest appraisal of an applicant’s job history from past employers.

Further, background checks often cannot prevent fraud, con- sidering the fact that most individuals who commit fraud are not career criminals. Indeed, “a survey of 1,134 Certified Fraud Examiners showed that less than 8 percent of fraud perpetrators had prior convictions” (Brody 2010, p. 211). This demonstrates a huge limitation to a background check—it cannot reveal a crime that a person has yet to commit. Background checks offer some information about ex post behavior, but are of less use when trying to predict ex ante behavior.

A background check merely delves into a person’s past and is not necessarily an indicator of how a job applicant might act in the future. In particular, a background check cannot predict how likely it is that a prospective employee will engage in counterpro- ductive work behaviors (CWBs). CWBs plague companies and “refer to a broad set of illegal, immoral, and/or deviant employee behaviors that include serious offenses such as employee theft, fraud, and drug use” (Fine et al. 2010, p. 73). CWBs are respon- sible for “as much as 30% of all business failures,” and they “are becoming increasingly prevalent, with a 10% increase from 2003 to 2007 in the percentage of employees who observe violations in company ethics standards, policy or the law” (Fine et al. 2010, p. 73). In addition, since so many deviant behaviors go undetected, the actual frequency of employees engaging in CWBs may be even higher.

Given the prevalence of CWBs, it is in the best interest of companies to find a way to predict how a job applicant might act given certain scenarios. Fortunately for companies, there is a tool to gage an employee’s likelihood to engage in CWBs. Currently, “perhaps the most widely used personal assessment tools to predict CWBs among job applicants and employees are integrity tests” (Fine et al. 2010, p. 74).

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Validity in Terms of Inaccurately Predicting a Propensity to Engage in Wrongdoing We previously noted that there are concerns with background checks in terms of whether they identify individuals whose prior behavior would be cause for concern; that is, individuals at risk of engaging in fraud and other forms of CWB. The potential for false negatives is present in background checks. However, the opposite problem of false positives is also present. Because of a lack of training and poor methods used to conduct background checks, they might yield a conclusion that someone who is not at risk for fraud or CWBs is actually likely to engage in such behaviors—and as a result, that person might not be hired.

One example is the use of social media screening as a part of background checks (Kluemper 2013). Looking at LinkedIn and Facebook accounts might seem to be useful with regard to a background check. However, there are significant concerns about the validity and reliability of such screening methods. In contrast to integrity tests, which at least have the appearance of validity based on numerical scoring, social media screening is idiosyn- cratic and dependent on the skill of the screener, which is often absent. Many forms of background check data do not have clear guidelines or hard-and-fast criteria for evaluation (Kuhn 2013; Roth et al. 2013). As Kuhn (2013, p. 421) notes, “validation analyses of background check information will be somewhat more complicated than for tests scored on a continuous numerical scale, but they are necessary.” Someone doing a social network screening might look at information from a website and conclude that the person being screened was susceptible to engage in fraud when in fact the person was not. Additionally, the personal biases of the screener may cause that person to weigh some information more strongly than others, or include information that should not be. A background screener who is opposed to alcohol use, for example, might see a picture of someone drinking and believe that person to be more at risk of fraud than a teetotaler, despite a lack of empirical evidence that alcohol consumption is associated with future fraudulent behavior.

Similarly, credit checks might show, correctly, a prior history of not paying bills on time. However, the link between credit checks and future fraudulent behavior is not high (Kuhn 2013; Landry and Hardy 2012; Nielsen and Kuhn 2009), and the interpretation

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of such data is often suspect in employment screening. Informa- tion in credit reports is often inaccurate (Kuhn 2013), leading to false positives. While the face validity of credit checks might seem high, the empirical evidence indicates that (1) there are often innocent explanations (such as medical bills) for poor credit history and (2) poor credit by itself does not have strong predictive ability with regard to future fraudulent behavior. In short, there is a danger that background checks will yield both false posi- tive and false negatives, undermining their usefulness in the pre-employment screening context.

Disparate Impact and Discrimination as an Ethical Concern Associated with Background Checks There are also significant concerns about whether background checks have the potential for disparate impact and discrimination. Kuhn (2013) notes concerns about disparate impact of back- ground checks involving criminal histories, a concern shared by others (Harris and Keller 2005; Hughes et al. 2013). Background checks, even when done with the best of nondiscriminatory inten- tions, may have the effect of screening out protected groups such as racial minorities to a much greater extent than others. Racial minority group members, for example, often have lower credit scores than others (Kuhn 2013). As a result, the use of such screening methods is potentially suspect from an ethical perspec- tive. The validity and reliability of background checks, which are often low, must be assessed as part of the ethical analysis of when they can be used given their potential for disparate impact and discrimination.

Perceptions of Fairness Related to Background Checks There is an extensive literature related to when applicant and/or employees believe that selection methods such as background checks are being conducted in a affair or unfair manner (Alder et al. 2007; Arvey and Renz 1992; Hausknecht et al. 2004; Ryan and Ployheart 2000; Rynes and Connerley 1993). Face validity and predictive validity are two of the primary determinants of whether a selection procedure is considered to be fair or unfair (Hausknecht et al. 2004). Honesty tests, for example, have been considered to have low validity ( (Hausknecht et al. 2004), in large

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part because the tests appear to be opaque to the person being tested.

Perceptions of fairness matter because they are linked to future satisfaction with one’s employer (Ababneh et al. 2013) in addition to being normatively good in and of themselves. The rationale for engaging in background screening and other selection procedures is to select the best employees who are not likely to engage in fraudulent behavior. However, selection procedures that are poorly evaluated by applicants and employ- ees have counterproductive effects on organizations. In this respect, employers are not free to define how applicants and employees perceive a particular selection procedure such as a background check; if applicants and employees believe that background checks are unfair, then that is the controlling perception.

Provisional Conclusions About Background Checks We note that background checks are being used more and more frequently, with a variety of data sources and analytic methods used. The application of these methods is often idiosyncratic and dependent on the skill of the person or organization conducting the background check. Sometimes, background checks yield accurate results and screen out someone who would harm an organization. Sometimes background checks yield a false negative due to a lack of information or poor skill on the part of the screener, and as a result, the organization hired someone that it should not have. Sometimes background checks yield a false positive, and a person who should not be screened out is not hired. Background checks are also fraught with the potential for disparate impact and discrimination. Employees may perceive background checks negatively if they are not done in ways that they can understand how the results thereof connect to hiring decisions made by organizations.

There is, however, a compelling rationale for using background checks in some settings. Further, the goal of protecting the orga- nization from fraudulent behavior and other CWBs is a sound one. To shore up some of the shortcomings of background checks, many organizations are using honesty and integrity tests, to which we now turn.

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HONESTY AND INTEGRITY TESTING: BACKGROUND

Psychologists have developed personality assessments that can be used to help measure a job candidate’s risk levels for engaging in undesirable work activities (Oliver et al. 2012). Perhaps the most commonly used personality assessments measure dispositions for integrity and honesty, and they are referred to as honesty/ integrity tests. According to the U.S. Office of Personnel Management (n.d.: para. 1), an integrity test is “a specific type of personality test designed to assess an applicant’s tendency to be honest, trustworthy, and dependable.”

Integrity tests were used for the first time more than six decades ago, and they were the first personality tests used to screen potential employees. Further, integrity testing saw a surge in popularity after the federal Employee Polygraph Protection Act of 1988 banned the use of pre-employment lie detector tests for all but a select few jobs (Roberts 2011). After pre-employment lie detector tests were banned, “employers began to want—and vendors began to offer—more broad-based personality tests, which are also valid and shed light on many character traits, including integrity” (Roberts 2011, p. 56).

Honesty/integrity and other personality assessments were spe- cifically designed to predict the predisposition of job applicants to engage in counter-productive work behaviors such as on-the-job theft, absenteeism, substance abuse, and insubordination using composite measures of personality dimensions, such as reliability, conscientiousness, trustworthiness, and sociability (USDL 2000). In relation to theft-related issues, they measure attitudes related to one or more of the following psychological constructs: toler- ance of others who steal, projection about the extent of theft by others, acceptance of rationalizations for theft, inter-thief loyalty, antisocial beliefs and behaviors, and admissions of theft-related activities.

Currently, it is estimated that anywhere from 33 to 75 percent of employees have engaged in some form of deviant behavior (Fine et al. 2010). Not only is the prevalence of such behavior alarming, it is also costly to a company. Collective damages from employee theft and fraud are estimated to be as high as $400 billion dollars a year, and this is just in the United States (Fine et al. 2010). Since CWBs are both commonplace and costly to companies, it

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would be prudent for companies to find a way to predict such behaviors. As mentioned before, background checks only delve into a person’s history, and a person’s past behavior is not nec- essarily an accurate indicator of future behavior. Integrity testing, on the other hand, is widely used to predict a job applicant’s likelihood to engage in CWBs.

Integrity testing is already being utilized as a pre-employment screening tool by companies. According to estimates made in the early 1990s, up to 5 million integrity tests are administered annu- ally in the United States alone and, in particular, it is estimated that “10–15% of all US retailers, banking and food service orga- nizations use integrity tests for personnel selection” (Fine et al. 2010, p. 74). Other settings where recruiters have a tendency to use integrity tests are nuclear plants, law enforcement agencies, and child care facilities (Roberts 2011). In addition, the American Management Association reports that a majority of the Fortune 500 companies now use testing as part of their hiring process (Fisher and Nobile n.d).

The growth of testing in the workplace reflects a broad consen- sus in the business world that hiring the wrong person, particu- larly the wrong senior level executive who may be in a position to commit fraud, can negatively impact morale, productivity, and focus. Concerns about high level management committing fraudu- lent acts are not an anomaly. Consider that the United States Securities and Exchange Commission (SEC), which is charged with regulating the accounting and financial standards of publicly held companies, between 1998 and 2007 named the chief execu- tive officer (CEO) and/or the chief financial officer (CFO) for some level of involvement in 89 percent of its fraud cases, up from 83 percent of the cases between 1987 and 1997 (COSO 2010). Within two years of completion of the SEC’s investigation, about 20 percent of the CEOs/CFOs had been indicted, and over 60 percent of those indicted were convicted. One such CFO was Andrew Fastow, an architect of Enron’s fraud, who was named CFO in 1999 and charged and plead guilty 3 years later to securities fraud (Goldstein 2011).

As for the tests themselves, there are two types of integrity tests used today: overt and covert. Overt tests consist of closed-ended questions. For example, a common question might be “What is the most you have ever stolen: (a) $0; (b) $1–$200; (c) $201–$500; (d)

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more than $500” (Roberts 2011, p. 6). On the other hand, covert tests consist of open-ended questions with answers designed to “give a sense of the applicant’s conscientiousness, emotional maturity and the like” (Roberts 2011, p. 56).

IntegriTEST is one overt integrity test commonly used as a pre-employment screening tool. This particular test consists of “96 items which tap individuals’ opinions about serious counter- productive work behaviors” and measures opinions “regarding the sanctioning, pervasiveness, and rationalization of counterproduc- tive work behaviors, as well as thoughts about engaging in coun- terproductive work behaviors and the identification with others engaging in these behaviors” (Fine 2010, p. 608). Sample test questions include, “Do you think a person has the right to break laws they don’t agree with?,” “Should a company employ someone who is known to have been fired for stealing in the past?,” and “If a colleague were to offer you drugs, would you complain to their superiors?” (Fine 2010, p. 608).

Because most providers offer the tests online, a candidate merely goes to the employer’s recruiting site, completes the job application, and is then directed to the test. The results of the test are usually immediately analyzed and forwarded to the employer (Roberts 2011). There are numerous providers of integrity tests, including Merchants Information Solutions Inc., SHL PreVisor Inc., SkillSurvey Inc., Success Performance Solutions Inc., Vangent Inc., and Wonderlic Inc. (Roberts 2011).

As an alternative to paper and pencil integrity testing, employers can choose to conduct a face-to-face structured inter- view with the line of questioning focused on integrity. There are two types of structured interviews. The first is a situational interview, and the second type is a behavioral interview. In a situational interview, the questions are based on hypothetical situations, and the applicant is asked to show what he or she would do in the given situation (FPCNational, n.d.). On the other hand, in a behavioral interview, employers ask the applicant to discuss specific examples of challenges faced at a job and the questions tend to start with “Tell me about . . .” or “Describe a situation where . . .”

Overall, regardless of how rigorous an organization’s attempts are to use honesty/integrity testing in their workplaces, these tests should still be used as only part of the process. It is still

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equally important that employers use traditional hiring practices. These practices include conducting a background check, review- ing the candidate’s resume, and participating in the interview process before making a decision to hire or not hire a candidate (USDL 2000).

Ethical Issues Associated with Honesty and Integrity Tests

There are a number of ethical issues associated with the use of honesty and integrity tests in pre-employment screening. In this section, we deal with two of them: privacy issues and validity.

Privacy Issues Unlike personality-oriented and clinical measures of personality, integrity tests have generally not been challenged on privacy grounds. This is because these tests do not typically inquire into sensitive areas and are more clearly job related. Moreover, leading test publishers continuously conduct follow-up research to ensure that their test items are not perceived to be invasive.

Personality assessments must not be unreasonably intrusive and must be job related. Of course, the debate about what “unreasonably intrusive” entails continues. Unlike the U.S. Con- stitution, which does not have an explicit right to privacy provi- sion but one in which privacy is implied, state constitutions provide a possible avenue for job applicants to challenge the employment practices of private employers. This is because some states have constitutions that provide right to privacy protections, many of which are broader than the federal constitution. We posit that personality tests such as honesty and integrity tests are less intrusive than other forms of pre-employment screening because they by and large probe personal attitudes rather previous behav- iors. Similarly, Fine (2013b) found that the integrity tests did not create adverse impact across age and gender categories and were (in a three-country study) valid across different cultural contexts vis-à-vis predicting CWBs.

Validity As noted previously, one of the major concerns about background checks is that they yield false positives and false negatives. Ideally, pre-employment screening methods would screen in the

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right people (people who are honest and good fits for a position) and screen out those applicants with a propensity to engage in CWBs and/or that are poor fits for a job. When these outcomes occur, then the pre-employment screening method has high valid- ity. Do honesty and integrity tests meet the criterion of high validity? Here, the evidence is somewhat mixed. While early assessments of the accuracy of such tests were highly negative— leading for many to call for them not to be used (Dalton and Metzger 1993)—more recent work in this area has somewhat ameliorated these concerns.

Using test instruments that are valid is critical to effectively assess candidates and reduce legal risk. According to the United States Department of Labor, validity is the most important issue in selecting assessment tools (USDL 2000). It refers to (1) the characteristic the assessment instrument measures and (2) how well the instrument measures the characteristic. A test’s validity is established in reference to a specific purpose, and it may not be valid for different purposes. Assessment manuals usually provide a statistic, the validity coefficient, which gives an indication of the test’s validity for a specific purpose under specific circumstances. It measures the degree of relationship between test performance and job performance (i.e., job relatedness of the test). Interest- ingly, among all types of assessments used in the employee selec- tion process, including background screening, research has shown that integrity tests have the highest validity for predicting undesirable behaviors (Roberts 2011). However, reported validities for these tests are somewhat low.

There has been a great deal of validity research. Some of this research has shown that integrity assessment scores can predict theft behavior (Eisenbraun 2006), although research conducted by the creators of honesty and integrity tests have provided higher validity measures than those found by scholars not directly con- nected to the tests’ creation (Van Iddekinge et al. 2012). In their meta-analysis of integrity tests, Van Iddekinge et al. (2012) found that mean observed validity measures corrected for unreliability ranged from 0.26 to 0.32—positive, to be sure, but not so much so that the tests can be determined to be highly reliable on their own. Marcus et al. (2013) found integrity tests had significant validity, but when added to the Big Five personality dimensions, the incremental value thereof declined significantly. We conclude

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that honesty and integrity tests do add new information that can be useful in pre-employment screening, although observed validi- ties are not high. Such tests also avoid some of the pitfalls associated with background screening, such as disparate impact and invasions of privacy.

Pollard and Richardson (1987), in their analysis of Type I and Type II errors, offer a helpful analysis in this regard. The goal of any pre-employment screening method, as previously noted, should be to confirm true hypotheses—here, whether or not a prospective employee is prone to fraud and CWBs. If the null hypothesis is that the applicant is prone to such behaviors and it is rejected due to faulty pre-employment screening methods, then the organization has fallen short in fulfilling its ethical obligations to other employ- ees and organizational stakeholders. If the organization fails to reject the false null hypothesis that the employee is prone to fraud or CWBs, then it has treated that employee unfairly. Many back- ground checks, because of their low validity, are prone to both Type I and Type II errors. The goal of using honesty and integrity tests is to reduce the likelihood of both error types.

BALANCING TESTS FOR THE USE OF HONESTY AND INTEGRITY TESTS

We now turn to our proposed balancing tests for the use of honesty and integrity tests. Previously, we have argued that orga- nizations have legitimate concerns about employee dishonesty and CWBs that provide ethical support for the use of pre- employment screening in some settings and circumstances. Employees, however, have legitimate concerns about fairness, accuracy, and relationship to organizational objectives. Our bal- ancing test has three elements: (1) the potential harm posed by a dishonest employee in a particular job, (2) the linkage between the test and the assessment process, and (3) the accuracy and valid- ity of the honesty and integrity test.

The Potential Harm Posed by a Dishonest Employee in a Particular Job

First, we note that some jobs create more potential for harm to the organization if an employee engages in fraud and CWBs. Some

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positions, such as senior executive positions and those involving financial decisions, are highly fraught with the potential for employee malfeasance. Fine (2013a) suggests that organizations critically analyze where the exposures to fraud actually are and design a program to use honesty and integrity tests accordingly. The greater the potential for harm, the greater the ethical support for the use of pre-employment screening methods, including the use of honesty and integrity tests.

The Linkage between the Test and the Assessment Process

When honesty and integrity tests are used, they should also have a rational relationship to the overall assessment process. Assessment instruments, like other tools, are helpful when used properly but can be useless, harmful, or illegal when used inap- propriately. Often, inappropriate use results from not having a clear understanding of what is to be measured and why it needs to be measured. Employers must first be clear about what they want to accomplish with an assessment program in order to select the proper tools to achieve those goals (Fine 2013a). Assessment strategies should be based on both an understand- ing of the kind of employment decisions to be made and the population to be assessed. Once a strategy has been developed, selecting appropriate assessment tools becomes more efficient. Only use assessments that are appropriate for a particular purpose.

Previously, we noted that many background check methods are idiosyncratic and fraught with the potential for misapplication. The ethical use of honesty and integrity tests is strengthened when they are triangulated with other informational sources in ways that paint a fuller picture of the applicant, and the entire pre-employment screening process has a strong link to the orga- nization’s objectives related to assessing the potential for fraud and CWBs, in addition to fit for the job. Because employee per- ceptions of fairness matter, employers using honesty and integrity tests should ensure that they are seen by applicants and employ- ees as fair, accurate, and rationally used. Employers have lots of legal leeway to use such tests, but it does not follow that they should use these tests just because they can.

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The Accuracy and Validity of the Honesty and Integrity Test

Finally, while the validities of honesty and integrity tests show some benefit, we do not conclude that they can be used uncriti- cally. Because of the potential for false positives and false negatives—and especially the former—organizations have an affir- mative ethical obligation to conduct independent assessments of whether the tests are accurate and valid for their own purposes, rather than rely on the test makers themselves (who have obvious conflicts of interest). They should also seek improvements in the validities of these tests, conduct frank assessments of whether they are being used in valid ways, and shift to better tests if they emerge.

Although assessments provide important employment-related information about an individual, no assessment tool is 100 percent reliable or valid; all are subject to errors, both in mea- suring job-relevant characteristics and in predicting job perfor- mance (USDL 2000). Moreover, a single assessment instrument provides a limited view of a person’s qualifications. Using a variety of tools to measure skills, abilities, and other job-relevant char- acteristics provides a more solid basis upon which to make important career and employment-related decisions and mini- mizes adverse impact. Using unbiased and fair tests will help select a qualified and diverse workforce. Organizations should review the fairness evidence associated with assessment instru- ments before selecting tools by examining the test manual and independent test reviews.

An assessment tool is usually developed for use with a specific group; it may not be valid for other groups. For example, an assessment designed to predict the performance of office manag- ers may not be valid for clerical workers. The skills and abilities required for the two positions may be different, or the reading level of the test may not be suitable for clerical workers. Assess- ments should be appropriate for the individuals desired to be tested; that is, one’s target population. Manuals should indicate the group or groups the assessment is designed to assess. The target population should be similar to the group on which the assessment was developed. In determining the appropriateness of an instrument for a target group, also consider such factors as reading levels, cultural backgrounds, and language barriers.

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Additional Recommendations for Practice

It is fair to say that increased use of any kind of testing of employees or applicants means an increase in the potential for litigation; however, an employer can take special precautions in order to minimize the risk of litigation (Seegull and Caputo 2006). Deciding whether to implement psychological testing with appli- cants and employees does not need to be an anxiety-riddled experience. With careful planning and execution, an employer should be able to use psychological testing as a way of achieving efficient hiring and promotion without violating federal and state laws. For example, do not make using tests the sole criterion for hiring or promotion decisions. Administer the test in a standard- ized fashion that ensures that all job applicants or employees are assessed in the same way. Take active steps to ensure the con- fidentiality of test responses.

Also, there are some commentators who believe that it is best to avoid using assessments that require analysis by a psychologist, psychiatrist, or social worker because of the fear that their inter- pretation of the results may produce the appearance that the assessment was a pretext for a medical examination to reveal some disability. The authors disagree with this position because all too often, assessments are administered by those not properly trained in employment testing, especially if the assessment given does not contribute to a finding of a particular mental impairment or psychological disorder. Typically, an organization sends a human resource person to a day of training with the vendor of the assessment, and consequently assessment results are incorrectly interpreted and an organization wastes time and money before discovering that the test was never valid. Furthermore, according to industrial organizational psychologist Wendell Williams, “people are out there putting on amateur psychologist hats and using personal opinions, memory and other unscientific types of pro- cesses” to administer and interpret assessments (Daniel 2005, para. 15). Assessments are used to make inferences about peo- ple’s characteristics, capabilities, and future performance, and inferences should be reasonable, well-founded, and not based upon stereotypes. If assessment scores are not interpreted prop- erly, the conclusions drawn from them are likely to be invalid, thus leading to poor decision making. Moreover, ensure that there

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is solid evidence to justify assessment score interpretations and the employment decisions made on those scores.

In addition, Williams states that “a test should be based on some theory of job performance; it should have integrity and reliability, and it should accurately predict what it’s supposed to predict and be backed up by studies” (Daniel 2005: para. 25). Furthermore, he states that every test should come with a tech- nical manual that proves the rigors it went through in develop- ment and should have studies to vouch for its validity. At times, vendors refuse to provide evidence of validity and claim that the information was proprietary. However, such a denial of informa- tion should be a red flag to employers because vendors should stand by their products by providing their validity studies. Legal experts also caution against an over reliance on representations made by test manufacturers regarding test validity for a particular job and encourage conducting periodic audits of employment selection testing procedures to monitor for possible adverse impact, significant changes in jobs, outdated validity studies, and other potential problems (Vann 2007).

Lastly, concerns about invading a person’s privacy can be alleviated if the potential employee gives informed consent to taking the assessment. Personality assessments are more defen- sible if the employer is open with the applicant concerning the purpose of the assessment, how the results of the assessment will be used, and the relative importance of the assessment compared with the other selection criteria that will be used in the hiring process. The applicants should be given reasonable notice that they will be asked to take an assessment. If an employer decides to use some form of assessment either to hire new employees or to award internal positions, the assessment must also be admin- istered fairly and accommodations may have to be made for someone who has a disability. The assessment should be admin- istered by a trained individual in a manner that is consistent for all of the people taking the assessment.

IMPLICATIONS FOR FUTURE RESEARCH

We believe that our analysis has significant implications for future research. First, there is need for research that explores the

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additional value that honesty and integrity tests add to pre- employment screening processes such as background checks. Given the problems associated with background checks, how might organizations come to better conclusions about a prospec- tive employee’s propensity to engage in fraud and CWBs? Here, both empirical and theoretical research would provide useful guidance for organizations, with particular attention to the valid- ity thereof.

Second, we propose that that there is a need for HRM research to provide stronger frameworks for when—and what kinds—of pre-employment screenings such as background checks and honesty testing should be used. We have noted that these can be useful, if problematic in practice. When is it worth the risk of making Type II errors, and harming applicants, for example? When is the cost of doing such screening not worth the marginal benefit? Which kinds of jobs are these tools best used for, and why?

Finally, we suggest that there is a need for research about how organizations communicate the use and value of pre-employment screening to prospective employees and those who are working or who will work for the organization. Even if screening is valid, it may be counterproductive if employees and applicants believe it to be unfair and inaccurate. In this regard, the communication of what organizations do is as important as what the organization does.

CONCLUSION

It is clear that background checks have many limitations associ- ated with them. Given the damage that a dishonest employee can cause for an organization, this paper suggests that the use of honesty and integrity testing is an appropriate additional measure that should be used as part of the prescreening process. While there are individuals and organizations with concerns associated with the use of such testing, if done properly, there is no legal reason to exclude these tests. In fact, it is expected that these tests will be very beneficial as part of the screening process as they are expected to identify applicants who are likely to engage in behavior that is counterproductive to the organization. Given the

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time, expense, and importance associated with the hiring process, it is strongly recommended that organizations consider the use of honesty and integrity tests to help them hire the “right” individu- als and avoid hiring the “wrong” ones.

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