This article was published in the October 2016 issue of STORES Magazine.
In business, every penny really does count — perhaps even more in the retail industry. Being reminded of the statistics can be both informative and depressing. A 2016 report from NRF estimated annual inventory loss in the United States as $45 billion, or 1.4 percent of total sales. Walmart alone loses some $300 million every year to shrinkage.
Of that $45 billion figure, 70 percent was judged to be from theft — either internal or external. Almost half of that amount can be traced to employee fraud. Despite these mindboggling numbers, the big players are able to absorb losses while remaining profitable. But these companies represent the outliers. For virtually everyone else, survival demands close attention to reducing shrinkage.
Given the major portion of shrink that is committed by employees, a new emphasis on comprehensive, more-accurate background checks has emerged in the war on internal pilferage. Checking the backgrounds of prospective employees is, of course, nothing new. For decades, businesses large and small have routinely checked resume references, called previous employers and verified the educational credentials of applicants.
Until two years ago, Australian manufacturer and retailer Lorna Jane used a method of screening applicants that was inaccurate and ineffective. The company sells its women’s activewear in 40 stores in the United States, mostly in California and other western states, and has a large global ecommerce presence.
Nicole Kramer, senior human resources business partner, says the company formerly did only basic reference checks, a practice that went back to the company’s founding. “We simply mirrored the system we originally used in Australia, where labor laws are quite different,” she says. “We knew we needed a better system.”
The human element
Companies specializing in conducting background checks have responded to the rising need — to the point of making background checking an industry in itself. Many background investigation companies, however, have aggressively embraced automation in the operations. Powerful computers mining the Internet with proprietary algorithms can be hugely efficient, but can also yield outdated information and embarrassing errors.
That’s the assessment of Chris Dyer, who left the background investigation firm he worked for in 2001 to establish PeopleG2, with the intention of reforming the industry. “Our system is different in that we work in real time. We find that by providing current information, the quality of service we provide to our clients is superior,” Dyer says. “Accurate data assures both greater level of fairness to those we investigate and compliance with all applicable laws.” The company employs an information gathering technique borrowed from the armed forces — in fact, the term “G2” has a military provenance, used to refer to military security and intelligence sections.
G2 uses technology to varying degrees when collecting information from a job applicant. Depending on arrangements with the client, data can be collected by the employer and forwarded to PeopleG2, or the applicant can file online on the “careers” page of the employer’s website, which is seamlessly integrated with PeopleG2’s server.
“Once we receive the information, that’s where the human element comes in,” Dyer says. “Most of our clients are looking for a criminal background check, which can be quite complicated due to various state and local laws. We can check credit reports, DMV records and previous employment, but in each case there’s a real person doing the checking and verification. We have agreements and authorizations from governmental bodies nationwide which allow us to access this data.”
By conducting the search offline, a more comprehensive and more accurate picture of the applicant is obtained.
By conducting the search offline, a more comprehensive and more accurate picture of the applicant is obtained.
Just what information is gathered varies, depending on an individual client’s directives. Dyer says that employers who use any service his company offers gradually request fewer and fewer reports. This may be due to the fact that PeopleG2 clients use the reports to learn more sophisticated interviewing skills and hone their subsequent hiring practices accordingly, resulting in lower turnover rates.
One area where the company does harness the Internet is around social media. Investigating a job seeker’s online social activity is a service PeopleG2 offers, though not all clients request it, for legal reasons related to privacy. Dyer stresses that what sets his company apart is the timeliness and accuracy of the information it provides.
“We have competitors that will produce a report based on mined data off the Internet, but they have no way of guaranteeing its accuracy. We can do that.”
Preemptive measures
Lorna Jane utilizes varying levels of service from PeopleG2, depending upon the position being filled. For entry-level hires, PeopleG2 performs basic criminal inquires at the state and local levels, plus the sex offender registry in the applicant’s state. For higher positions, the three most recent employments are also verified. Most of the company’s highest-ranking staffers are Australian citizens in the U.S. on temporary work visas, making extensive checking unnecessary.
“We need effective pre-employment screening as a preemptive measure to deter theft.”
“We’re a very small company, and have limited resources to do screening in-house,” Kramer says. “But at the same time we need effective pre-employment screening as a preemptive measure to deter theft, since our locations are boutique-like settings, and many of our team members are working by themselves or with only one other person. PeopleG2’s method works, since we know that past behavior is a strong indicator of future behavior,” she says.
Since Lorna Jane is a relatively small player, company officials are able to closely observe inventory levels, and can attest to the effectiveness of their new partner. “It’s allowed us to rely on their service as our only means of loss prevention,” Kramer says.
PeopleG2 also offers services for screening businesses, tenants and potential executives, which involves much more in-depth analysis. While Dyer says that clients rarely request executive-level screening, he makes a compelling case for why a company may be in need of it.
“For C-level executives and higher, we can provide very sophisticated, intensive solutions. When someone is being recruited for this high a position, we know that if the wrong person is brought in, that individual can destroy a company’s culture and/or its sales momentum. Recovering from a disaster like that can take years, if it’s even possible,” he says.
“In these cases we look closely at the claims a prospect makes on her or his resume or in an interview. Let’s say if a previous employer experienced a 30 percent sales increase while the candidate was there. Was that person really responsible for that, despite what their LinkedIn profile might say? As far as we know, we’re the only company that does that.”
PeopleG2’s success uses an innovative approach that brings together investigative and technological tools and strategically deploys them. This new technique may represent the future of human resource and loss prevention.