By Michael Cormier

Recently, I had lunch with a friend who works in HR at a small company. Eventually, the topic of conversation got around to hiring practices versus corporate security.

Meg (not her real name) gave me an earful. She told me how hard it is to keep up with all the laws regarding background checks. On the flip side, she lamented that her company didn’t want to spend money on hiring an outside firm to do the investigating for them. They thought they just couldn’t afford it.

After some discussion, I realized she hadn’t even looked into what it would cost to retain a background investigation firm. I suggested she call The Hire Authority (508- 230-5901; www.hireauth.com), which prides itself in designing programs customized to a company’s needs. She told me she’d talk to her boss.

After a nice meal, we parted and I went back to my office. With our conversation still on my mind, I decided to get on my computer and do a little basic research. But instead of looking into the cost of background investigation services, I decided I would research the cost of hiring bad employees.

Knowing I could spend hours researching every kind of trouble a bad hire can cause their employer, I decided to focus on two of the more common problems: 1) theft and fraud, and 2) sexual harassment. What I learned was disturbing to say the least.

Cost of theft and fraud

Estimates of losses suffered by U.S. businesses due to theft and fraud range between $20 billion and $50 billion annually.

These are only estimates, and they might even be low because some theft and fraud is hard to quantify in terms of dollars. But if you count such things as information theft and lost services due to fraud (such as conducting a personal “side” business on company time), along with stolen merchandise and embezzlement, it really adds up.

According to one audit agency, the average organization loses about 5% of its gross revenue to fraud every year. That may not seem like much, but if your small company grosses $5 million a year, you just gave up $250,000. That’s a lot, especially when your firm operates on a thin margin.

Cost of Sexual Harassment and Other Abuse in the Workplace

Laws designed to address sexual harassment in the workplace have been around for a while. Moreover, we live in an age of enlightenment and personal protections such as have never existed before. Employees should be able to keep their thoughts and actions focused above the waistline while at work, right?

Not necessarily. In fairness, it appears to be getting better: the Don Drapers of the world are not as common, at least on the surface. But sexual inappropriateness is still a problem, and a growing one in the realm of cyberspace, where texts, email, Facebook posts and tweets account for a good deal of the hostile workplace complaints received each year. One highly esteemed law review reported that between 40% and 90% of US women have been victims of sexual harassment in the workplace at one time or another.

So how does all this translate into dollars – more particularly, company dollars – lost? One study suggested that an average Fortune 500 company may lose as much as $6.7 million annually due to absenteeism, poor productivity and turnover caused by sexual harassment. That doesn’t even take into account the hard dollars spent on legal fees and damages paid out when the company itself is made to bear the cost, which commonly happens. These costs can easily run well into six figures.

A Fortune 500 company may be able to absorb these costs. Not so small companies. One lawsuit can spell the ruination of a modest company lacking the cushion for such losses.

So how much is peace of mind worth?

Of course there are many other ways in which a bad employee can wreak havoc on an unsuspecting employer. The question is, what’s it worth to weed out bad employees before they get hired?

Start by taking the guesswork out of the cost. Get a quote from a reputable background investigation firm like The Hire Authority (508- 230-5901; www.hireauth.com). The Hire Authority will design a customized program for investigating and verifying information about new employees, so you can hire with confidence. After all, the smartest way to avoid trouble is not to hire that bad egg in the first place.

The foregoing should not be construed as legal advice. Employers should always consult their own legal counsel for advice on labor and employment matters.