Emerging Growth Companies and the At-Risk Employee: The Viability of Pre-Employment Honesty Testing

Article excerpt

A Growing Concern

In recent years, identifying honest employees has become a business necessity. Employee participation in theft (shrinkage), destruction of property, substance abuse, and other criminal behaviors subject employers to great financial costs. These costs make it necessary to identify applicants who are prone to such criminal behaviors and remove them from further employment consideration. However, any procedure used to make honesty or risk predictions should be performed in a manner that does not violate the civil rights of any potential employee.

The basic tool for predicting honesty has been the polygraph examination or lie detector test. However, its effectiveness and legality has been questioned (Benson & Krois, 1979). The polygraph is said to violate the employee's civil rights because it lacks the reliability needed to make accurate and consistent predictions. In fact, the Employee Polygraph Protection Act, a federal law that became effective on December 27, 1988, has as its main objective outlawing the use of the polygraph exam for employee selection.

One possible alternative to polygraph tests is the paper-and-pencil honesty test. Tompor (1981) stated that paper-and-pencil honesty or integrity testing has grown into a multimillion dollar industry. As with any employee selection device, the use of paper-and-pencil honesty testing entails some risks. A paper-and-pencil test uses multiple choice and personal history questions to assess such issues as past drug and alcohol use, criminal behavior, attitudes toward theft, attitudes toward company policies, etc.

Sackett, Burris, and Callahan (1989) cite four important reasons to review the use of honesty tests: 1) a few state laws restrict their use (e.g., Rhode Island, Massachusetts, and Minnesota); 2) new honesty tests have been developed and marketed; 3) there has been a broadening of the criteria used in honesty research; 4) and a substantial amount of research exists on current tests. The goal of this paper is to present those aspects of honesty testing that would be of great concern to executives of smaller firms who would benefit greatly from the use of these tests. Specifically, this article examines the growing business necessity of pre-employment honesty tests, the reliability and validity of such tests, and the legal concerns that need to be taken into consideration.

The Environment for Honesty Testing in Smaller Firms

White collar crime accounts for approximately $41 billion in business losses per year, including $1.1 billion attributed to embezzlement and internal theft and $100 million to computer fraud (U.S. Department of Commerce; 1985). In addition, Price-Waterhouse (1986) attributed one half of the shrinkage in retailing inventory to employee theft and the other half to shoplifting and poor paperwork.

Small businesses suffer the effects of such crimes much more than larger firms. The Chamber of Commerce has reported that 30% of all small business failures result from employee dishonesty -- internal crime. In addition, statistics reveal that small businesses (under $5 million in sales) are far more likely to suffer the consequences of business crime than larger firms (Green & Berry, 1985).

In addition to employee theft, drug abuse is also a great concern to American businesses. According to the National Institute of Drug Abuse in Rockville, Maryland, drug abuse costs our economy $122 billion a year or approximately $538 million a week. These costs reflect declining production rates, increased absenteeism, increased work-related accidents, and increased health and medical costs. When these drug-abuse related costs are added to the costs of theft, the danger of dishonest employees can threaten the survival of a smaller firm.

To expand and grow, a small business needs to avoid these costs. A type of screening is needed that can accurately assess the honesty of job applicants. …