Integrity Testing Explored:A powerful pre-hire screening tool to reduce

Total Cost of Risk

Western Carolina RIMS Chapter March 10, 2016

Presented by:Steve Watts

Managing Partner/Co-founderPrevail LLC, Pinocchio LLC

steve.watts@prevailrisk.com(404) 242-4720

The Journey to Pinocchio

www.prevailrisk.com

www.donthirepinocchio.com

"In looking for people to hire, you look for three qualities: integrity, intelligence, and energy. And if they don't have the first, the other two will kill you.”

- Warren Buffet

• 25% - 40% of all employees steal from their employers ($50 billion annually)

• 55% of theft perpetrators are in a management position

• Drug and alcohol abusers use three times as many sick days, are 4 times more likely to be in an accident, 5 times more likely to file for workers compensation, and 10 times more likely to steal

• 75% of adult illicit drug users are employed, representing 15% of the workforce

• 55% of all resumes or applications contain outright lies

• 35% of workers say they have felt bullied at work

• 2 million cases of workplace violence per year

• Workers compensation fraud accounts for 25% of all insurance fraud, or $7.2 billion annually

How often is our first priority a candidate who seems qualified

Are they really fit for a job… in any organization?

Later we discover they have:

Exaggerated insurance claims

Stolen from youAbused drugs & alcohol on the jobMade threats against employeesor the public

Overt Integrity Testing

Candidate Screening

Experience Skills Education Core Behaviors

• Criminal Records Checks 88%• Employment Verification 86%• Drug Screening 78%• Education Verification 74%• Verify Professional Licenses 59%• MVR Checks 50%• Credit History 39%• Integrity Testing 35%

Screening Tools Utilized - Fortune 1000

Overt Integrity Testing

A simple 10-minute,online pass-fail test

that truly weeds out the bad hires

Lying

Theft

Drug Use

Hostility

Overt and Covert Integrity Testing

• Obvious or overt• Questions are quite direct

“How much did you steal from your employer last year?”

• Disguised purpose• Indirect questions /

hypothetical situations

“What shape is your favorite: circle, triangle, or square?”

Do you speed?

Is it right?...NoIs it against the law?...YesWould I admit to it?...YesWould I hire someone who speeds?...Yes

Speeding…

Guess what…

25% of job applicants admit to what most employers consider high risk behaviors

Examples:• 4% admit to smoking pot at work• 3% admit to shoplifting in the past year• 3% admit “would fail urinalysis”• 2% admit drinking/alcohol impaired at work

Cognitive Dissonance: The science behind Integrity Testing

People with Cognitive Dissonance:• Rationalize their behaviors as normal, or they justify their behaviors when

their lifestyle is in conflict with their values• Feel “entitled” or deserving of some reward or benefit

Theft Scale

Sample Question:

• Excluding minor office supplies (pads, pens, etc.), what would you guess is the value of things you have secretly taken from work in the past 2 years?

A. NoneB. $5 - $25C. $26 - $500D. $501 or more

Note this question:

9 Inquires about recent theft only.9 Excludes all amounts below $5.

Sample Question:

• Have you ever pretended to have a work injury in order to collect Workers Compensation Insurance?

A. NeverB. Only OnceC. Only TwiceD. Several Times

Theft Scale

0% 1% 2% 3% 4%

Shoplifted in Past Year

Would Help Friend Steal

Would Steal if Angry

Would Steal if Had Opportunity

Would Steal if Had Low Pay

Would Give Friend Unauthorized Discount

Would Knowingly Buy Stolen Merchandise

Would Fake Time Card if Never Checked

Theft Behaviors

Sample Question:• Excluding pills you got from a doctor (prescriptions), which of

the following drugs do you currently use?

A. Cocaine, Coke, Snow, CrackB. LSD, Acid, Mescaline, PeyoteC. Heroin, OpiumD. None

Note this question involves:– Only “current use” drug inquiries.– Only job-related alcohol inquiries.

Drug & Alcohol Scale

0.00% 1.50% 3.00% 4.50%

Regular drug use

Pot at work

Would fail urinalysis

Arrives under effect of substances

Drugs impair work

Drinks at work

Alcohol impairs work

Used drugs in past 3 weeks

Drug & Alcohol Use

Sample Question:• How often have you hit someone in anger in the past year?

A. NeverB. RarelyC. OccasionallyD. Frequently

Note:– Hostile individuals often interview well.– Hostility often comes out in hidden ways.– 99% of all applicants pass this scale.

Hostility Scale

Sample Question:• Since age 16, how often have you told a lie?

A. FrequentlyB. OccasionallyC. RarelyD. Never

Note:9Need to work hard to fail this scale.

Faking Scale

Example hiring process

Candidate Applies Review Applicant’s Eligibility

Integrity Test Administered

Passing or Qualified Candidates Proceed

Interview, Job Offer, Background Screen,

etc.

Overall Scale 25% High Risk

Theft Scale 12% High Risk

Drug Scale 9% High Risk

Honesty Scale 9% High Risk

Hostility Scale 1% High Risk

*Individual categories will not reconcile to overall total, due to multiple category responses %’s based on over 1MM tests in a national study.

Specific Capture-rate Results

EEOC requires that a test must be either non-discriminatory or validated to be compliant

ValidatedNon-

discriminatory

or

This test meets BOTH criteria.

Legal ComplianceIF you use a screening company with validated and/or non-discriminatory results:

• Supported by EEOC: http://www.eeoc.gov/policy/docs/factemployment_procedures.html

• Pre-employment screening ONLY!

• Federal and State guidelines require protected classes to pass

at a rate that is 80% or better, compared to the relevant class.

• Employment Background Screening and Drug Testing are regulated by the FCRA (Fair Credit Reporting Act)– Both these services have multiple “hands”

assembling reports, hence the candidates have the right to contest reports

• Integrity Testing is not regulated by the FCRA; candidates cannot contest results– Reason: Candidates answer the questions directly

without involvement of 3rd party.

Candidate Contesting Results

Benefits of Integrity Testing• Improves Productivity & Morale

• Reduces Turnover & Absenteeism

• Reduces “Frictional Costs”

(Legal, Rehab, EAP, & TPA)

• Reduces FMLA, STD, LTD, Sick Leave, & Unemployment Costs

• Reduces Employee Theft and Workplace Hostility

• Reduces Workers Compensation Losses

SHRM – HR Magazine (June-2011)• “Research has shown that Integrity Tests have the

highest validity for predicting undesirable behaviors at work”

Journal of Business and Psychology (April-2011)• “…Integrity Testing can result in substantial savings

across multiple industries”

• “…Integrity Tests can be a useful tool to assist employers in hiring individuals who are less inclined to engage in behaviors that are dangerous, aggressive or generally counterproductive”

Cornell University- (2009)• “…Integrity tests are a potentially highly useful

selection tool” “Do not create adverse impact” and "Produce ROI results of as much as 800+%“

Results Supported by Various Studies

• Two-year study by The University of Arizona (2010-2012)

• Screened employee population v non-screened employee population

• Claim data compared:FrequencySeverity

Silverado Assisted LivingCase Study: Impact on WC Claims

• # of Monthly Screens : 800• Average Claim Frequency Reduction – 60%• Average Claim Severity Reduction – 54%• Overall Average Loss Rate Reduction – 72%• Turnover Reduction – >35%

Measuring Impact In Reducing Workers Comp Losses & Turnover

Silverado Assisted LivingCase Study: Impact on WC Claims

11.30%

4.10%

Claims Filed

Non-Test Takers

Screened Employees

Screened employees were 3x less likely to file a claim than those who were not screened.

Silverado Assisted LivingCase Study: Impact on WC Claims

Incidence of a claim exceeding $5K was nearly 4x greater among non-test takers v. screened employees.2.20%

0.60%

Claims >$5,000

Non-Test Takers

Screened Employees

Silverado Assisted LivingCase Study: Impact on WC Claims

Incidence of a claim exceeding $20K is nearly 12x greater among non-test takers v. screened employees.1.20%

0.10% Claims >$20,000

Non-Test TakersScreened Employees

Industry Results Example:Foodservice Industry

Theft Scale

High Risk 8%

Low Risk 92%

Theft of Cash

Up to $25 48%Up to $500 26%$501 or More 26%

Top Admissions

Would Give Friend Unauthorized Discount 26%Would Fake Time Card if Not Checked 21%Shoplifted in Past Year 18%

Industry Results Example:Foodservice Industry

Drug Abuse Scale

High Risk 10%

Low Risk 90%

Top AdmissionsUses Pot Regularly 46%Would Fail Urinalysis Today 23%Used Illegal Drugs in the Past 3 Weeks 21%

Industry Results Example:Foodservice Industry

Faking Scale

High Risk 11%Moderate Risk 43%Low Risk 46%

High Risk 1%Moderate Risk 5%Low Risk 94%

Hostility Scale

Reduction in claim frequency

*54% *21%

Reduction inturnover

*30%

*Study of 18 clients from 1996-2013

Manufacturing

Food Processing

Hospitality

Construction

Healthcare

Staffing

Retail

Reduction in claim severity

• Cost• Reduced candidate pool• Disruption/slowdown of

hiring process• Adverse impact

Concerns about Integrity Testing

The question is……how much is he costing you?