Background verification: M&As drive multiple screening of employees in India Inc

Employees of a mid-sized insurance company were shocked when their company got new promoters after a private equity (PE) firm invested in it.

They were now required to undergo a background verification process. This was a surprise as they had been through a thorough verification at the time of joining and even old-timers were expected to repeat the process.

The situation turned grim when the PE firm found inconsistencies in the background of three individuals. Of these, one was let go because he failed to disclose an alleged cheque bounce case registered against him.

This incident is not a one-off case. As merger and acquisition (M&A) activities pick up in the country, there has been a rise in re-screening of employees in the target organisation.

While background verification is the norm across mid and large-sized companies, re-screening of employees is done when there is a change in the promoter or if a new investor comes in.

"Validation of personnel records is critical due diligence in M&A activities, especially when the target company operates in the services space, where reliance on employees for delivery and business continuity is key," Paul Dupuis, MD and CEO, Randstad India said.

Most companies may not redo the background verification process for all employees, but would carry out the same for key management personnel and critical resources, Dupuis added.

"Background verification is also done for records where the information is dated or not available," he said.

Re-screening v/s background verification

When a new employee joins an organisation, they are required to share data related to their past employment, remuneration and educational qualifications among others. This is verified by an independent agency to ensure that the information shared is authentic.

Re-screening, on the other hand, refers to re-verification of information shared in the past. This is done either when a company feels the past verification was inadequate or if a new investor comes into the firm.

Human Resource (HR) experts say, foreign investors especially PE firms, are more particular about getting employees re-screened. And while a majority of companies only get the top management re-screened, there are companies who also redo the process for the entire staff.

For instance, when new funding was announced at a technology major, it was preceded by a complete screening of the entire team. Multiple cases of incorrect information presented in resumes were found and of these, seven people were asked to leave.

What happens next?

Major offences or discrepancies mean that a person is asked to leave. This differs from one company to the other but typically fudging education or work experience data means that an employee is a potential risk.

However, what constitutes a discrepancy is also subjective.

For example, a new investor an education firm sought rescreening for all employees and one was found to have missed a few credit payments, which affected his credit score. The new investor found this unacceptable and the employee was moved to a non-finance role.

For other matters like residential address mismatch or inaccurate reference checks, the employee is required to give a clarification to the board.

Among sectors, HR firms said that BFSI, and technology followed by education have the highest number of re-screening incidences.