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Auditing the use of recruiting firms

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A company's use of outside recruiting agencies has often been a neglected aspect of internal auditing. However, several concerns should be addressed to avoid potential problems in the use of outside recruiting firms. A pre-determination of the number of firms used and the selection of specific firms, as well as the kind of contract required of each firm should be established.

Following the process of firm selection is the actual recruitment activity

Here, number of resumes are submitted by recruitment firms from which several applicants are chosen by personnel staff for interviews. When a potential candidate is hired, an invoice which determines the firm's fees is then sent. Keeping complete records of each resume and invoice will prevent future problems. The ideal audit program to monitor this type of hiring process is one that is tailored to meet existing company procedures. The internal auditor must conduct a detailed examination of such policies to ensure compliance.


OUR AUDIT DEPARTMENT reviewed our company's use of outside recruiting firms. We conduct operational audits on a rotating basis; and although we had examined the hiring function during prior audits of Human Resources, we had never concentrated on the use of recruiting firms.

Although some recommendations came to light as a result of our audit, we were generally pleased with the effectiveness of existing company practice and the audit program we developed. Other internal auditors may find our experiences to be of value in their own reviews of this specialized but important area.

* The Recruiting Process

To find job candidates, our company uses many strategies, including internal promotions, newspaper ads, word of mouth, employee recommendations, local job service agencies, and outside recruiting firms. Sometimes several methods are used simultaneously. As in most organizations, Human Resources decides which method or methods to use.

Since recruiting firms can be expensive, the decision to use them must be made at an appropriately high level in the hierarchy. Hiring through recruiters when better options exist wastes money. Once the decision has been made to engage recruiters, consideration must be given to how many and which firms to contact and the type of agreement most appropriate for each firm.

Most recruiting companies, particularly those recruiting at lower levels, are paid only if they place a candidate. It is common to have several such organizations working on the same position at the same time; they compete against one another to send the best candidates. Each firm has an incentive to "sell" its people to the client.

Sometimes a single firm may be hired to do an exhaustive search. Typically such organizations (which are also known as "executive search firms") are paid for their efforts whether or not they make a placement. In this case the firm does not have an incentive to "sell" people to the client, and these firms often appear to screen candidates more objectively than their contingency counterparts.

After the recruiting firm has been selected and an agreement has been reached, the recruiting process begins. The recruiting firms will typically submit several resumes, and company personnel will select candidates for interviews. Often resumes will come from other sources as well.

The candidates will then be interviewed, and an offer will be made to one of them. Conflicts may occur if the company receives the same person's resume from more than one source. In general, a recruiting firm should receive a fee if that firm was retained by the client, one of its candidates was hired by that client, and it was indeed the first to submit the successful candidate's resume.

Sometimes a person may submit a resume in answer to an ad, and a recruiter subsequently sends the same resume. To prevent the inevitable conflicts, it is important that the organization keep scrupulous records of the source of each resume received, along with the date and time it arrived.

Once the organization has hired a candidate sent by a recruiting firm, an invoice is sent. The individual who approves the invoice for payment should be someone who has not had previous contact with the recruiters. This person should review a copy of the contract (which specifies the fee), evidence that the candidate in question was hired, evidence that the individual hired was indeed first brought to the attention of the organization by the recruiting firm in question, and documentation of the new person's starting salary.

Fees paid to the recruiting firm are typically some percentage of the hiree's pay. Recruiters may therefore have an incentive to inflate a candidate's current salary, since the proposed salary offers are likely to be affected by current earnings. If the candidate tells the truth on the application, and if the organization reviews the application, this will uncover the recruiter's ruse prior to payment of the fee. If the applicant lies on the application, hopefully this will be detected during reference checking.

If someone has been interviewed in confidence, that person's salary can be confirmed after hire. Should a misstatement on the application be detected at that time, he or she can be terminated for false statements on the application. If this occurs within the minimum period of employment agreed to with the recruiter, then the organization would be entitled to recoup the fees.

After an appropriate party approves the invoice for payment and documents that approval in writing, supporting documentation should be properly cancelled. Because it is generally known that fees are usually proportional to pay, extra care may be required in processing these bills to maintain the confidentiality of payroll information.

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