Hire your Way to Higher EarningsWith Pre-Employment Screening

Presented by:Si Lamm CPCU, Managing Director

American Tescor LLC, a division of Merchants Information Solutions, Inc.

Screening Tools Used by Fortune 1000

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• Criminal Records Checks 88%• Employment Verification 86%• Drug Screening 78%• Education Verification 74%• Verification of Professional Licenses 59%• MVR Checks 50%• Credit History 39%• Integrity Testing 7%

Background InformationAmerican Tescor, LLC

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• Founded - 1979 by Dr. Peter Bullard• Headquarters – Phoenix, Arizona• Service Area – North America• Testing Volume – 40,000+ Applicants Weekly

Tescor’s Electronic Behavioral Assessment

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• 73 Questions about Theft, Drug Abuse, Violence & Lying.

• Identifies Applicants with “Entitlement Mentality”.

• 5th Grade Reading Level. Takes 20 Minutes.

Tescor’s Electronic Behavioral Assessment

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• English plus 21 Foreign Language Versions. Audio Versions in English & Spanish.

• In Compliance with all State and Federal Hiring Guidelines.

• All Electronic Screening & Immediate Results 24/7/365 with/without Internet.

Benefits of Tescor Screening

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The Tescor Survey has proven to be a powerful tool in improving productivity, employee morale, and earnings. This is accomplished by Reducing:

Turnover Sick Leave UtilizationEmployee Theft (Shrinkage) EAP UtilizationWorkplace Violence Workers’ Comp LossesNegligent Hiring Suits STD LossesDisciplinary Actions LTD LossesTerminations for Cause Group Medical CostsUnemployment Insurance Auto LiabilityFMLA Utilization EPL Claims

Measuring Tescor’s Impact In Reducing Workers’ Comp Losses

• Controlled studies cover over 428,000 workers • Time Frame – 1996 to 2009• # of Companies In Studies – 17• Average Claim Frequency Reduction – 54%• Average Claim Severity Reduction – 21%• Overall Average Loss Rate Reduction – 63%

Tescor ProducedA 15% Improvement in Turnover

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Data From A National Rental CompanyStudy Period-24 Months

Table 1.

Status Total Workers Terminated Active Turnover

Tescor Screened Workers 2,213 1,185 1,026 54%

Unscreened Workers 599 373 226 62%

Tescor’s Effect on Unemployment

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Tescor Produced 87% Fewer Unemployment Claims & 89% Less Expensive Claims.•National Rental Company•Unemployment Claims Study Period 24 Months

Screening Status

No. of Workers

Claim Frequency No. of Claims Total Claims

CostAverage

Claim Cost

Unscreened “Veterans”

6,347 3.43% 221 $469,658 $2,125

New Hires With Tescor

2,213 0.45% 10 $2,037 $231

Totals 8,650 231 $471,965

Difference 87% 89%

Short Term Disability (STD) Study Period 12 Months

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In the study, 6,800 applicants were screened with the Tescor Survey. The Unscreened group had a claim frequency rate 40% higher than the Tescor Screened group.

Sample Industries Served By American Tescor

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• Hospitality –Huntington Hotel Group, Hospitality Management Corp• Food Processors – National Beef • Car Rental Agencies - Hertz• Long-Term Care – Kisco, Delta Healthcare, AccentCare• Commercial Laundries – American Linen Supply (ALSCO)• Staffing – TrueBlue, Inc., Joulé Staffing Services • Transportation – KKW Trucking• Manufacturers & Assemblers – Technicolor, Thor Industries• Retail & Distribution – U-Haul, Johnstone Supply, Weis Markets• Building Maintenance and Security – Levy Security, Pacific Building Care,

American Building Maintenance • Oil & Gas – Precision Drilling, Diamond Offshore• Construction-Jaynes Corp, CLP Resources, Eplica Corp Cajun Industries

Electronic Delivery Systems

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Tescor on the Internet

All Tescor systems provide instant results.

Internet: HR MagnetSample Results

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Tescor Scales

Theft Scale

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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. None B. $5 - $25 C. $26 - $500 D. $501 or more

–Serious and recent theft only.–Excludes all amounts below $5.

Drug and Alcohol Scale

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Sample Question:Excluding pills you got from a doctor (prescriptions), which of the following drugs do you use?

A. Cocaine, Coke, Snow, Crack B. LSD, Acid, Mescaline, Peyote C. Heroin, Opium D. None

–Only “current use” drug inquiries.–Only job-related alcohol inquiries.

Hostility/Violence Scale

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Sample Question:Suppose you were insulted. Would you hit the person who insulted you?

A. Definitely would not B. Probably would not C. Probably would D. Definitely would

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

Faking Scale

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

A. Frequently B. Occasionally C. Rarely D. Never

–More than 90% of all applicants pass this scale.

The Science Behind Tescor

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Individuals engaging in aberrant behaviors tend to rationalize their behaviors as normal. Otherwise, they suffer from “cognitive dissonance,” an anxiety provoking state where one’s behaviors are in conflict with their values.

Scoring the Tescor Survey

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An individual who scores HIGH in any risk category (Theft, Drugs, Faking and/or Hostility) is considered a NONQUALIFIED applicant.

Validation ResearchNational Sample - 1,152,358 Applicants

Overall Risk

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Passing Rates for Theft Scale

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Passing Rates for Drug Scale

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Passing Rates for Hostility Scale

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Passing Rates for Faking Scale

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Theft Behaviors

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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

Drug Admissions

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0.00% 0.20% 0.40% 0.60% 0.80% 1.00% 1.20% 1.40% 1.60% 1.80%

Hallucinogens

Methamphetamine

Sedatives

Hashish

Inhalants

PCP

Cocaine

LSD

Opium

Morphine

Amphetamines

Valium

Drug and Alcohol Use

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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

Comparing Screening Tools Criminal Background Checks

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• Only convictions are reported.• Limited in geographic scope – by county or state.• Not all states have statewide databases• There are 3,380 counties in U.S.• 25 states have automated less than 60% of their felony

convictions.• Most employee theft is never caught or reported.• Identity theft will not be caught.• Capture Rate: 6% Cost: $25 to $150.

Comparing Screening ToolsUrinalysis Limitations

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• Most drugs (except marijuana) clear a user’s system in less than 72 hours.

• Web sites like “urineluck.com” sell clean powdered urine with 200% guarantee.

• Subject to legal challenges through faulty lab work, sample mix-ups, or chain of custody.

• Capture Rate: 5% Cost: $10 to $50

False Negative StudyMidwest Based Staffing Company

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Study Background This Midwest based staffing company primarily serves the light industrial sector. They conducted urinalysis screening on all applicants who passed the Tescor Survey. All those who passed the urinalysis were then subject to criminal background checks.

False Negative StudyMidwest Based Staffing Company

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Study Period: 24 months

25,003 Workers Screened by Tescor19,901 Workers Passed Tescor 80% Tescor Passing Rate

– Prior to implementing Tescor 5% Failed Urinalysis and– 5% Failed for Adverse Background Check

After Implementing Tescor: 142 (.7%) Passed Tescor and Failed Urinalysis 59 (.3%) Passed Tescor and Failed Background Check201 (1%) Total Tescor False Negatives

The Cost of High Risk Employees

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• Thirty-eight percent to 50% of all workers’ compensation claims are related to the abuse of alcohol or drugs in the workplace. -U.S. Department of Labor

• Drug-using employees are five times more likely to file a workers’ compensation claim. -National Institute on Drug Abuse

• Drug and alcohol abuse in the workplace cause 65% of on-the-job accidents. -Department of Labor

The Cost of High Risk Employees Cont.

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• Studies show that alcohol and other drug users use three times as many sick days. -National Council on Alcoholism & Drug Dependence

• Drug users are absent from work an average of five days per month due to drug use. -U.S. Department of Labor

• Substance abusers are 10 times more likely to steal from the company or from other employees. -U.S. Department of Labor

The Cost of High Risk Employees Cont.

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The U.S. Department of Commerce reported that the annual losses generated by poor hires, absenteeism, drug abuse and theft amount to $75 billion per year; and 30% of business failures are due to poor hiring practices.

Legal Compliance

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• Tescor has been “litigation free” throughout 30+ year history.

• Screening tools must be either validated or non-discriminatory – Tescor is both.

• Federal and State guidelines require protected classes to pass at a rate that is 80% or better, compared to the relevant class.

Passing Rates of Protected Classes

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White80% Rule

Non-White

Male80% Rule

Female

Under 4080% Rule

Over 40

By Race, Sex and Age

Passing Rate (percent)

Tescor’s Effects on Workers’ Compensation

Common Denominators In Expensive Comp Claims

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• History of Absenteeism

• History of Disciplinary Action

• History of Prior Claims

• History of Drug Abuse

Cornell University Findings

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• Screened employees are less likely to file a claim.• The screened employees’ average claim was smaller than the

average claim filed by an unscreened employee.• The screened employees’ claim variance was smaller than the

unscreened employees’ claim variance.• The average claim cost of all screened employees is less than

average claim cost of all unscreened employees.• The screened employees are less likely to file large claims (i.e.,

> $2000) than unscreened employees.

Overall Projected Workers’ Comp Loss Reduction

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Turnover Year 1 Year 2 Year 3 Year 4 Year 5 Year 6

5% 2% 5% 7% 10% 12% 14% 10% 5% 9% 14% 18% 23% 27% 20% 8% 17% 25% 33% 42% 50% 25% 10% 20% 30% 40% 50% 33% 12% 25% 37% 50% 50% 17% 33% 50% 75% 21% 43% 50% 100% 25% 50% 200% 33% 50% 300% 38% 50% 400% 40% 50%

The Essence of Business

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“The first duty of business is to survive and the guiding principle of business economics is not the maximization of profit – it is the avoidance of loss.”

-Peter Drucker

Hiring the Right People

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"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

Tescor Screening Improves Earnings, Safety & Productivity

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• Tescor Electronic Screening:

• Highly Effective

• Easy to Administer

• Generates Very High ROIs

Tescor’s integrity test is a highly effective tool in reducing the costs associated with employees’ high risk behaviors.

After using the Tescor Survey for a two year period, we conducted a comp benchmarking study for our California operations. Our projected saving was more than $10,000,000 in direct cost alone and greater than a 20 to 1 ROI.

Using Tescor’s screening on new job applicants allows us to hire a higher quality employee which also means less turnover, employee theft, and hostile incidents in the workplace.

Chris BurgerDirector of OperationsPacesetter Personnel Services

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Workers’ Compensation

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The Tescor Group’s frequency was 47% lower.The Tescor Group’s severity was 9% lower.

24 Month Study of Skilled & Unskilled Labor: Results Based on Incurred Losses

Screening Status

No. of Employees

No. of Claims

Claim Frequency per

100 workers

Total Incurred Losses

Average Incurred

Claim CostNon-Tescor 26,595 846 3.2% $5,578,805 $6,594 Tescor 97,437 1652 1.7% $9,933,722 $6,013 Total 124,032 2498 % Difference 46.9% 9%

24 Month Study of Skilled & Unskilled Labor: Projected Savings Based on Incurred Losses.

Screening Status

No. of Employees

No. of Claims

Claim Frequency per

100 workers

Average Incurred

Claim Cost

Total Incurred Losses

Percentage

Without Tescor

97,437 3,118 3.2% $6,594 $20,560,989 100.0%

Tescor 97,437 1,652 1.7% $6,013 $9,933,722 48.3%Difference $10,627,267 51.7%

The combined savings was 52% on an Incurred basis.

The Cost of Loss

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On average INDIRECT costs outweigh the DIRECT costs by a 4:1 ratio.

Direct Costs (Hard Costs)•Medical Treatment•Compensation•Legal Cost

Indirect Cost (Soft Costs from Cash)•Time for Completing Reports Investigation Time•Loss of Productivity Increased Work for Others•Missed Schedules Loss of Worker•Seeking Medical Treatment Cost of Replacement•Paid Time for Treatment

Workers’ Compensation

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Average Age of Closed Claims (days)

Average Incurred

Claim Cost

Worker Status No. of

Workers No. of Claims

Unscreened 8,322 248 195 $9,089 Tescor Screened 62,114 1,027 131 $5,478 % Difference 33% 40%

Closed Claim Study

Study Period 48 Months

The Jaynes Companies

• Regional General Building Contractors

• Union & Non-Union Employees

• Five Companies – Six Area Offices

• Implemented Tescor January 2006

• Average 450 employees 2006 - 2010

• New Mexico• Colorado• Nevada• California• Texas, Arizona & Utah

Tescor currently administered to all new hire positions in all companies & locations

Affected Applicants

Tescor currently administered to rehired employees

• Tescor administered immediately after application completed

Stage of Hiring Process

• 2007 @ 23.12% Non-Qualified Results

• 2006 @ 24.94% Non-Qualified Results

• 2008 @ 17.00% Non-Qualified Results

Non-Qualified Results

• 2009 @ 18.75% Non-Qualified Results

• 2010 @ 18.29% Non-Qualified Results

2006 - 2010

• Drugs Scale @ 8%

• Theft Scale @ 11%

• Hostility Scale @ 0%

Failure Category Results

• Faking Scale @ 5%

• 2007 @ 3.89

• 2006 @ 5.58

• 2008 @ 4.43

OSHA Recordable Incident Rates

• 2009 @ 1.87

• 2010 @ 1.46

Days Away, Restricted, Transfer (DART)

• 2007 @ 5.33

• 2006 @ 7.85

• 2008 @ 6.36

OSHA Recordable Incident Rates

• 2009 @ 3.12

• 2010 @ 2.62

Total OSHA Recordables

• 2007 @ $0.05 / Man-hour

• 2006 @ $0.37 / Man-hour

• 2008 @ $0.26 / Man-hour

Workers’ Comp Costs

• 2009 @ $0.15 / Man-hour

• 2010 @ $0.13 / Man-hour

2006 - 2010

• 4 out of 90 = 4.44%

• Non-Tescored Injured Employees

• Tescored Injured Employees

Attorney Representation

• 1 out of 94 = 1.06%

Questions & AnswersSi Lamm, CPCU, Managing Director

Phone: 503.697.6551slamm@merchantsinfo.comwww.americantescor.com

American Tescor LLC, a division of Merchants Information Solutions, Inc.