Bullet Proof Your Business

Check who you employ - Employee Due Diligence

Many businesses are always busy investigating and cleaning up problems caused by clients’ employees or contractors.

What never ceases to amaze us are business owners who are prepared to employ and place their business in the hands of people they know very little about.

These new employees or contractors are often placed in responsible positions, handling cash, procuring and authorizing payment of creditors, business administration, public relations, and their actions are often paramount to the success of the business and its customer base.

Here is a case study that shows what can go wrong.

Some time ago, we were contacted by a business owner who was concerned about her financial controller (named ‘A’ for this example). The business had paid a recruitment agency $12,000 for A’s placement some four months earlier.

The Taxation Department was alleging non-payment of quarterly GST to the value of nearly $100,000, and several creditors were complaining about non-payment of their accounts.

When confronted, A was dismissive of the situation, but could not provide straight answers.

After some initial investigations, we established that A had previously worked in a similar position and had been terminated some six months earlier due to theft allegations. It was alleged by his former employer that A had stolen nearly $900,000 during his employment and was subject to a police investigation. We also learned that A was a ‘Rated Player’ at the casino and had a gambling and drug problem.

The business then formerly suspended A and removed him from the workplace, taking his keys, files and disks before he could leave the premises. Furthermore, he consented to a search of his briefcase and vehicle to ensure he did not have company files or other intelligence.

During an investigation we established that A had stolen some $290,000 from his employer over four months. All offences had been committed through Internet bank transfers, associated with A. Each amount was the same as creditors’ accounts that had been received for payment. The description area of the bank transfer had been completed by A, outlining payment of the creditor’s invoice. The invoice was stamped and dated as being PAID. Unfortunately, the actual bank account transfers never made it to these creditors, but to A. MYOB software reports, creditors’ invoices, and bank statements, however, reconciled.

A was subsequently charged by police with a large number of employee thefts.

During our investigation, A’s company Human Resource file was examined. It included a resumé provided by A at the time of his application for employment. To our amazement, A had disclosed his former employment details in this resumé.

It became obvious that the recruitment agency and our client had failed to conduct any real due diligence or background checks prior to hiring A.

One simple call to the former employer would have revealed that A was under suspicion for a $900,000 theft during the time of his employment, and he would not have been hired.

Clearly, it is extremely important to be thorough and carry out extensive due diligence or background checks before you hire somebody. If you do not, the consequences can be devastating.

Although background checks are part of a Human Resource program, we consider these checks so important that we make special mention of it.

Employing staff

When employing staff, obtain the following information:

• The full and accurate name and date of birth of the applicant;
• 100 Points Identification including the formal inspection and copying of the applicant’s:
• Passport;
• Birth certificate;
• Driver’s license;
• (Remember, with the Internet and computers, identity fraud is a growth industry.)
• Establish the applicant’s correct address. Where applicable, view and copy the:
• Rates notice;
• Electricity notice;
• Tenancy lease;
• Establish the applicant’s correct telephone particulars. View accounts, including:
• Home number;
• Mobile number;
• Insist that the successful applicant provides you with a National Police Clearance within 21 days of the offer of employment. Anyone can obtain a clearance by application and payment of a fee to any police station.
• Confirm Vehicle particulars. View and obtain details of:
• Make;
• Model;
• Color;
• Registration;
• Confirm and record. Next of kin particulars. Most people stay in contact with their parents or next of kin. These particulars can be handy if you are attempting to locate the employee after he or she has left the business. Identify their:
• Correct name
• Address
• Telephone number
• Past employment.
• It is essential that you contact and speak to all past employers where possible. Of relevance will be the reason for the applicant’s departure. Usually this is the area of your due diligence, where you will learn the most about the applicant. Remember… Nobody documents any issue of concern, within their Resume. It is up to you to look beyond what they are representing;
• Contact and speak to all reference providers where possible. Establish the credibility of the reference provider and whether such reference is true and accurate. Usually an applicant will only provide references from people who like them. You would be justified in being suspicious of an applicant who has not submitted a reference from former employers.
• Verify Qualifications. Forgery is so easy now with computers;
• Depending on the position, consider drug and alcohol testing.
• Undertake the following searches:
• Bankruptcy;
• Corporate ownership/history;
• Property ownership;
• Litigation History;
• Internet Search Engine posts;
• Bankruptcy;
• These searches can tell you a lot about the financial stability of the applicant and whether he or she may have a motive to steal from you.
• Investigate Pre-existing medical conditions. Have the person complete a medical examination to establish any pre-existing medical condition.

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