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Comprehensive Due Diligence: Safeguarding Your Principals & Property

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Most private service professionals understand that an implicit part of their role is protecting the reputation, property, and—most importantly—the safety of their principals, families, and associates. To this end, private service professionals are often charged with vetting those who may be granted access to principals, other family members, offices, homes, or other property. In these high-stakes decisions, do-it-yourself Google searches or quick and cheap online background checks are insufficient to thoroughly evaluate the risks associated with introducing new individuals to the principal’s environment.

Due diligence should always be conducted on prospective employees before they are granted access to the principal or property. But even non-employee service providers may pose threats. Our firm works with the staff of notable families with security concerns so significant that even service workers such as plumbers, landscapers, or caterers must receive security clearance before coming onto a family property.

The level of due diligence necessary depends on the level of access an individual may be granted and the family’s risk tolerance. Thus, no solution is one-size-fits-all. There are, however, common research items that should be considered for inclusion in a due diligence investigation.

Identity Research

The most basic investigative effort involves corroborating the individual’s identity—are they who they claim to be?

Those seeking to hide their identity often provide fabricated aliases and other erroneous identity information. They may do this for a variety of reasons, including:

  • They are not documented to work in the US,
  • They are claiming the professional credentials of another,
  • They have some adverse history that they would like to hide or
  • They owe past-due child support, tax liens, or other financial obligations.

We have regularly encountered all of these scenarios over the last twenty-five years of service for risk-averse clients.

There are multiple ways to identify and mitigate the risk of identity fraud. At the beginning of the background screening process, the individual can be challenged to authenticate their identity by answering questions about their past financial transactions. Sample questions might include:

  • Select the bank through which your home mortgage is financed from the list below…
  • Which of the following automobile models have you owned…
  • Which of the following addresses have you used in previous transactions…

This online process is commonly used when conducting financial transactions online and is now a standard part of the background investigation process.

As a next step, analysts compare the Personally Identifiable Information (PII) provided by the individual against large databases of consumer reference files (information from credit bureaus, government agencies, and prior transactions). This effort verifies that the combination of name(s), date of birth, social security number, and address(s) provided by the individual has been consistently used in previous commercial transactions. It also identifies aliases associated with the individual and addresses associated with them in the past, which are critical when conducting other research.

The identity information provided by the individual can also be matched against the records of the Social Security Administration and the state’s driver’s license authority (DMV, Department of Motor Vehicles).

Increasingly, biometric software is also being used to confirm that an individual’s live image from a mobile device or laptop camera strongly matches the photo on their driver’s license or other government-issued identification.

Criminal History Research

Criminal research should always be conducted using the identity information provided by the individual and any additional information developed during identity research, such as aliases or repeated variations of birth dates.

A whopping 98% of criminal cases in the US are tried in the county court where the offense is alleged to have occurred. These include everything from misdemeanor thefts to felony sexual assaults, embezzlement, or murder. The remaining 2% of cases are tried in the federal court system. While a small percentage of cases originate in the federal courts, they are almost always cases of interest. Examples include interstate drug and weapons crimes, child pornography, insurance fraud, and other significant financial crimes.

Research should always be conducted using the original records of the court, which typically means sending an investigator into the physical courthouse to conduct the research. Most online databases miss approximately three-quarters of the criminal records found in the records at the courthouse. Populous states like California and New York don’t even allow their records to be purchased for inclusion in such databases. “Statewide” criminal records searches are often very incomplete. A state’s law enforcement criminal records databases in large states like Texas and Florida miss one-third or more of the criminal records.

The federal government doesn’t even rely on its own databases when hiring staff. They search the original records held in the courthouse. However, many screening companies rely primarily on such databases.

It is essential to ask background screening providers how research is conducted and what limits they might place on reporting information found.

Ideally, research will be conducted in all jurisdictions associated with the individual over the past ten years, at a minimum. This is where the address history developed during identity research comes in handy. Some screening companies only report convictions in the past seven years, ignoring deferred adjudication cases and even serious convictions over seven years old.

We have created a list of questions one should ask a potential screening partner about their practices before contracting their services.

Professional Qualifications

Depending on the nature of the relationship with the individual, verifying claims about previous employment, educational attainment, and licenses or certifications may be appropriate. This should always be included when conducting pre-employment background investigations.

However, when contracting with professional service providers (like plumbers, IT consultants, or art dealers), at a minimum, their licensing and professional insurance should be verified as active and in good standing.

Civil Litigation

The greater the position of trust, the more relevant an individual’s personal and professional conduct. Like criminal records, civil litigation matters can provide insight into such conduct.

Civil litigation may reflect cases brought by or against previous employers, clients, or business associates. Litigation records may also reflect how they meet their financial obligations, whether they’ve caused others some loss or harm, or whether the individual is overly litigious.

It is not uncommon for families to review the civil litigation histories of family office and estate employees, wealth advisors, and others whose decisions could have significant financial impact.

Personal Affairs

Too often, individuals’ personal lives spill over into their professional lives. For specific roles, deeper research into their environment and personal conduct is appropriate.

In-depth review of individuals’ public-facing social media accounts and other internet-based information concerning them is increasingly common—especially in the private service space. Additionally, searches for news articles concerning the individual—both positive and negative—may provide insight into their personal conduct and community involvement.

A principal may also want to know whether a candidate for a security-sensitive role has any restraining orders issued against them or others. While this may initially seem invasive, a family hiring a nanny or other caregiver will certainly wish to know if that person has a dangerous ex-husband or a stalker before they allow her to take the children out in public.

Likewise, if a prospective personal assistant has had the police called to their residence repeatedly for disturbance calls, a principal’s agent may wish to better understand the circumstances surrounding such police interactions before proceeding with a candidate.

Legal Issues

In the employment context, the federal Fair Credit Reporting Act (FCRA) governs how background investigations are used.

Specific disclosures and authorizations are required. The FCRA also requires that the employer share the background investigation and a summary of rights with a candidate before taking an adverse employment decision based on the report, and another disclosure is required after the adverse action has been taken. Additionally, many states and municipalities restrict employers’ use of criminal history.

For non-employment due diligence, disclosing the background investigation to the individual is advisable but not always strictly required.

This blog is an overview of due diligence considerations. As each circumstance is unique, please contact our offices to discuss your unique concerns.

 

By Mike Coffey

PFC Caregiver + Household Screening

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keynote Speaker

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Nicole Middendorf

CEO of Prosperwell Financial and Wealth Advisor with RJFS

Nicole is a money maven, a knowledge junkie, and a born coach. Nicole became an entrepreneur in 2003 when she launched her wealth management firm. She is the author of five books, the mother of two phenomenal children, a world traveler, a philanthropist, and an accomplished public speaker.

Nicole shares financial advice and real-life perspective on saving, planning, and investing with audiences across the country. Her primary goal is to take complicated subjects and make them easy to understand. She works hard to empower people to make crucial, positive changes in their own lives.

Picture of Nicole Middendorf

Nicole Middendorf

CEO of Prosperwell Financial and Wealth Advisor with RJFS

Nicole is a money maven, a knowledge junkie, and a born coach. Nicole became an entrepreneur in 2003 when she launched her wealth management firm. She is the author of five books, the mother of two phenomenal children, a world traveler, a philanthropist, and an accomplished public speaker.

Nicole shares financial advice and real-life perspective on saving, planning, and investing with audiences across the country. Her primary goal is to take complicated subjects and make them easy to understand. She works hard to empower people to make crucial, positive changes in their own lives.

Prosperwell Financial provides personalized wealth management advice to effectively guide you through every stage of life. Our advisors help to plan your way toward true financial happiness, including financial retirement planning, college education savings, estate planning, asset management, insurance, and financial divorce planning. Founded by Wealth Advisor and Certified Divorce Financial Analyst Nicole Middendorf, Prosperwell Financial serves individuals and executives all across the U.S. We help you gain the confidence needed to be in control of your financial happiness.

The Wealth Advisors at Prosperwell Financial take the time to learn about you. We want to know your goals, dreams, and desires. As a mentor and coach, we guide you through the process of discovering your financial options and possibilities. Whether that means planning for retirement, converting an IRA, working with a 401k, or wealth management services, Prosperwell Financial will have you covered.

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