Notes on saving money

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Notes on saving money

In a very real sense, due diligence is risk management. Oddly, many people are unwilling to spend a small amount to manage their risk, but will cheerfully spend untold thousands of dollars in litigation support to recover their losses. Here are three examples from our case files, dealing just with background investigations.

1) A client prudently invested a few hundred dollars in a background check on a man with whom he was going to invest. This was good. We found that he had three Social Security numbers and two different names. This was bad. Because of promised returns on the investment, our client chose not to look further into this man’s background, and invested with him. This was worse.

Our client, along with several other investors, spent $38,000 with us to recover about $4 million, and to find out that their assets went to two girlfriends, one heck of a lifestyle, and the underpinning of a new fraud that raked in even more money.

2) For many years a company wisely used our services to pre-screen top executives before hiring. Roughly one out of seven had a significant undisclosed problem that precluded them from hire. This was good.

A management change occurred and our services were reviewed to see if they were cost effective. When it was noted that none of the candidates actually hired (i.e., those who had passed our screening) had any problems, use of our pre-screening services was stopped. This was bad.

Within six months a new (unscreened) financial analyst for the firm embezzled $162,000. This was worse.

Putting aside their direct losses, the firm paid us the equivalent of 234 weeks or 4.5 years of our prophylactic services for litigation support and civil asset forfeiture work. We now do their pre-employment screening again.

3) A company decided to implement a background review process. This was good.

It was decided that the cost of these background searches would be passed to the individual departments, rather than be a corporate expense. The department heads felt that absorbing the new costs associated with the new hiring procedures was bad. They insisted that their judgment was rarely wrong (which, in fact, was correct), and that they should have the option of making these determinations themselves, without the expense of a background check. This was worse.

We were willing, out of a sense of fairness (or willing suspension of disbelief), to posit that the department heads might well be so skilled in selecting people that they could know intuitively who was good, who was bad, and who was a convicted sex offender or felon. Therefore we concurred with their view that they could hire as before, thus saving their departments the needless additional hiring costs. However, we suggested that fairness demanded that, should a theft occur or a suit be brought against the company due to the actions of the unscreened hires, all costs, including the loss and legal fees, would be charged back against that department.

The department heads decided to use and pay for the background screening process for new hires.

The bottom line is that without trust there can be no betrayal. Background checks are an inexpensive way to assure that your trust is less likely to be misplaced.

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