How To Protect Non-Profits From Risk And Loss

Currently, there is a lot of negative information about non-profits. An example is hiring somebody that embezzles funds and having someone that takes advantage of a volunteer position. In today’s episode, Bill Stierle and Jonathan Kraut talk about how a non-profit organization can reduce risk and loss—be that a religious institution, civic organization, or something else. They discuss creative strategies and ways on how to protect these non-profit organizations through thorough background checks. Find out what Bill and Jonathan have to say as they detail the important things to look at when screening the people in the organization.

Listen to the podcast here:

How To Protect Non-Profits From Risk And Loss

Using Background Checks And Understanding How Non-Profit Organizations Are Vulnerable

I’m here again with Jonathan Kraut of Net Check Investigations. Jonathan, you and I have been on this journey of bringing quality information to people, to audiences, inside the industry. They are people that want to engage the industry of having a quality private investigator to provide them support and give them information about how to create safety inside the organization. With this show, information is power because we want people to get in touch with why investigations and safety work is so valid. Tell us a little bit about this podcast that we’re going to get into and then we’ll bring some slides and some information up so people can have the information available to them.

Thanks, Bill. We’re talking about nonprofits in the news and all over the radio and TV. There’s constantly negative information about nonprofits like hiring somebody that embezzles funds, a person takes advantage of a volunteer position and it’s a predatory type person. Lawsuits, this might go to colleges and universities, the Boys and Girl Scouts, churches and organizations, even hospitals, clinics, all kinds of nonprofits. They’re very vulnerable. We’re talking about how a nonprofit can reduce risk and do things right so that these things don’t happen.

Let’s take a look at how this works, the whole part about why nonprofits are so vulnerable. The reason these podcasts are so valuable is that a part of your California license 21529 is that you need to be certified and validated that you are a person that’s qualified to provide this information. Isn’t that correct?

That’s right. A licensed agency needs to do this work. A lot of people are deceived into believing that they can go on the internet and get information, which not only is not admissible and not only incomplete, but it’s also a misting a lot of the key elements. There’s no one behind the computer. The computer is for-entertainment-purposes only exercise.

A computer could get started at poking the stick at something. The thing that’s valuable is that if a problem happens in your nonprofit and you have to go to court, you need validation that you did your due diligence so that you can have a licensed private investigator sit on the stand in your defense. Do I hear that right?

Yes. There are three elements. The first is that a computer or an amateur is not going to know where to go or what to do. The second is there are a lot of rules requiring certain methods to be used so the information is admissible in court. A lot of ways that information is gathered even by people on staff because they don’t know what is admissible and what is not. They’re not going to get what the attorney or the court will need. Finally, when the licensed agency does something, a lot of the liability goes on their insurance and their coverage and it holds the nonprofit free from some of those liabilities.

It’s good to talk about nonprofits because a board member needs to know about this information so that they can provide the level of protection as well as the level of information that it needs. Different nonprofits include a broad scope of entities. These different groups all have different nonprofits in it. Let’s talk about the different groups.

The board has to lead from the top. Board members and executive directors, pay attention. This applies to you. The first nonprofit we’re going to discuss is religious institutions. Another nonprofit is going to be a civic organization or an activity supporting a civic organization, which might be scouting or something like that. Community-based services would be homeless shelters, halfway houses, maybe government-supported or grant-supported outreach programs. Support agencies for needy populations could again be shelters or food pantries, other kinds of support organizations. Fundraising that supports populations or targeted groups. For example, if you make donations to children’s funds or to helping students in school for pets and animals like the SPCA. All those nonprofits are involved in this discussion.

If you ask enough questions, you'll find out what people are thinking. Click To Tweet

There’s a bunch of traps, there’s a bunch of problems and challenges that nonprofits get into. With those, the first one up is whom to trust. When you think about whom to trust, I’m guessing the first thing is can a volunteer be trusted?

Unfortunately, a lot of nonprofits believe that if someone volunteers, you can trust them that they’re volunteering to help us out. How many sports coaches who volunteer after school programs end up being sexual predators? Think about that. How many volunteers who help with the church and collect money embezzle the funds? You have to think about that. You can’t necessarily trust someone because they’re a volunteer.

The volunteer has that experience of this person who is altruistic. This person is giving freely of their services and their time. There’s no ulterior motive for what they’re doing, that they might have started out in a good place but all of a sudden their lifestyle circumstances have shifted and changed and then, therefore, they start to embezzle the money the way you want or the way you think about. It’s not to say that somebody’s volunteering at a church is going to embezzle money. It’s saying concentrate on trust but also verify them with their behavior. Pay attention to. It’s not that the guy that’s volunteering to be a coach has this thing that is deep, dark, but you got to do some checking and some validation about what they’re experiencing so that you can keep reinforcing trust. Are we framing this in the right way? I don’t want to scare everybody.

We don’t have to breach trust in someone by checking on them. You want to check everybody the same way and thoroughly. That way you’re not having an issue.

Socially-conscious employees can be trusted. 

That’s part of that same trap if somebody is on your side and agrees with you and buys into your message and supports your hard work and your effort. That does not mean that you can have faith in them necessarily or that you should trust them necessarily.

There’s a group of people that we extend trust to, but if we’re not paying attention, then there are some real problems. 

Another example would be they’re a family member or cousin or my next-door neighbor, I can trust them. It’s that trap of whom to trust. Just because they’re related or you know them or they’re a friend of a friend, does not mean that you don’t have to look into their background more deeply.

Protecting Non-Profits From Risks: A lot of people are deceived into believing that they can go on the internet and get information, which not only is not admissible and incomplete, but also a misting a lot of the key elements.

This brings up all kinds of problems because if a parent invites a family member or associate or somebody from the church to live in their house and then all of a sudden they have a sexually molest one of their children. The parent doesn’t know about it because they’ve extended trust. Meanwhile, the kid is traumatized over there. They don’t even trust their parents because of this. We’ve got to look at trust as something that’s not to get it up to a level ten where everyone is distrustful but at least get it to a level four, I’m checking everybody. Am I scaling this correctly?

Yes, we check everybody just to be fair. It doesn’t take that much time. It’s not that expensive and you have more certainty of who to trust. We want to avoid trap number one. Another issue is a director, let’s say someone who worked at another nonprofit can be trusted. They worked there for five years. They’ve done well there and we’re hiring them here or brought them on here or they’re volunteering here and now all of a sudden we can trust them. That’s not true. You, as a nonprofit and having sat on boards, you need to check everybody out and assume that they may have had problems there. If there are any issues, you want to bring them up. Maybe they’re not serious and maybe they are.

Somebody could have a heck of a resume. It doesn’t mean that they left the job once they got caught and then they went to another job and the organization was glad to get rid of them.

We’ve seen that. We’ve picked up lots of dirt on people. I hate to use that term but they’ve left a nonprofit organization with lots of issues. The nonprofits are not going to tell us openly that they were discharged or whatever. They say, “No, they did great and they left.” They don’t typically want to give information that’s negative about people. A PI firm will find that out. That’s what we do.

The scary honesty is that human beings make mistakes. We are human by nature. We have and make tragic choices in all different ways. It’s up to more of the adult mind, the sober mind, the mind that wants to have truth to say, “They are human beings, but it doesn’t mean I want them in my organization.” We have good intentions as people, as human beings but it doesn’t mean that they’re not bringing their ball of wax with them.

A good example is about between 10% and 15% of those that we do background checks on have a serious criminal record. It means about 10% of the population that we come into contact with have issues and do not have good intentions. If you imagine waiting in a line at a grocery store and there are 10 people in line, one of them or more of them has bad will or/and bad intentions in their heart. They all look fine in line. Everybody is willing to pay for their goods. It’s not like you see anything wrong on the outside. What a PI firm should do is identify who that one person is in line and tell you why that you should not bring them on.

That is one of the best metaphors ever. It lands because the person can say and make statements and looked good but finding the truth takes that next level of investigation. I could see that. Do the statements people make reflect the truthful? Not all the time. 

I’d say a lot of people misrepresent themselves commonly. In fact, in American Society, we’ll see that there’s a lot of flash and bang and a lot of things people say and they can’t back it up or they’re completely untrue. In our culture, we accept it. It doesn’t mean that you should fall into trap number one of trusting the wrong people. You should be careful about who you trust.

Finding the truth takes a higher level of investigation. Click To Tweet

That makes a lot of sense about trust. That rolls into trap number two that the board executes oversight, that the board will be able to catch some of these trust things, some of this information. They know what’s going on. The board might miss things, that’s what I’m thinking. 

I’ve sat on a number of boards and I’m very honored to have that opportunity, some for years and years. I pride myself on educating them as to what we need to do as a board to make sure that we’re running things right. Our board members are selected for a lot of reasons. Very few of them relate to the knowledge of oversight. They may be politically connected. They may be very inspirational. They may be leaders in their field. They may volunteer and work many boards, which is appreciated. Few board members are selected because of their ability to manage an operation, to oversee a business, to plan ahead, do financial planning or a fiduciary examination.

The board members are the key to this whole thing are the ones that need to know what their duties and opportunities and tools are. We should do a lot of things like employee internal audits. Boards tend not to want to do that. They want to be nice and friendly and show a great representation. Board members don’t investigate conflicts of interest where a vendor may be owned by or run or operated by a family member, of another board member, of a director or someone or a controller, somebody with the ability to write themselves checks. Boards rely on the outside. Let’s say the annual audit done by an auditing agency is sufficient. In fact, that’s a very narrow scope. An internal audit is a different audit and boards think that an external audit is sufficient, but they typically don’t detect fraud. Not only they can find it, but they’re primarily looking at the practices and the processes of keeping track of money. Board members also can have trust issues and could be motivated by a lot of other things like personal needs, by gambling. Who knows what’s going on in their minds? Just because they’re nice, competent and volunteer or are privileged to serve on the board doesn’t mean that they’re the right match for that board.

It’s a huge difference right there. I can see that it’s important for a PI to be brought on board to take a look at what the real motives are and to consistently bring trust and honesty and truthtelling in front. It sounds like that they might not do a great job in screening, just look at this. Tell us a little bit about how screening works and what some boards do or nonprofits do to cut costs. 

A board thinks they’re doing the organization a favor by spending $15 or $20 on instant search, which is of no value and is not valid in court. It’s missing 80% of the cases, they’re not looking in the right place. They think that that static phone book of criminal cases represents real cases. They’re missing millions of cases. They think that a live scanner instant search is sufficient. Boards often don’t know what a comprehensive background check is or how to screen for new employees. It’s not their fault. They don’t know, that’s why. Board members, I hope you’re reading.

The whole thing about screening during the job process is they don’t have that expertise. 

I’ve served on a number of boards and never have they, before I got there, considered running a rescreening periodically. They may have someone with them for 5 or 10 years like the controller or payroll clerk. Once they were background-checked in the beginning, they thought they were done. In fact, about 3% of the population will have new stuff that appears after they were hired. You want to check people at least every other year.

The leadership, they don’t know how or don’t know what the screening information is. It’s outside their view set, even the information. 

Protecting Non-Profits From Risks: The board needs to be ready to respond to an allegation even if it’s very uncomfortable, even if it’s a board member or a key person.

Boards leave it to directors to decide. Directors may not know either without proper guidance as to what’s admissible and not admissible. What can you discharge someone for? What do you have to do to meet your requirements?

Are they looking at the twelve indexes for misconduct? 

Sometimes boards believe that if you do a criminal record search, which covers about three different indexes or four, that they’re sufficient. They’re not. You want to look for civil misconduct, harassment, order protection, a file against stalking, restraining orders, elder abuse, child abuse. Rarely are any of those things in the criminal system. You’ve got to look elsewhere to find that information. If someone had a domestic violence history and you are working for domestic violence organization, you would be looking in the index that has domestic violence history and instead they look only in the criminal record and they don’t even know that those records are kept somewhere else.

All of these different traps that nonprofits fall into, it’s fascinating to see the level of awareness that’s needed by that nonprofit director, by what the board might need to be able to get the level of trust and safety met for the organization. Tell us a little bit about the mechanisms part.

Trap number four is that boards do not believe or know that there are mechanisms to protect the organization. Mechanisms could be either personnel requirements or protocols or physical mechanisms like cameras or remote video access to watch what’s going on when they don’t know if someone’s there. Saving data for two years, a lot of data erases itself in 15 or 30 days. If you want to go back, this is common. The police department will be working on a case and we’ve got to try to find a video recording of an event that is maybe 3 or 4 weeks old. Believe it or not, all the cameras are erased. There’s got to be some backup system. You can take your camera data and migrate it to a hard drive or something every couple of weeks in that way you preserve data or moving to the cloud or do something. There’s something that happened three months ago. I don’t know of any cameras unless you back them up the carryback date of three months. That’s something you need to do.

Passcodes to enter and depart. 

Let’s say a restricted area might be even something like daycare, where people cannot drift in and drift out. If everybody has the same passcode to go in and go out, you don’t know who was there and who wasn’t there. There are a lot of ways to do this. You could maybe set up 99 different passcodes for someone to come in and go out, to log in and log out, and only that person has the passcode and maybe the executive director who gives them out. That’s it. You can track people. It also keeps people from being falsely accused. If you get in at 10:00 and leave at 10:15 and something happened at 11:00, you are now exonerated because you were not there at 11:00.

This whole thing about cash, credit cards, it looks like a no-brainer but from mechanisms to protect the organization, you’ve got to have a place that’s going to make a difference. 

You can't necessarily trust someone because they're a volunteer. Click To Tweet

One thing that turns my stomach is watching on the news at night how the donation box was stolen out of the church or out of the organization of the temple. You collect money there and you don’t leave it there. Anybody knows that you take your cash and you take it out of your donation box and put it somewhere else where no one can get to it after hours or even after collection. You don’t need credit card information, receipts in your top drawer unlocked. It’s got to be kept in a locked container that nobody would know to look for unless you work there. Another example is let’s say you have children and that means eighteen and under eighteen, seventeen and under, there should never be one adult alone with those children unfilmed or unescorted. To have two people there protects everybody especially the volunteers who were with them. You need two adults at all times.

You’ve got to pair them up and make sure that they’re covering the bases. The gates and fences are difficult to climb and bypass. That seems like a pretty easy mechanism.

It would seem. We worked a lot of cases and issues with a daycare center and what we corrected was you could reach over the fence and unlock the gate from the inside. The kids can’t reach it, which is fine, but any adult can. The passcode they had on the gate was of no value because you could walk in. We had to put a lockbox on both sides. Even so, you could still climb the fence which is only six feet high. They had to put in a higher fence, which is eight feet. That is pretty good. You don’t want to make it so easy that your obstacles are passable by any adult.

Scrutinize volunteers with suspicion. I would imagine that you and your team have a way of and have a list of questions that you would ask volunteers and in order to get the information you need.

We’ll get into that a little bit more. If you ask enough questions, you’ll find out what they’re thinking, whoever it is. It won’t take hours, it will take minutes but you have to have the right questions.

As we keep walking down these different traps that nonprofits fall into, people will say things that make it worse or to get you to increase the trouble. To respond to an allegation, you better have the right thing to say back.

My experience so far, twenty years, I have some ideas. The organization denies that it occurred outright. “That couldn’t have happened. It’s not true. It’s a lie.” They don’t know the facts. Maybe it’s not true, maybe it didn’t happen, but you have to evaluate and examine the possibility fairly because maybe it did. It seems obvious but the first issue that seems to be denied outright by nonprofits is domestic violence and abuse. “He’s a great guy, he would never do that. She’s wonderful. How could she have possibly be accused of this?” There has to be a method and a procedure to assume that it may be true. Stalking, how many large organizations like hospitals or the Red Cross or some big entity, how many incidents of stalking would occur? Hundreds a year because there are thousands of people involved all over the country or there’s a large facility with 10,000 employees. It may be occurring every day, five times a day, for all we know.

We want to assume that it’s true. At least make sure that it’s not true or if it is, it’s dealt with it correctly. Another part of this trap is an order of protection or restraining order. What if the nonprofit gets a legal order served by the Sheriff’s Department that so and so has to stay a hundred feet away? Individuals are afraid to provide that to their organization. They’re embarrassed. You want to create a climate where any employee can say, “So-and-so has been ordered by the court to stay away from me.” Everybody in that organization around that person should know. All the security should know. All the front desks should know. All the people that work with that office should know. Everybody needs to come together to protect that person, not to stigmatize them because someone did something bad to them. That does not mean that it’s them. It means that they deserve protection.

Protecting Non-Profits From Risks: If a nonprofit is being accused of fraud or embezzlement or stealing or false authority, knowing what to say next would make a big difference.

They’ve got to get the protection and the court felt like it was enough. Making a solid response to an investigation allegation of sexual misconduct, there are things that you need to say and things you don’t need to say.

A PI firm could walk someone through but the board needs to be ready for that. In time, somebody will say something whether true or untrue and the attorney on-call or the protocols that are established an investigation right away. The board needs to be ready to respond to an allegation even if it’s very uncomfortable, even if it’s a board member or a key director, key person. There should be a system ready to go so that no one’s in trauma. No one has to panic over what to do next. That everybody thought about it, we already decided what to do and we go ahead and do it.

The thing that’s nice about this also is that being able to say the thing that’s the safest thing to say as well as the thing that’s the most productive thing to say can make a big difference. That makes sense because if a nonprofit is being accused of fraud or embezzlement or stealing or false authority, knowing what to say next would make a big difference.

You have to be able to respond and who is going to do the work and what’s almost embarrassing is that when organizations get hit with these allegations, they have no idea. The first question that somebody will ask is how did you prepare yourself to defend against this? How did you protect yourself from this happening? Let’s say that an organization did everything right, did a comprehensive background check, check with references, observe them independently, had video tracking in and out or activity or had an adult escort or coworker, another volunteer. They did everything right. The organization has less to fear because it took every reasonable step to prevent it from happening. Some things are going to happen anyway. What if the organization did not do any of these things? It puts a big blight on the organization. A big stain on the reputation means money is driven away. It ruins the whole purpose of a nonprofit if it’s not prepared for it correctly.

What I’m starting to get ahold of right here with this slide is this whole slide can be a whole different podcast. You and I could go through about how to respond to each one of these things. Using a licensed professional help you with these allegations and create a stronger communication. Take us through the sixth one here that nonprofits fall into, how to identify drug use. How does that work? 

Luckily, this is our last trap. Initial screening is important. If you believe that drug use while working with the nonprofit is important, then everybody needs to be screened. You won’t have to worry about the people who go through it but you’ll be surprised at how many people decide not to go through it. I’d say 20% to 30% who apply for positions say, “I’m not interested. I’m not going to do a drug screening.” That’s fine. You don’t have to worry about it. You’re not losing good people. You’re losing people who you don’t want around.

They’re going to be headaches later. They’re going to be problems later. 

Their personal business can stay personal. It doesn’t drag the reputation and other issues into the nonprofit itself. Re-screening periodically has to be fair for everybody. It could be random every year, 10% or something like that. What if drug use is identified? Labor laws require that you have a practice established to do some form of diversion or rehab. Even though it’s very difficult to overcome drug use, people do and maybe it’s on their own time but at least there’s a method for that to occur. For some volunteers, it may not be relevant. If they’re around cash or money or children or the elderly, you don’t want addiction to be part of their thought processing and influencing how well you serve people.

Socially-conscious employees can be trusted. Click To Tweet

The number seven trap is responding to the cognition of issues. Tell us a little bit about what your thoughts are here. 

I was surprised to learn and working on a book a few years ago that about half of all Americans have a cognitive issue that significantly affects their behavior which means that half of us are crazy. Maybe you’re only a quarter and I’m only a quarter. Cognitive issues are becoming more and more relevant. It could be a lot of reasons. We’re not judging why some of them have an issue. Screening periodically is also a good idea. Not every other year but being aware. Maybe someone goes by and meets with people or if you hear of something. When mental illness is likely, what will the organization do? That’s a big question. Volunteers and staff, before they’re hired, he should be aware of what the protocols are for mental illness, which could be depression, anxiety, Alzheimer’s, all kinds of things. You never know. You want to be able to go back at the time of hire and examine what the conditions were then. At least you’re establishing a baseline. There are some indications of some things but it’s not that serious. You can go back and compare to a newer evaluation and see what changes have occurred and that points you in the direction of what you could do next.

The main thing is to use only a licensed or certified agency for support because these folks are the ones that are going to be professionally trained to identify the issues. These are the ones that are going to be impartial and provide admission to testimony, if needed. 

You don’t want a person working for a nonprofit as a volunteer to say, “I know about mental health and I can tell you who’s crazy and why.” It doesn’t hold up in court and it’s a lay person’s opinion. To make an evaluation that needs someone with some credentials to make an evaluation, a firm determination.

These procedures are about protection to minimalize the risk for reputation. 

It protects some volunteers from others. It’s also the safety of the people involved. We can focus on service and not on lawsuits. Money can be used for supporting people and the great causes that are out there, the great efforts that are a big part of our society and not on the news and court and who’s suing who and what allegations occur. We’re trying to serve people. We should be doing that.

How do we get the acceptance from the board? What do we need to do here? 

Executive directors typically don’t like oversight. They believe they can trust people. That’s because a lot of these people have good hearts themselves. They’re very noble and very caring. It’s hard for them to understand that other people are not like them. Executive directors also don’t like oversight. Somehow it may be a stain on their reputation or ability in their belief. In fact, it would relieve them from that stain, from reputation or ability because they’re going about it with a conscious plan and in advance. We want the board and the directors to know this is a good thing, not a bad thing. I’ll give you an example of an outsider working on a subcommittee. I was appointed to a subcommittee on a board, a nonprofit and we didn’t know what we’re doing. We know our intentions were good. We just didn’t have the expertise. We brought in volunteers from the community that were experts. We formed a subcommittee.

A screening in the organization does not mean you're losing good people. Instead, you're losing people who you don't want around. Click To Tweet

They were good and taught us and showed us and helped us do it right. When that work was done, the subcommittee was dissolved. We had to rely on people that knew more than us. There’s nothing wrong with that. In fact, it brings more people into your organization as a volunteer. Periodic and unannounced audits are great because everybody knows you’re going to have 2 or 3 a year and you’re always ready for them. When they show up, the group being audited should be ready, like proud, “We were ready, we passed, we did a good job.” In a way, that’s a preventive measure. Anyone with misconduct on their mind would be not so willing to do that because they know they’ll be audited periodically. The atmosphere is very helpful.

The atmosphere of the good intentions and openness and it’s to ensure the conditions for working with your nonprofit. Get focused on this dedication to service, this transparency and how do we bring greater cooperation forward. 

The board can set the tone. The board and the directors can say, “Now that you’re here with us, we’re dedicated to service. That’s why we’re here. We’re transparent, meaning we’re going to ask you questions and we should look into everything and you have nothing to hide, don’t worry. Cooperate, don’t resist, don’t put up walls, don’t move information, don’t delete information. If you’re of that mindset, this is not the right organization for you.”

Getting that mindset is a big part of it. If we focus on the following, what is the greatest recap in this thing? What’s the action step here?

The board, the staff and volunteers all should be screened and rescreened. It’s fair for everybody. The screening should be comprehensive, not an instant search or live scan. It should be a real search. There should be financial audits, internal audits, checks and balances, and conflicts of interest should be examined. The third point is we want to prevent misconduct by identifying it early or inappropriate early, behavior early like drug use or cognitive issues so that they don’t manifest into something greater.

This whole thing is getting the truth. When you start asking for truth, you’ve got to anticipate how you’re going to answer each one of these things. How do you answer for misconduct? How do you answer drug use? How do you answer embezzlement? How do you answer fraud? How do you answer cognitive issues?

Part of the challenge is to be ready. Not only do you have to be willing to prevent it from occurring but assume that something will happen one day and you’re already for that to happen. It’s not a surprise. It’s not demoralizing. Your protocols are in place.

People tend not to pay for this because they don’t want to pay for safety. What’s the reason why people get stuck on this? It seems like a no-brainer.

Our argument as a PI firm is you can pay a little bit now or a ton later. A lot of people say, “I’d rather pay later. It may not happen to me. Why should I worry about something that may or may not happen?” Our advice is it will happen. What if your organization is in the news, your donations dry up? You lose your clientele. You can’t get a grant or a loan. You can’t get any support or government funding. What if that all happens because you didn’t do a $50 background check? It happened because you didn’t do an internal audit which may be a few $100 or $1,000, but it’s $1,000 or $1 million that would be embezzled if you didn’t look. The issue is that people rather than being long-term thinkers are thinking about today, “I don’t want to write a $50 check. I rather risk millions tomorrow.” It’s like gambling where you cannot win. Good boards and good directors budget to do things right from the beginning in the long run, not only reputation but funding and resources are still there and it’s the right way to do it.

For the last part of it was more like a recap. This part is like a summary. This is more what the board or the audience needs to look at and live into. Nonprofits take on a tremendous exposure to risk and harm to the clients they serve because of poor planning. Is that a big takeaway that you would see? 

The boards need to plan. The right planning is simply watching or listening to this podcast or reading the blog is a good first step. Doing something about it is very good too, especially with what you know you’re doing. In summary also you want to use licensed agencies to do this work. The organization should not take the burden or risk on themselves but hire an outside firm or outside agency to do what they’re experts in doing. My firm is not going to be a nonprofit. We’re not designed to do that. Your organization is not designed to be a PI firm. Let everybody do their job.

Integrating preventive ongoing and action plans protect the reputation and resources of the organization. It’s building like a war chest to do it so that you can act with a certain amount of ease to get these things done right. 

A lot of these measures need to be integrated and connected throughout the organization. They’re not an independent top to bottom only. For example, what if there’s an internal complaint? Somebody says, “I saw some misconduct.” There has to be an integrated approach where everybody’s contributing to the organization, to its reputation and resources, not just from top to bottom.

That makes sense. Services and social contribution can be enhanced because people know that you’re on this team. 

It carries through if everybody is on board with serving the clients as they should and supporting them and bringing to them the hope and services that they deserve and need. You’re not worried about who to trust. You’re not worried about when the internal audit is going to come up. Everybody’s ready. Everybody’s on board.

Tell everybody a little bit more about how to get in touch with you. 

First of all, I’d be happy to answer any questions you have. You can go to our website and look up more information. If it’s relevant or if you’re curious, you can call me or my staff. We’re always here to help with information and guidance. Remember that information is power. A good decision starts with great information. Our purpose as an organization is to provide you with the guidance and information needed to make good decisions.

Good decisions start with great information. It’s what our bottom line is working.

I thank our audiences for staying with this. It’s a long podcast but I hope it’s a value.

This has been a great visit with you. I’m looking forward to the next one. Good luck to all of you that are working in the nonprofit industries. I hope this was helpful. Thanks, Jonathan.

Important Links:

7 Things You Need To Know About Background Checks

Avoid the common pitfalls of instant searches and the risk that result from incomplete background checks. In this premiere episode of Information Is Power, Jonathan Kraut of Net Check Investigations and Bill Stierle talk about background checks as they highlight the importance of the employee screening process and debunks the myths around it. Join Bill and Jonathan as they unwrap the seven things you need to know about background checks.

Listen to the podcast here:

7 Things You Need To Know About Background Checks

How To Conduct Effective Tenant And Employment Screening And Background Checks

I am here with Jonathan Kraut. We’d like to talk to a bit about Net Check Investigations. We’re going to introduce you to the Information Is Power Investigations Show. Jonathan, tell us a bit about you, how you’ve come into this field and a little bit about your company.

This is about my 22nd year as a private investigator. I used to be a professor at a college. A lot of my students were not finding internship in investigation work. I got a license and put them to work. I got busy so I stopped teaching. Since then, I’ve been running this firm and trying to make sure that people are safe and they make good decisions.

It’s nice to be on this show to share your wisdom, knowledge and experience. A big part of decision making is having the right information. We’d like to share with you some information that’s crucial to employers. You will be able to pick up a lot of valuable information as we talk through the Information Is Power Investigations Show. Jonathan, tell us about the seven things that the employers need to know.

The obvious thing is when you do a thorough background check, you’ll weed out people that could do you, your company and your employees harm. There are a lot of myths that are out there and I wanted to dispel what those are. I wanted to give employers a very logical and easy way to make sure that they’re doing the right thing as far as their background check on new employees or candidates and recheck later on.

I remember that it’s important in the State of California, as well as other states, for people to know what your private investigations license is. Isn’t it a part of the process too to create trust?

The state goes through great effort to make sure that licensees are knowledgeable and follow the law. The worst thing that could happen is somebody like a law enforcement officer, government official or licensed agency uses their trust and their position to take advantage of others. We’re very careful about doing the right thing as much as we can all the time.

Tell us a little bit about the responsibility employers have to keep their people and customers safe and taking the appropriate preventative actions with employment screening.

By creating an environment, employers have a responsibility to their people and customers that the environment that people come into are safe. To do so, that includes not just their employees, but also the safety of their clients, customers, visitors and so forth. We want to protect property, reputation, privacy and physical objects from being misused.

Do they also have other responsibilities?

Besides the physical premises, you’re talking about the welfare of individuals that may be exposed to let’s say you bring in a stalker or sex predator into your workplace. That could have a great impact and negative impact on other people working in your company.

The screening process is important.

In addition to the safety of your employees, employers are responsible for their clients and customers. For example, you hire a cashier who has a drug issue, drug problem or embezzlement habit, they could steal the private information of their clients, their social security numbers and credit card information. You want to make sure that the people you bring into a setting have at least the certainty that there’s nothing in their criminal record that would indicate a habit of misconduct.

There’s a duty to check in with them.

In addition to the initial duty to check-in, you want to have a bi-annual recheck. There are individuals who perhaps weren’t caught, arrested or convicted prior to being hired. Because of the way that they think or behave, maybe after they were hired and entrusted with certain responsibilities in certain information, the history will show up later. They could be convicted or arrested after they were hired. You want to check for that as well.

We’re getting to why proper background checks are critical then.

Doing background checks is weeding out people that could do you, your company, and your employees harm. Click To Tweet

I’ll give an example. In Burbank where our office is located, a property management company hired a janitor. They did a California search for criminal records. They didn’t find anything. They handed to the janitor all the keys to the property. It’s a multi-unit. They have 100 to 200 residents in the property. They didn’t know the true history of the janitor.

Even though they didn’t know the history of the janitor, they’re still responsible for that as a business owner.

In this case, what happened was the janitor, who is a sexual predator, was convicted in another state. He had an arrest warrant from that other state. It did not show up in the California system. Therefore, he had access to all the keys. One day, he entered into a unit where a young girl was alone. She was thirteen or fourteen years old. He assaulted and raped her. A court case arose that finally resulted in a multimillion-dollar penalty and fine charge to the apartment complex. By allowing someone to come in who was known to be from another state, to not check their background thoroughly was an issue.

There are all kinds of challenges here if you’re doing a limited local search. It’s the responsibility of the employer or the business owner to follow the state-licensed screening agency and this whole misconduct search.

If they did a comprehensive misconduct search, it would have taken minutes to realize that the individual had lived in another state. If they check for records in that state, they would have found a warrant. They would have found that he was a sexual predator. They would have found that he was already convicted for the same kind of crime.

Imagine what it would be like then to have one of these events where people show up. We’re interested in getting the protection, the safety and the thoroughness that your company advocates.

It’s very important that employers know what they can do to protect their company, their employees, their customers and defend against liability and risk.

Myths About Employment Screening

As we get started, there are certain things that people believe are true that are not true. Could you take us through the different myths that people have about employment screening?

Relating to the last example that I gave, myth number one is that a state live scan is comprehensive. In reality, the live scan only checks the state that you’re in. It does verify fingerprints and it does go into the FBI system, but it does not check the other states. It does not look for warrants. It does not locate issues or events that are non-criminal that are very relevant.

It is very light and it doesn’t do the thoroughness that you advocate.

It does check the state that you’re in and the FBI records, which is part of it. I’ll give you an example of how a live scan led to the injury of other people. An individual purchased a weapon in Aurora, Illinois. There was a National Instant Background Check through the Brady Bill. It did not locate a relevant criminal case out of Mississippi. The reason would be that a lot of states voluntarily contribute to the system, but there’s not one push-button index where all the criminal records are kept. His name is Mr. Martin. When he applied for a concealed weapon permit a little bit later, after he purchased a firearm, a case was located. The FBI estimates that about 29% of all adults have a criminal record. About 9% are felons. If the National Instant Background Check System was adequate of the 230 million background checks, about 23 million criminal records would have been identified instead of the 1.3 million that have identified. In other words, even the Federal Instant Background Check System for purchasing a gun missed about 22 million criminal cases, which is terrible.

That is not good. The thoroughness is interesting. The first myth is that the state live scan is comprehensive and we’re seeing that not to be true.

When Mr. Martin tried to get a concealed weapons permit, a five-minute skip trace and a hand search found that record in no time. While an instant search through the federal government or the state is good in some cases or partially helpful, a hand search would have found that record instantly in a matter of minutes.

Since he got the weapon, he shot several coworkers.

He shot his coworkers. I don’t know if he killed anybody, but he hit four. It’s because he had access to a weapon that was cleared through an instant state live scan search.

Background Checks: It’s important that employers know what they can do to protect their company, employees, and customers.

What’s the second myth? It says all criminal activities are filed at the criminal index. Tell us a little bit about the first part of this myth.

The criminal records include lots of different statuses. For example, they are dismissed, diverted, convicted. They need interpretation. A person who’s diverted and not convicted due to drug use and who is in rehab, may not show up as a criminal conviction. It’s illegal, in some cases or in many cases, to refuse to hire someone because they’re in diversion. They’re not going to be working for a pharmaceutical company. That would be a mistake and their requirements are a little different from a cashier. We used dates of birth and name to identify somebody. If somebody lies about their date of birth, you may not find it. A lot of the cases that are in the criminal index system are not reportable. It means it may show up through a search, but because it’s been diverted or dismissed, it cannot be used against the person in most cases.

You’ve got to take a look at this myth to make sure that it includes some of these other elements that a person doesn’t want to hire.

Criminal indexes don’t include something related to or commonly related to domestic violence, harassment, stalking, elder abuse and child abuse. Often, those are not in the criminal index. They’re kept in other indexes.

The thoroughness is checking these other indexes, not just one of them.

If you rely on the criminal index only and you use whatever you find, first of all, a lot of it is not admissible. The parts that are admissible may be incomplete.

Take us then through myth number three, the jurisdictions. This is something that I had a little bit of confusion about but after talking with you, I’ve got a little more clarity about it.

Jurisdictions vary by level. You have federal jurisdiction, FBI records, local and county records, stayed incarceration and probation. They’re kept separately. There is no one place where the records of all the counties, all the states and all local jurisdictions are kept. Each jurisdiction that applies must be searched separately. Even sex offenders by state, which may not be kept at the county level, maybe at the state level.

There are a few different indexes to trace down to get the thoroughness that an employer would like. Are medical-related things also separated?

Sometimes, medical records are not included in the other records. There are different systems to check for medical professionals as well.

A little bit of bureaucracy for someone that understands or has the experience of knowing which rock to turn over. You know which rocks to turn over. Is that what you’re saying?

We do. I assume that licensed investigators who make their business as background checks and screening would know. You’d be surprised that a lot of my fellow professionals don’t do background checks. They don’t know what I am disclosing.

Even they would have a lot of assumptions as I did about some of these myths that I would buy into, “They did a background check.” It’s like, “What kind?”

In fact, what disturbs me and one motivation for making this show is I watch on TV and hear on the radio, “Our people were background checked.” What they mean is they did an instant search online. Myth number four would be that an instant search online is sufficient. It is not sufficient.

I was thinking about the database is not sufficient. As I started thinking about it, the fine-point or disclaimer are not necessarily in play here.

It is better to be slow and accurate than fast and wrong. Click To Tweet

If you go online and do an instant search, look at the disclaimer. It usually will say, “Do not use for employment purposes. It is for entertainment purposes only.” It does not meet the Fair Credit Reporting Act, which is our umbrella legislation. Firms gather information from different counties and different states. They compile a phonebook of all the records they have. When they do an instant search, what they’re telling you is any record that we have, we will find. They’re not making a promise that they’re checking every jurisdiction. They’re promising that if you put in a name and the date of birth and it’s in their index, they’ll find it. The sad part is that about 80% of criminal records are not in these databases. New cases aren’t there. Arrest warrants aren’t there. In fact, most county information is not in this index. It’s basically updated every few months, maybe every year. A lot of county information like LA County is not in these indexes. If you’re paying $10, $15 or $20 to do an instant search, know that you cannot be accessing all live and real information instantly. It’s not possible.

It’s not going to cover your employment due diligence.

It does not protect the employer and does not find out valuable information.

Is it because the court is not quite connected to it fully?

Even if you did find cases through an instant search. You need to verify with the court that the information is accurate. You can’t rely on a database.

There’s a big difference. It doesn’t constitute a valid search.

No, the courts have ruled that an instant search is insufficient. The employer can protect themselves from doing a comprehensive search.

This brings us around to myth number five. Once a background check is performed, the employer’s obligation is fulfilled. Tell us some of the time limitations or stamps or things that the employer needs to know to keep themselves up to date.

For many years, my firm has done hundreds of thousands of background checks. Our experience is not only should companies re-screen, but about 3% of those who are re-screened have new cases that occurred after the time that they were hired. Typically, we re-screened every other year, a biannual re-screening. Even then, 3 out of 100 have new cases. New issues include drug use, embezzlement, fraud, all kinds of things that you never think of, assault with a deadly weapon, sex, predatory crimes that occurred after they were hired.

It seems like the employer needs to build a system of reliability to cover their due diligence or their protection and their obligations in this area.

When an employer hires somebody, the original agreement should be something authorizing periodic re-screening so that the employer doesn’t have to go back and get a new authorization every couple of years.

Things To Know About Background Checks

As we went through the myths, it loops us back around to the topic of this show, which are the seven things employers need to know about background checks. Why is a comprehensive background check needed and what they must know? Could you walk us through the seven things so that we can get a sense of what the employers can do? That way at least we’ve got a level of awareness and consciousness about how to get this thing done.

By knowing the myths, our readers understand that there are more than one door to open. On average, there are about twelve different indexes to be searched. If you do an instant search, you open one door. If you do a live scan, you open two more but you’re still missing more doors. Imagine twelve doors to be opened to find out what someone’s history and record is and you open only three. Anything could be behind the other nine doors. Let say you have a twelve-wheeler truck. You need twelve tires. You go into the dealer and you say, “If I buy one, is it cheaper?” They’ll go, “Sure, here’s one.” That’s the same as doing an instant search. You still can’t drive it away. You do a live scan or a state search, you get two more tires, you can’t still drive it away. We’re very excited to share to your audience that to do a comprehensive search, you need to check all twelve places. Number one is the first thing employers need to know is there are twelve different indexes or searches to be conducted.

Tell us about the second thing. The only licensed agencies are authorized. Help me with that.

What distinguishes a private investigations company from others is that we’re licensed to acquire private information, not open to the public. We can assess character. Your computer or your instance search cannot assess character. Who would testify in court as to what they found? The computer? We had the ability to do what’s called a skip trace, where we use confidential means to verify someone’s date of birth, their social, other names that they have used and where they’ve lived. Having access to that gives us a lot of information. Believe it or not, convicted criminals often lie about their date of birth.

Background Checks: Directly accessing the system can often be the only way to access people’s records.

Why would they ever lie?

They know that if you run the date of birth you gave them, they’ll come up clean. A licensed agency is going to find that. They are going to check every date of birth, whether they gave it to us or not. Every name that shows up whether they gave it to us or not.

It is not available to the public unless you have the license.

That’s why an online search is not going to give you a lot of good information. Especially, it may give you lots of names that don’t belong to them. Lots of do it yourself. You’ll see, if you go to one of the online searches about yourself, a lot of stuff is there that’s not accurate. We want to search every date of birth and every known name in every jurisdiction where they’ve been located, which goes back a number of years.

This whole assessment of character, how does that work?

Assessment of character means should you hire them or should you not base on the record that you’ve found? We can make suggestions to employers. It’s is still up to them. Our report is going to be on letterhead and that goes in their file. We don’t decide if someone should be hired, but we’ll provide information. The employers will ask us, “What do you think? This guy has been convicted five times of DUI. Should we allow him to be one of our delivery guys?” We say, “What’s it look like if there’s going to be a six or seven? He’s not learning. It is a great risk. Why not find somebody whose record is clean?”

What is the liability or lower in the insurance? How does that work?

If certain practices are followed and a licensed agency is conducting a comprehensive search, most insurance companies with liability insurance will give you a discount. I’m very delighted to share with the clients if you want to call me and ask me how that’s done. It’s a little bit complicated, but we show them what we do and how that helps them lower the liability risks for the company. Insurance companies are all about mitigating costs.

If they got a thorough search and the validation of that, I could see how the insurance company would then give them a lower rate. That makes a lot more sense to put protections in place. In the third part of this thing, there are many records that can only be accessed locally. Tell us a little bit more about the network.

We do searches nationally. We have access to every court system in every county and every state. Anyone doing your background check should do that. A lot of records only could be accessed locally, meaning someone has to walk into the courtroom, sit down at the computer or hand the court clerk a list. That’s the only way to get a record if that person has something or not that we should be concerned about. Not only can you not access these from the internet, but you can’t access the mystery. It takes maybe two or three days, but usually three days for that information to come back. There are fees associated with that. Some states charge $6, $10, $15 for a comprehensive criminal or civil records search in that state. You’ve got to do it correctly or you’re not going to get information.

Do you also have access to these agents that can do hand searches?

We have a network of agents in every county, in every state that can do a hand search and make sure that there’s nothing in that record or in that file. If it’s reported back to the clients so they know exactly what’s going on.

You know what they’re getting themselves into.

You’ve got to connect with the court data system directly, not through an index, which is compiled periodically or may be completely missing. The only way to know is if we directly access that system.

The fourth tip for employers is the most active warrants are kept by the County Sheriff’s Department. Tell us a little bit about that.

Someone could have an active warrant for their arrest, which is not in the criminal index of the county. That arrest warrant may not be kept in the criminal system. Probably in some cases, it would only be kept by the Sheriff’s Department. Unless you check with the Sheriff’s Department, you would not know if a person has an active warrant in that county. Obviously, that’s an area to be checked. It may not be in the criminal index system.

There are different processes to go about this search.

Let’s say somebody was pulled over and ran off. They know who it is. They’ve got their fingerprints from the car. They have a picture of the person, but since they’re not arraigned, they may not be in the county or local criminal system yet. It’s just an arrest warrant.

That’s a big difference. There is some misconduct in number five. Tell us a little bit about the misconduct that is not in the criminal search.

One of the most important messages of this episode is that a lot of misconduct is not in the criminal system. An example is civil harassment and stalking. They are usually kept in the civil system. Orders of protection, restraining orders may be considered domestic or family law. Domestic violence may not be kept in the criminal system. A tragic story is one of our clients said, “This guy has nothing in the criminal record.” The judge said, “He’s a good guy. There’s nothing to go back on.” The woman had heard of something that had happened in a different county. We checked for family and domestic records and we found that this guy had a restraining order, violation of orders of protection and stalking charges. All these were in the civil system and the family law system. We brought these cases to the court. It changed the whole outcome of the case. That’s because we didn’t depend on the criminal system for finding criminal information.

This is probably the one that bothers me the most. People’s mindset thinks criminal and don’t think domestic or don’t think that there are these different buckets that you’ve got to check or these different tires that you’ve got to put on. They might not be represented by the person that you’re in front of.

That reminds me, elder abuse and child abuse are generally not reported in the criminal system. I don’t know why. A lot of counties put it under family law or domestic. You could choke or take advantage of someone who’s related and that may be considered a family dispute and not a criminal case, although it’s very relevant. Also, you have military records, which are not in any county or federal system. There’s a completely separate index conducted by a different agency, a military agency. Any misconduct or unfavorable discharge might not be in the criminal system. That might be in a different system.

Tell me about this FCRA compliance. Tell me a little bit about why an employer needs to know that.

The Fair Credit Reporting Act, which we call FCRA, has outlined the duties and requirements that credit reporting agencies like us, private investigations companies, which go beyond credit. What they need to do? It gives them some rights or authority to an individual whose background is being checked. A credit reporting agency has to get authorization either from the individual or there’s a court case. We need something to go with in order to look at someone’s private information. We can’t just go run it because we want to. When we file a report with the company, we give them the results of our background check, for example, signed on our letterhead. Why it’s signed is so then the employer knows who did the work and who could be called to testify if it comes to that.

The testimony is important. The signature is that next level of verification because a real live person is doing it.

All our reports are signed by an individual. We know who that individual is. If there’s an issue, we can go back to our agent and say, “How did you conduct it? Where did you go? What agents did you employ to county by county to do the work?” We want to make sure that it’s traceable and that we can go back. You can’t bring a computer to court to testify. There should be an individual who did the work, the research, the hand search, the skip trace that can say exactly what they did.

Do private investigators show up in court and do the testimony thing?

If needed. I’d say that of the 400,000 or 500,000 background checks we’ve conducted, we hardly missed anything. Although, a couple of times, somehow we have. Maybe we’ve typed in something wrong, but we’ve never had a case related to any misconduct or something that we missed. A couple of times, we’ve found that we did on our own when we do a recheck. Not often, maybe 1 in 100,000 that something didn’t show up or maybe it wasn’t in the court system then and it is now. We’re very patient and careful. We’d rather be slow and accurate than fast and wrong. We have to verify with the court an FCRA requirement to verify a case with the court directly that it’s accurate. The date of birth and the name is right.

Once this is a signed authorization from the candidates, it allows you to be in compliance or thereabouts.

The job candidate should sign an authorization and allow us if there is an error to give them the information, which is free, to go back and say, “That was my twin brother. It’s the wrong date of birth. He has my date of birth and my name but it’s not me.” We’ve had that. A candidate has to have the right to go back and challenge your results. At times, the court data is wrong.

Background Checks: Employers take on tremendous responsibilities to risk because the penalties of not doing a complete background check are very high.

We’re coming up to number seven because we are doing the seven things. The employers have a duty to periodically recheck and re-screen. Tell us a little bit about that.

About 3% of those that we recheck have new cases that were filed and convictions that were filed after they were hired. We recommend that all employers re-screened every two years. In some cases like medical facilities, elder and childcare, those who handle money, credit card information, pharmaceuticals, you want to check that annually. You have a duty to your clients for the safety of privacy and the people that they’re caring for that you recheck more confidently and more often.

We’ve run through a whole bunch of wonderful information. Take us through a little bit of the summary of this thing and walk us through what’s at stake here.

First, employers take on a tremendous responsibility to risk and the penalties of not doing a complete background check are very high. We wanted to bring that up and let them know. Using a licensed agency will reduce this exposure for workplace and employer liability. Knowing the myths about that should enlighten our employers as to what they should or should not do, especially when it comes to background checks. Next, we want to say that if you understand how a background check is performed, it gives the employer a lot of choices and a lot of information so that they don’t make mistakes that could hurt them. While a background check only may take three days to complete, we’d rather take our time and get it right than hurry up and get it wrong. A comprehensive search will protect employers and workplace and reduce the risk from liability.

For more information about ways Net Check can help support employers, where should we go? What should we do? Give us a website.

Anyone who wants to ask me questions about this information or others, I’d be happy to share. The more information you have, the better. The information is free, we want to help you. Our website is There are a lot of valuable tools and information, videos and podcasts on there. To our employers out there, remember Information is Power. Good decisions start with great information. We want to give you great information. We want you to be powerful and be successful and take the steps necessary to make sure your workplace and your future looks great.

This has been great. This has been a journey for us beyond a little bit. I feel grateful that you asked me to ask you questions about it. I sure have learned a lot about this. I’m looking forward to do the next one with you. We’ll be able to provide employers, business owners and individuals that are looking to have a private investigator work for them and support them and getting their needs for protection or privacy or information and ways that you can help them. Are there any closing thoughts or things that you’d like the readers to know?

You ask an expert, I wouldn’t say that I know everything about everything, but I know a lot about background checks. I’m very happy to help out. I want everyone to be safe. I want to hold people responsible for the misconduct they’ve performed. It’s only fair that good people with good histories are given a chance first. If you only knew now what you knew then or you knew then what you knew now, either way. That’s why you want to recheck all the time and why you want to be thorough in your background checks for employment.

Jonathan, thanks for sharing your information with others and more to come.

You’re welcome, Bill. Thanks.

Take care. Bye.

Important Links: