Background Checks Crucial in Today's Economy

Due diligence with respect to investments, investment advisors, fund managers, and clients has taken on added importance in light of the latest round of major fraud cases. CAMICO recommends background checks for all significant engagements and clients.

Suzanne M. Holl, CPA, CAMICO vice president of loss prevention services, reminds firm partners that background checks should be performed whenever there is a significant change in client management or ownership. Such changes can be determined by re-evaluating existing clients on a regular basis, at least annually.

"The firm should also take appropriate steps to determine that the acceptance of new or continuing clients will not create a conflict of interest," said Holl. "Examples for consideration would include: any financial interests of the firm, employment relationships, and business relationships with the prospective client.”

Larry Scherzer, president of Scherzer International (www.scherzer.com) has been providing background investigation reports since 1992 to firms and companies across the country. “Our main focus is to help firms assess prospective clients, investment targets, prospective employees and new business associations,” Scherzer said.

He commented on two major frauds that had been exposed recently, noting that his firm had performed background checks on the hedge fund managers before the frauds became public. The firm had red-flagged both of the managers as “needing further investigation.”

“The process does work,” Scherzer said in regard to the firm’s investigations. “We have found that about 10 percent of fund managers in general need further investigation when a background check has been performed on them. About 20 percent of hedge fund managers need further investigation.”

Scherzer described professional investigations as “requiring more than just checking records and acquiring masses of undigested information, also known as a data dump. It requires hands-on work, judgment, and expertise to analyze and interpret the data, and it should answer questions—not raise them.”

Scherzer International works with firms to design a background search strategy to meet the firms’ due diligence goals, objectives and budget constraints. Research staff members use a variety of data sources to make decisions during their search of public records, and clients are notified immediately when possibly negative information is found. A decision is then jointly made as to the next step to be taken. No additional costs are incurred without the client's authorization. All reports are delivered via confidential e-mail in an easy-to-read format.

CAMICO policyholders will receive substantially discounted rates from Scherzer International. For a list of the services provided, go to www.scherzer.com, or e-mail a request to: facts@scherzer.com

For more information, contact Carole Scherzer at cscherzer@scherzer.com or call 866.723.2287.