Rogue CFO III – Background Checks


Perform Background Checks. It seems obvious. Why would a company not want as much information about a candidate for its CFO position that it can legally obtain? But this oversight is common. Too many smaller companies hire CFOs and other senior people without a background check, which is beyond irresponsible. In one example, a CFO was discovered tampering with the company’s accounts. A simple Google search would have revealed that not only had this CFO been sued by his former company but the suit was for the exact same scheme he perpetrated against his current company. The old case was dropped, but the records of the case were still available through online searches. If the employer had made a simple internet search it would obviously have been a huge red flag. Why didn’t the Chief Executive do a background check? Why didn’t the board of directors insist on it? They were probably too busy. With copious amounts of information available on the internet, there is no reason today not to perform a thorough and legal background investigation of any person who will be exercising control over the company’s finances.

But background checks themselves are not without legal risks. There are many precautions that employers must exercise in performing background checks and making decisions based on these checks. For example, federal law does not prohibit employers from asking about the candidate’s criminal history. But, the federal Equal Employment Opportunity (EEO) laws do prohibit employers from discriminating when they use criminal history information. Using criminal history information to make employment decisions may violate Title VII of the Civil Rights Act of 1964. Make sure the application of your hiring process is uniform and is not discriminatory. Small businesses should address procedures for conducting background checks in their employment manual and have the manual drafted and reviewed by an experienced employment lawyer.

Pre-Employment Background Checks

The following list includes the types of information that employers often consult as part of a pre-employment check, and some of the laws governing access and use of this information for making hiring decisions.

Credit Reports

The FCRA regulates “consumer reports” obtained from “consumer reporting agencies.” This means that if you are an employer conducting background checks on your employees using a third-party resource, you must comply with the FCRA. The FCRA does not regulate an employer’s ability to conduct a background investigation by means of the employer directly contacting applicants’ former employers, or otherwise directly checking public documents and records. The Act applies only when the employer seeks that information through a third-party source.

Criminal Records

The extent to which a private employer may consider an applicant’s criminal history in making hiring decisions varies from state to state. Because of this variation, you should consult with an experienced employment attorney before exploring whether or not an applicant has a criminal past.

For Federal Bureau of Investigation (FBI) checks, consult these resources:

• FBI Services for Businesses

• FBI Criminal History Checks for Employment and Licensing

• FBI Checks on Employees of Banks and Related Entities

Lie Detector Tests

The Employee Polygraph Protection Act prohibits most private employers from using lie detector tests, either for pre-employment screening or during the course of employment. The law includes a list of exceptions that apply to businesses that provide armored car services, alarm or guard services, or those that manufacture, distribute, or dispense pharmaceuticals. Even though there is no federal law specifically prohibiting you from using a written honesty test on job applicants, these tests frequently violate federal and state laws that protect against discrimination and violations of privacy.

Medical Records

Under the Americans with Disabilities Act , employers cannot discriminate based on a physical or mental impairment or request an employee’s medical records. Businesses can, however, inquire about an applicant’s ability to perform specific job duties. Some states have stricter standards than the federal mandates for the protection of medical records.


Bankruptcies are a matter of public record and may appear on an individual’s credit report. The Federal Bankruptcy Act prohibits employers from discriminating against applicants because they have filed for bankruptcy.

Military Service

Military service records may be released only under limited circumstances, and consent is generally required. The military may, however, disclose name, rank, salary, duty assignments, awards and duty status without the service member’s consent.

School Records

Under the Family Educational Rights and Privacy Act and similar state laws, educational records such as transcripts, recommendations and financial information are confidential and will not be released by the school without a student’s consent.

Workers’ Compensation Records

Workers’ compensation appeals are a matter of public record. Information from a workers’ compensation appeal may be used in a hiring decision if the employer can show the applicant’s injury might interfere with his ability to perform required duties.

Get to know your prospective employees, especially those who will be working at the executive level and controlling access to your company’s funds. Referrals are fine but there is no substitute for running a background check, and keep in mind that there are certain precautions about how the information can be used. Check with your local employment law expert if you have any questions.


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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