June 14, 2024
    The Benefits of Background Checks

    The Art of Due Diligence: The Benefits of Background Checks

    Due diligence is vital in the art market, validating authenticity and provenance to protect artists, collectors, and businesses. This step-by-step, well-organized guidebook tells you where to look and what to watch out for.

    Using background checks during M&A transactions prevents bad hires, keeps workplaces safe, and avoids negligent hiring lawsuits. It can also protect your investment and save you from fraud and dishonesty.

    Prevent Fraud

    Background checks are essential since the average organization loses 5% of its annual revenue to fraud. By conducting criminal record checks, credit bureau inquiries, and reference interviews, fraudsters can be avoided before they get started.

    Employee dishonesty is a costly and time-consuming issue that can destroy a company’s reputation, so hiring background-checked candidates is important. A background check can uncover red flags such as past criminal activity and financial irresponsibility that are hard to pick up in a single interview.

    Protect Your Investments

    We’ve all read viral stories about companies that fail to do proper background checks on executive hires or business partners and then find themselves facing a public relations crisis or legal action. Regular background checks can help reduce these risks, saving your company money on things like reduced insurance premiums.

    It also helps to avoid bad investment decisions by ensuring that the person you’re investing in has a good track record. This can be especially important for businesses with significant financial investments, as it can prevent them from falling prey to character-induced frauds and blow-ups. It’s also helpful for new clients, vendors, and suppliers that will play a pivotal role in your business’s operations.

    Reduce Risks

    Performing background checks can reduce the risks your business faces. Neglecting to screen potential employees before hiring them can lead to legal claims of negligent hire, which leave businesses liable for damages caused by their workers.

    These legal claims can be expensive to defend, even if the company is found not liable. In addition, a criminal background check can help you reduce the risk of employee turnover and ensure the safety of your staff and customers.

    Background checks can also be used to assess the authenticity of art, which helps reduce the risk of buying counterfeit or wrongly attributed works. This is especially important when working with art dealers and auction houses. Performing this due diligence step can save you much money in the long run.

    Prevent Negligence

    Due diligence is a process that involves carefully investigating the economic, legal, and fiscal circumstances of an individual or business to mitigate risk. Background checks are an essential part of this procedure, as they can help businesses avoid litigation, protect investors and customers, and ensure compliance with legislation.

    Negligent hiring claims are increasingly common in the workplace. These claims arise when a company fails to conduct adequate background checks and an employee later harms a third party, such as an assault in the workplace or a motor vehicle accident on the job.

    It’s important to conduct thorough background checks before hiring someone, especially in higher-risk jobs, such as nursing home workers, real estate agents, and delivery drivers. Performing background checks can prevent negligent hiring lawsuits.

    Minimize Liability

    Due diligence is a critical component of any M&A process, helping you identify areas of legal or regulatory risk that might otherwise have been overlooked. Regulatory DD includes reviews of licensing agreements, contracts, guarantees, and other documents that could affect your transaction.

    Criminal background checks on job candidates help reduce liability over negligent hiring and ensure a safe working environment. However, they are not always effective at identifying people who threaten others.


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