After hiring you discover that your new hire was convicted of embezzelment in his previous employment is he covered under a current policy?

This isn't a common problem these days; mostly to the advent of affordable background checks for employers and businesses doing greater due diligence about checking references of prospective new hires. As far being "covered under a current policy", each situation is different and the either implied or written employment contract is subjective. If I were in this position my reaction would be to to firstly make sure the person had no access to my business accounts, and then to sit down and have a long discussion.
You would have to check your policy. Check too with the parole office to find out how to get him federally bonded and perhaps your accountant to check on those tax breaks.