Covid-19 Compliance Investigations in Toronto & the GTA

CORPORATE / BUSINESS INVESTIGATIONS

With the coronavirus (Covid-19) pandemic still raging across Ontario and all of Canada, it is more important than ever for businesses to follow government health guidelines.

Many businesses have made the decision to allow employees to work remotely, doing there part to help flatten the curve. Although this has been of great importance for the greater public health, it poses a whole new set of challenges for employers. Is the employee actually working at home or are they out do errands during company time? Is your delivery staff following proper protocols while on route? If you have any questions or concerns, we can help. Learn More

Covid-19 Employee Compliance

  • Remote Work Checks Surveillance
  • Work-from-home Compliance Investigations

Covid-19 Surveillance Investigations

Do you have concerns about your employee(s) while they work from home or for your staff while they are making deliveries? Our Surveillance Services Division can investigate to ensure they are being compliant. Learn More

 

FAMILY / PERSONAL INVESTIGATIONS

Covid-19 Joint Custody Compliance Investigations

Do you have shared custody and have concerns about your child’s health while in the care of their other parent? Our Surveillance Services Division can investigate to ensure they are being compliant with such things as “are socially distancing while out in the general public? Are they wearing a mask where they are required to do so? Are they mingling in large groups? Are they attending areas and locations they should not be? These are just a few of the questions we may be able to answer with surveillance. If you have concerns about your child’s well being, we can help! Contact us today. Learn More

Covid-19 Infidelity Investigations

With the Covid-19 pandemic surging, people are spending much more time at home, which can lead to observing behaviours in your partner that you would not have noticed otherwise. Is your partner making excuses to leave the house, even though they are working from home? Have you noticed secretive phone calls and texts? If you have questions, we can help you get the answers. Learn More

We are Ontario’s Most Experienced Surveillance Team

Our Surveillance Services Division (SSD) employs Private Investigators who are specially trained within the area of Surveillance. They will work diligently and professionally to obtain the degree of success proportionate to your specific request(s). The degree of precision, accuracy, and thoroughness needed when engaged in a surveillance detail must never be overlooked.

Surveillance is a form of investigation which consists of keeping a person, place, or vehicle, under physical or technical observation in order to obtain information or evidence pertinent to any investigation. Surveillance can produce accurate, direct and crucial information pertaining to any quandary being experienced.

At Haywood | Hunt & Associates Inc. our clients needs Always Come First.

Prevent Employee Fraud and Theft with These 8 Tips

Have you ever been the victim of employee fraud or theft? If so, you are not alone. A significant percentage of business revenue is lost yearly to employee theft. This loss is more significant in smaller organizations and should be addressed as soon as possible to mitigate losses. A working environment that discourages fraud and theft is key, and can easily be achieved by following the 8 tips below:

Promote a Positive Work Environment

When you create a positive work environment, it helps to encourage your employees to act in the best interest of your business and to follow established procedures and policies. This can be achieved by having clear organizational structure, written job descriptions, open lines of communication between employees and management, positive employee recognition, comprehensive procedures and policies, and fair employment practices.

Apply Internal Controls

Internal controls are indicators that measure and ensure the efficiency and effectiveness of compliance with laws and regulations, operations, accurate financial reporting, and safeguarding of assets. To truly be effective, the procedures and policies should address authorization controls, access controls, and separation of duties.

Employ Honest People

This is of course something that is easier said than done but you need to try because dishonest employees will find ways to go around your carefully laid out internal controls and sabotage your efforts to maintain a positive work environment. It is nearly impossible to know which potential employees will be dishonest but a quick look at each potential hire’s background can help you weed out the bad apples.

Go for a pre-employment background check and be sure that it will check for the following:

  • Employment verification of reasons for leaving the previous job, what position was held, and length of employment.
  • Education verification for degrees and/or certifications from accredited institutions
  • Driver’s license for serious or numerous violations.
  • Civil history for lawsuits involving fraud, restraining orders, and collections.
  • Criminal history for crimes involving fraud, violence, and theft.

Educate and Train Your Employees

Informing your employees about your internal controls to deter and detect fraud, the procedures and policies that are in place for fraud, your organizations ethics policies and code of conduct, plus how someone will be disciplined if caught violating any of these is a good extra measure for fraud prevention.

Employees should be given annual training on the topics above as well as informed of what is considered as fraudulent behaviour and should be asked to sign an acknowledgement after each training session. This can be very useful in court and in preventing any legal action in the first place.

Have an Anonymous Reporting System

A whistleblower program is a recommended reporting system that vendors, customers, and employees can use to report violations of procedures and policies anonymously.

Whenever possible, encourage and promote the use of the reporting system and be sure to take reports seriously. Every report should be investigated thoroughly to ensure this tip’s success.

Frequently Perform Audits (Both Regular and Irregular Audits)

Unannounced random audits are more effective than regular scheduled ones for identifying new fraud vulnerabilities and figuring out if existing controls are working as they should. This also makes possible wrongdoers uneasy about committing any fraud.

Investigate All Incidents

No matter how small or how big a report is, make sure that a prompt and thorough investigation is performed to ascertain if fraud really did occur or if there was any policy or procedure violation. Doing so will mitigate your losses in case of a real threat.

Set A Good Example

Business owners and senior management must lead by example and must be held to the same accountability as employees are regardless of position. This allows employees to see that procedures and policies are indeed followed to the last letter and they’d be less tempted to commit fraud.

Haywood Hunt & Associates Featured on CBC’s The Fifth Estate & Radio-Canada Investigation

Dr. Jean Robert Ngola was singled out as the source of a COVID-19 outbreak in Campbellton, N.B., in the spring, but an investigation by CBC’s The Fifth Estate and Radio-Canada casts increasing doubt on whether he was ‘patient zero.’

Here is an excerpt from the CBC article:

On May 30, the provincial government and Vitalité asked the RCMP to investigate possible criminal wrongdoing by Ngola. After a six-week investigation, police decided against laying criminal charges, but Ngola could still face a hefty provincial fine for violating the Emergency Measures Act by not self-isolating for 14 days after travel. He is set to appear in provincial court in Campbellton on Oct. 26.

The former lead investigator into the Walkerton tainted water scandal says he is in Ngola’s corner. Craig Hannaford, a former RCMP officer who is now a private investigator with the firm Haywood Hunt and Associates in Toronto and was hired by Ngola’s lawyer, spent one month retracing the physician’s overnight trip to Montreal looking for evidence that could prove Ngola didn’t get COVID-19 in Quebec.

Hannaford said he identified several health workers who were crossing into Quebec from Campbellton and not isolating upon their return around the same time as Ngola. 

“The long arm of the state seems to be pointing fingers [at Ngola], saying: ‘You did it.’ Yet there seems to be all sorts of explanations as to how this happened,” said Hannaford.

He said his investigation took one month compared to the few hours it took New Brunswick Public Health to zero in on Ngola.

“That’s not a fair and balanced investigation,” he said. 

Read the full CBC article here:
https://www.cbc.ca/news/canada/new-brunswick/doubt-ngola-family-doctor-source-outbreak-campbellton-new-brunswick-1.5706918

About Craig Hannaford

 is the former head of the RCMP Commercial Crime Section and of the RCMP’s Stock Market Fraud Section. Craig is a Licensed Private Investigator, is a CPA (Chartered Professional Accountant) and a CFE (Certified Fraud Examiner). Craig also has his Masters of Science in Economic Crime Management and a Bachelor’s degree in Computer Science.

Craig has been a Senior Investigator at Haywood Hunt & Associates Inc. since March 2019 focusing on commercial fraud, civil litigation support, investigative accounting, asset searches and miscellaneous problem solving.

What Private Investigation Services Can Do for Business Owners and Businesses

There are a lot of private investigation services that business owners and businesses can make use of for protection and for the prevention of fraud and crime. Though the typical notion is that private investigators are only called in to investigate unsavoury activities, the fact is that this is an outdated concept of what private investigation services can do for businesses and business owners. Below are some of the other ways hiring a private investigator can help business owners promote a thriving business.

Help with Collections

It can be very difficult to locate people who do not want to pay debt or those who are hiding assets in order to get around having to pay debt. Private investigators can work with creditors to locate people in debt as well as identify possible hidden assets a person of interest may be covering up. Professional private investigators can get this done legally by using FCRA and GLBA compliant practices.

Perform Detailed Background Checks

Pre-employment detailed background checks is a necessity for some professions and positions, especially for those seeking work in a big company where a small mistake can equal huge losses. Although there are free websites that employers can use, they do not provide detailed and updated reports that professional private investigators can. This can also be done before a company merger or prior to a business deal to better safeguard company assets and reputation.

Employment Monitoring

It can be a problem if some employees work for two companies with conflicting interests. Employment monitoring can nip poaching in the bud as well as prevent company secrets from falling into the wrong hands.

Locate People

There are times when a person has to be located to serve as a witness, as a resource person, or to answer questions. A private investigator can locate missing persons using advanced searching techniques.

Perform Security Sweeps

It is very important for businesses to be able to identify security threats be they be in the form of digital threats or people with questionable motives. Private investigators can identify areas of weaknesses and devise plans to counter security problems before they arise.

Provide Surveillance Services

There are instances where some employees may try to work with rival companies, pretend to be sick or injured, or do things that can harm the business. Private investigators can provide surveillance services to uncover double dealings or scams before they happen or as they happen.

Assist with Termination

Terminating people can get ugly even when they did some wrongdoing. A private investigator can make this process easier as an unbiased third party particularly if the private eye can provide proof of an employee’s wrongdoing such as proof of stealing from the company or sharing information with competitors.

A Lot More!

There are so many ways that private investigation services can help business owners promote a thriving business. If you have any questions, feel free to contact us or browse our list of private investigation services to find out which one you might need.

 

Ethical Leadership in Business: How to Deal with Dilemmas

Remember Sherron Watkins? You might not. It’s been almost two decades since Watkins was the vice-president of corporate development at the disgraced Enron energy company, but today is most often referred to as its whistleblower. A certified public accountant with a master’s degree in professional accounting from the University of Texas, Watkins joined Enron after working for the poster child of accounting fraud, auditing firm Arthur Andersen, for eight years.

Why was the Enron financial scandal not exposed earlier? Why did it take years before a concerned employee came forward? Why did no one stop the “smartest guys” when the lights went out in California? Ms. Watkins cited four key factors that could be applied to many organizations and their employees:

  • fear of losing one’s job
  • fear of rocking the boat and being ridiculed
  • an “it’s not my concern” attitude
  • a “group think” culture that does not tolerate criticism of the corporate viewpoint

Fear, apathy and peer pressure. It sounds like high school. But how many employees, regulators, investors and others with links to today’s scandals are now saying, “if only I had shown some ethical leadership and done something”?

Who “Made Off” with the Money?

While the full story is not yet known—and experience tells us that it will take years to uncover all the facts—the sheer size of the fraud allegedly committed by Bernard Madoff, the American businessman and former chairman of the NASDAQ stock exchange, adds another layer to the general public’s mistrust and cynicism of the ethics of people in high places.

The Madoff case appears to be a Ponzi scheme of gigantic proportion but subtle variation. The structure of such schemes have been around for centuries but were made famous by the eponymous Charles Ponzi, who defrauded investors in the United States through fraudulent activity involving the exchange on international postal reply coupons. The classic Ponzi scheme is one in which the returns on investors’ funds are not obtained through actual earnings but from the principal contributed by subsequent investors. No legitimate investment exists, and the funding from subsequent investors is used to pay off earlier obligations, which provides the appearance of legitimacy.

Madoff’s scheme was typically Ponzian in structure, but varied in both pace and marketing. Bernard l. Madoff investment Securities offered its exclusive clientele modest but steady returns in both bull and bear markets, rather than the typical Ponzi paradigm of suspiciously high returns to all comers. Furthermore, charitable foundations, rather than individual investors, were many of Madoff’s victims, organizations that one would assume to be sufficiently sophisticated to see through all his smoke and mirrors.

Nevertheless, not only was the Madoff scheme typical in Ponzi structure (using new or annual investments as “returns” to established clients), it also shared a few other attributes. Madoff indicated to clients that the intricacies of his investment strategy were too complicated to explain in simple terms. Madoff also claimed that the secrecy of his strategy and investments was important. The “beauty” of the Madoff scheme, however, was in how it diverged from three key aspects of the traditional Ponzi:

  • Questionable or limited information on the background of the promoters of the investment
  • Promoters who are not registered with any securities regulator or self-regulatory organization
  • Obstructions to due diligence because of key offices or institutions in foreign jurisdictions

Mr. Madoff was an established investment veteran with impeccable credentials operating in plain sight in one of the foremost investment capitals in the world. In the end, who had the courage to come forward and blow the whistle? Not the regulators. Certainly not the investors, who were blinded by steady returns and a false front of legitimacy. It was instead the Sherron Watkins of Bernard l. Madoff investment Securities: Mark and Andrew Madoff, sons of Bernard.

Ethical Issues

One can only imagine the horror experienced by Watkins and the Madoff boys. To discover that fraud is occurring all around you is to be faced with an ethical dilemma that many would prefer to simply ignore. Though the ethical dilemma is personal (“should I blow the whistle?”) the ethical issue is institutional.

Ethical issues come in all shapes and sizes, and by no means are they all related to financial fraud. They can be legal or illegal. They can be simple or complex. Their consequences can be minor or severe. Some of the topical ethical issues that companies face today are:

  • affirmative action or preferential hiring programs
  • corporate donations to non-profit organizations
  • the outsourcing of jobs to countries where labour is less ex-pensive
  • the outsourcing of production to countries with looser environmental or health and safety laws
  • tax minimization strategies

Note that none of these practices are illegal. Indeed some, like affirmative action programs or outsourcing, become popular economic or social trends. Others, like corporate donations to non-profits or tax minimization strategies, are simply good business.

What they share, however, is the advantageous treatment of one group at the expense of another. They involve choice. And choice requires leadership. So how do people guide themselves in their choices when ethical roadmaps don’t exist and ethical issues are a moving tar-get? After all, ethics vary from person to person. Ethics vary from country to country. Ethics vary from culture to culture. It may help to take a step back for a moment and imagine a pyramid based on enforceability.

Ethical Enforceability

In most societies, the basic ethical standard is criminal law. We all agree that people should not break the law. But how many times have you heard that old saw, “if it ain’t illegal, it must be ethical”? Ethical behaviour is not enforceable law, because criminal law alone cannot encompass all ethical issues and therefore cannot enforce ethical behaviour. Yet criminal law—the entirety of the criminal code and its penalties—provides business with an ethical base.

The most difficult ethical dilemma is not about right versus wrong. It’s about right versus right. It’s about the right away to con-duct business, and if the dilemma is particularly tough, that’s usually because there are powerful ethical arguments on both sides. Too often, the scandals that make the headlines are the result of perfectly legal but appalling and outrageous behavior that highly offends the public. That’s why you need regulatory law. It’s the next level in the pyramid.

These are the regulations that govern industries and professions. They may be self-imposed or imposed by government in some form of regulatory agency. They exist not only to regulate the behaviour—typically through a disciplinary process—of organizations and individuals but also to serve as a framework that acts as a moral guide.

Here it may be useful to take note of CGA Ontario’s “Code of Ethical principles and rules of Conduct” (“the Code”), as a template of regulatory law. A professional organization and its members are granted the legal right by society to organize itself, to control en-trance into a profession and to formulate standards of behaviour governing its members. in return for this right, its members are to act in the interest of society and the public.

The Code encompasses both ethical principles and rules of conduct, and articulates the ethical obligations of all CGAs as well as desirable character traits and values that guide our ethical behaviour. It would be impossible to overestimate its importance in both the personal and professional life of every CGA. Without question, to be called upon by the chair of CGA Canada to rise and recite the Oath of Obligation at the Admission to Membership Ceremony is a profound experience, and an occasion no CGA ever forgets.

In this way, we might say that a framework of common behaviour—and the sanction that results when one betrays the trust of one’s colleagues—helps to regulate individuals to a degree to which organizations are immune. Thus the need for corporate policy.

Though corporate policy is typically less enforceable than criminal or regulatory law, it still informs ethical behaviour. The weakness of corporate policy, however, resides in its obligations: if a company’s main purpose is to maximize returns to its shareholders, then it could be seen as unethical for a company to consider the interests and rights of other groups. That is why many people believe that corporate policy primarily exists to limit legal liability or curry favour by presenting the image of the good corporate citizen. it is also why many believe that ethical problems are better dealt with by depending upon employees to use their own values as their guide.

The Behaviour Ladder shows that, while a corporate policy may be legal, it may still fall short of ethical behaviour, and be inconsistent with the values of employees. Similarly, even though ethical behaviour is both higher and dependent upon both criminal law and corporate policy, it may not mesh with individual values. Of course, the value system of many individuals is not consistent with the reality of every criminal law; nevertheless, if we are all to climb the ethical ladder, we need a common rung on which to begin.

Ethical Criteria

So how can you determine what is ethical? For example, if a new corporate marketing decision has been made with which you are uncomfortable, what tests can you apply to see where it stacks up on the ethical scale? Here are a few criteria that will help:

  • Is it legal? if the course of action is not legal, then it should not be done. Take steps to identify the illegality of the issue and ensure that you do not participate in its implementation.
  • Do the benefits exceed the cost, regardless of to whom they accrue? Ask yourself what the benefits are of the policy and to what extent do they outweigh the costs of the course of action. This may help you to identify who or what benefits from a specific decision.
  • Are you prepared to let everyone in your organization carry out the proposed action?
  • The Light of Day. Would you be comfortable if your actions were exposed both inside and outside your organization? (A variation of this is the parental test—would you be willing to tell your parents what you have done?)
  • The Golden Rule. What would you say if the proposed action were done to you? your own reaction may provide guidance as to whether the action is ethical.
  • The External Test. Discuss your proposed course of action with others. If feedback indicates that the proposed course of action is an ethical issue, think long and hard before proceeding.

The late Robert Noyce, legendary co-inventor of the microchip, once said, “if ethics are poor at the top, that behaviour is copied down through the organization.” While I admire the sentiment, I don’t completely agree with it. The fact is that in every organization there are employees who are whistleblowers in waiting. Remember Sherron Watkins? She wrote a detailed, no-holds-barred seven-page letter to her boss, Kenneth lay, telling him company was just a giant Ponzi scheme. And she was circumspect enough to take the external test before writing it—she discussed her ethical dilemma with her former partners at Arthur Andersen.

As long as there is business, there will be situations that test the ethics of business participants. But in the words of the financier Henry Kravis, who knew a thing or two about the ethics of building a business empire in the same city that spawned Bernard Madoff “if you build that foundation—both the moral and the ethical foundation—as well as the business foundation and the experience foundation, then the building won’t crumble.”

Deception in Financial Statements

In a recent case investigated by the Royal Canadian Mounted Police (RCMP), the senior executives of a publicly traded company were charged with fraud related to the financial statements of the company. The RCMP stated that the accused created an elaborate scheme of paper trails that exaggerated the financial position and the performance of the company in order to mislead investors, creditors and auditors. Revenues were overstated in successive quarters, false sales were recorded in the accounting records and high interest loans were not recorded.  The company eventually went into bankruptcy, at which point the deception was uncovered. Creditors and investors lost millions and employees suffered through unpaid wages.

Financial statement fraud is the deliberate misrepresentation of the financial condition of an enterprise. Its intent is to deceive financial statements users (e.g., shareholders, creditors, regulators). It has many forms and guises, but is perpetrated through intentional misstatements or omissions of amounts in financial statements. It occurs in large publicly traded companies. It occurs in small family-owned firms. CGAs should be aware of the red flags that may indicate the presence of financial statement fraud and then make the appropriate examination to determine if their concerns are warranted. It is often the small extra inquiry by an accounting professional that exposes the presence of financial statement fraud.

The extent of financial statement fraud varies but the techniques used to perpetrate it generally fall into the following categories:

  • fictitious revenues
  • fraudulent asset valuations
  • fraudulent timing differences
  • concealed liabilities and expenses
  • improper or fraudulent disclosures or omissions

Fictitious Revenues

Fictitious revenues are probably the most common form of financial statement fraud. In this scenario, false sales are recorded in the books and records of the company. Often, the offsetting entry will be to accounts receivable. However, there are also other methods of manipulating the revenue side of financial statements. Other techniques include the recording of consignment sales and sales with conditions, failing to record the return of goods sold, improper write-off of receivables, and non-recognition of sales discounts. All these techniques can have the effect of making revenues appear greater than they actually are.

Fraudulent Asset Valuations

Improper asset valuations can be used to manipulate financial statements to the point that they are misleading and fraudulent. This can be done in several ways. Often, an intentional violation in the application of the “Lower of Market or Cost Rule” has been done in order to manipulate the financial statements of an enterprise. Estimates of an asset’s residual value or useful life can also be manipulated. Other schemes to inflate current assets at the expense of long term assets can be undertaken in order to manipulate financial ratios.

Fraudulent Timing Differences

The misapplication of timing difference protocols in accounting can result in financial statements being manipulated. Essentially, timing differences can shift revenues from one reporting cycle to another. The same technique can be used to shift expenses. The result can be that expenses are either overstated or understated in a particular period. In the context of fraud, this technique allows the management of a company to manipulate earnings in order to hit predefined targets.

Concealed Liabilities and Expenses

Concealed liabilities and expenses can have significant impact on financial statements, because concealed amounts have a direct impact on the bottom line of a corporation. The pre-tax income is increased to the full amount by the expense that is not recorded. Concealing liabilities is often easier to do than inventing fictitious revenues, as the latter often requires the creation of false documentation such as false invoices or sales receipts. Concealing liabilities can be as simple as capitalizing an expenditure, rather than correctly placing the cost in the appropriate expense account. Another method is the understating of warranty costs for an enterprise. Failing to adequately disclose the true warranty expense for a business can be of benefit to corporate criminals who wish to manipulate financial statements.

Improper or Fraudulent Disclosures or Omissions

As a general rule, financial statements must contain all information to prevent a user of those financial statements from being misled. Notes to financial statements should contain narrative disclosures, supporting schedules, and any other information required to avoid misleading financial statement users. Improper or inadequate disclosure in financial statements can be any of the following:

  • accounting changes
  • liability omissions
  • management fraud
  • related party transaction
  • subsequent events

The degree of the lack of disclosure in any of these examples can amount to the fraudulent omission of a material fact that, in turn, makes the issuance of financial statements fraudulent.

The Defence Against Financial Statement Fraud

Financial statement fraud can be insidious and shrouded. It may have perpetrated for years in any particular business or organization without exposure. Often, when it is finally detected, it is too late; creditors, investors and shareholders have been victimized with no hope of recovery. How then, can we immunize ourselves from financial statement fraud?

The answer lies in a close examination of financial statements for any red flags that may emerge. Each of the types of financial statement fraud outlined in this article has its own red flag, but there are many common warning signs of financial statement fraud. (I recommend the Canadian edition of the Fraud Examiners’ Manual, published by the Association of Certified Fraud Examiners, for extensive reference.)

While I’ve grouped the examples into categories for the sake of simplicity, any one of these warning signs—sometimes alone, sometimes in combination with other signs—can be the key to the discovery of fraud.

Accounting and Statement Warning Signs

  • Negative cash flows while reporting positive earnings.
  • Rapid growth or unusual profitability.
  • Unusual and highly complex transactions, often close to year end.
  • Unusual changes in key financial ratios.
  • Unusual increases in gross margin.

Economic and Sector Warning Signs

  • Assets, liabilities and expenses based on significant estimates.
  • Declines in customer demand.
  • Increasing business failures in the sector.
  • Significant bank accounts or operations in tax haven jurisdictions.
  • Significant related-party transactions.
  • Rapid growth or unusual profitability.
  • Repeated use of materiality to justify inappropriate accounting entries.

Corporate Culture and Structural Warning Signs

  • Domination of management by a single person or small group.
  • Excessive participation by non-financial managers in accounting issues.
  • Formal or informal restrictions on the auditor that limit access to key persons.
  • Ineffective communication and implementation of company’s values and ethical standards.
  • Ineffective or weak board of directors and audit committee.
  • Known history of violations of securities laws by the company, related entities and its executives or board members.
  • Overly complex organizational structure involving unusual entities.

CGAs should be aware of the basic types of financial statement fraud and the red flags that mandate closer examination. This basic knowledge will help CGAs and their clients from falling victim to fraudsters who seek to deceive investors, creditors and others with materially false financial statements.

If You Don’t Hit the Numbers You’re Fired!!!

The Chief Financial Officer (CFO) of any corporation has a challenging job.  Although the job functions of a CFO are varied, they can usually be grouped into the following main categories.

  • Implementation, monitoring and overall supervision of required financial controls. This includes the establishment of various policies and procedures that would include such key elements as revenue recognition and write-off policies.
  • Be the lead on key financial projects that require financial modeling and analysis as well as other key financial related initiatives.
  • Establish relationships with sources of capital and financing and keeping such sources informed as to corporate progress as appropriate.
  • Advise company senior management about the impact of operational decisions on company financial status.

There are many other roles and responsibilities for a CFO.  But what happens when in doing his or her job, the CFO’s duties and professional responsibilities come into conflict with other senior executives?  This can be even more of a challenge (and more troubling) if the CEO of the company has a very strong personality and is driven to get results, sometimes at all costs.

There have been a number of recent cases where this scenario has played out, sometimes in either the civil or the criminal courts.  One of the most recent Canadian cases involves the criminal trial of key figures at Livent Inc, the live entertainment company that was run by Myron Gottleib and Garth Drabinsky.  This case provides excellent insight into the relationships between the CEO and other senior executives and the financial accounting staff, including the CFO.

In her testimony during this criminal trial, Maria Messina, the former Chief Financial Office of Livent made several statements that alluded to the difficulty she faced when dealing with her senior management.  At one point during her tenure at Livent, Messina learned that company managers were planning to implement more than $20 million in accounting manipulations.  Messina met with company managers about this situation and urged them to reconsider the move.  Management responded by telling her that this was just income smoothing and that this was not really her concern.

Messina further testified that the CEO’s management style was dictatorial and bullying and the CEO would often fly into a rage.  “No one wanted to make a mistake that would trigger his anger….there was no way I was going up against him….I was afraid of what they would do to me.”

Messina’s experiences as CFO at Livent are instructive on how a strong CEO within a company can influence a CFO and other accounting staff to help manipulate the accounting records; manipulations that may amount to fraud.  Livent was a classic case of corporate fraud within the executive suite.

An academic paper titled “ Why Do CFO’s Become Involved in Material Accounting Manipulations” (Feng, Ge, Luo & Shelvin) provides some excellent insights to this corporate problem.   The authors examined CFO participation in accounting fraud from two perspectives:

  • CFO’s initiate accounting manipulations for immediate personal gain (i.e. manipulate corporate earning to take advantage of stock market gains)
  • CFO’s participate in accounting manipulations because of pressure from their CEO. Pressure may include compensation, career opportunities etc.

There is another perspective, however,  that should be added.  There are cases of accounting manipulations being done by senior executives in order to “save” a company.  The accounting manipulations can make a company look more profitable. This can affect debt covenants, loan arrangements and the stock price of a company.  Sometimes, executives are looking to buy some time in the hope that a company’s prospects will improve.

The academic paper also made some interesting conclusions.

  • CFO’s seem to bear substantial legal costs for committing accounting fraud but to not reap substantial rewards for doing so.
  • CFO’s tend to depart companies prior to the accounting fraud period. This may indicate that many CFO’s have either been fired for not acquiescing to the fraud or have voluntarily left the company.
  • CEO’s are more likely that CFO’s to be described as the ones who orchestrated the accounting manipulations and who benefited most from them.

The paper goes on to conclude that “taken together, our findings are consistent with the explanation that CFO’s become involved in accounting manipulations under pressure from CEO’s rather than instigating such manipulations for immediate personal gain. “

As an institution, what can a company do to prevent a strong CEO from pushing through unethical or illegal accounting manipulations?

  • The role CFO should be made more powerful within the organization. The CFO must have the ability to work independently so that the influence of the CEO is somewhat limited.
  • The audit committee of the organization should be the one who hires, fires and assesses the work of the CFO.
  • The CFO should have strong reporting lines to the audit committee, especially in cases where there are divergent opinions between the senior executives of the company.

What to Do?

For an honest CFO that is trying to be true to his or her obligations to their profession, the scenarios described are a nightmare.  If a CFO is put in a position of being part of unethical application of accounting standards or out-and-out accounting fraud, what steps can be taken to protect him or herself.  It’s a very difficult situation but here are some tips.

  • The CFO must document the situation and the reasons why the accounting transaction is unethical or illegal. In the first instance, the CFO should  present this memo to the CEO.
  • If the CEO refuses to act, the memo should be discussed with the audit committee.
  • When the audit committee reviews the situation and does not agree with the CFO’s viewpoint, the CFO has fulfilled his or her responsibility to the company. However, if  the CFO is concerned from an ethical or legal perspective, further steps should be taken.
  • The CFO should consult with his or her professional association and receive guidance concerning a course of actions and professional responsibility.
  • The CFO should consult with his or her own legal counsel.
  • Ultimately, the CFO may have to consider resigning if the CFO feels he or she is doing something against their ethics or is acquiescing to an act contrary to any law.

Livent Epilogue:

And what happened to the Livent CFO who testified at the Livent criminal trial.  Although Messina was not charged with criminal fraud, she did receive sanction from her professional association, the Chartered Accountants of Ontario. The summary of the outcome of her disciplinary hearing is below:

Maria Bernedette Messina, of Toronto, was found guilty of two charges under Rule 201.1 of failing to maintain the good reputation of the profession and its ability to serve the public interest, and one charge under Rule 205 of signing a statement which she knew to be false and misleading, arising out of her involvement in fraudulent activities at Livent Inc. While chief financial officer of Livent, Ms. Messina failed to disassociate herself from ongoing and material accounting irregularities, including the fraudulent manipulation of the books and records of the company. She failed to disclose her knowledge of the fraud to the company’s board of directors, audit committee or auditors, and took insufficient steps to prevent the release of the misstated audited financial statements. She signed a United States Securities and Exchange Commission registration statement knowing that the financial statements attached to it were false and misleading.  Ms. Messina was fined $7,500 and suspended for two years…

Accountants of all stripes should look at the Livent case as a warning that these difficult situations can happen to any professional accountant. Awareness about how to approach such situations can prove invaluable.  You may lose your job, but not your career!

 

What You Need to Know About Corporate Investigations

Corporate-Private-Investigations

New corporate clients often ask us a lot of questions. We’ve compiled the most commons ones along with answers straight from our team of seasoned private investigators. Sit back and get to find out why your company might be in need of a corporate investigation.

What is corporate investigation?

Corporate investigation is a deep assessment conducted by a private investigator to help organizations be protected from compromised customer information, misuse or abuse of your company network, possible damaged reputation, or any liability if your company network has been used to launch an attack on other systems.

In a nutshell, corporate investigations perform a thorough investigation of your operations and that is why it can also be referred to as business investigations.

What services are provided by private eyes for corporate investigations?

If you want to find out if embezzlement or fraud is going on, if a potential business partner is clean, or if a possible business merger will benefit you, then a corporate investigation is a service that private investigators can provide to help with that.

Private investigators can provide business investigation services for a wide range of topics such as criminal inquiries, background checks, financial searches, and intellectual property breach.

Why would a company need business investigation?

Business these days is all about being informed so you can make the best decisions. Business investigations arm you with that information and other tools for your organization’s success. Examples of this are as follows:

  • Businesses remain prosperous through brand monitoring, media monitoring, compliance audits, and internet monitoring.
  • You can be protected from your competition and those who wish to take advantage of your company with the help of intellectual property investigations.
  • Internal operations can be protected from fraud by checking up on your new partners (or third parties that you hire) and performing background checks for potential hires, more so for a crucial position.
  • Investigations on due diligence can prevent your company from heading to a lawsuit.
  • Your company can get the compensation or damages it is entitled to in the event of a deal gone sour or a partnership that has gone rogue.

What happens during a corporate investigation?

Business investigations can be performed a variety of ways and tailored to your specific needs. The private investigator you hire will guide you on what specific services you need based on your case. This is why it is crucial that you be as direct about the information you are seeking or the needs you want to be addressed so the private investigator can help resolve your situation.

What services are conducted during a business investigation?

Some of the services provided by private investigators include due diligence, integrity testing, counter measure sweeps, computer forensics, financial investigation, surveillance, and security penetration checks.

Why you need to hire a private investigator for a corporate investigation?

Let’s face it, the more you know about your competitors, your internal operations, your business partners, and your market, the more likely that you’ll succeed. It is not uncommon for companies these days to have internal corporate investigators or have some private investigators on retainer so that they can get the information they need as soon as they need them.

Being on top of what is going on means having an edge over everyone else. Businesses are complex entities, and the larger your business, the less likely that the ‘real score’ gets delivered on top. With corporate investigations, you’ll be able to see through departments that may be hiding data, partners that may also be partners with your competitors, or moles posing as job applicants.

Don’t forget, hiring experienced private investigators that knows the ins and outs of corporate law means getting data that matters, that is admissible in court, and free from corporate politics.

Contact us or use the navigation tabs above to know more about Haywood Hunt corporate investigation services and how hiring us can help your business grow. Your initial consultation is on us!

 

Hiring a Private Investigator to Run In-Depth Background Checks

If you’re thinking about conducting background checks, you might be wondering if hiring a private investigator will make a difference. That is a good question to have because private investigation services don’t usually come cheap. Is it truly worth it to hire a private investigator for running background checks?

What Background Checks Are For

Background checks are done as a preventive measure to minimize risks. Before welcoming someone as part of your organization, you’ll want to at least know that he or she is who he or she presents to be. The last thing you want is to hire someone who has a history of business fraud or is connected to a competitor. Know that once someone is part of your company, he or she will have access to a lot of information that can hurt you, your business, and your clients or customers. With this in mind, running background checks is a good investment that can save you from trouble and losses in the future.

Cost of Hiring a PI Agency for Background Checks

How much a private investigator may charge varies because of many factors. Some background checks may require more effort and resources and hence, will cost more. Some may take just a few days of work and some may need a few weeks to sort through things depending on the depth and purpose of the background check being done.

Why Use a PI Agency for Background Checks?

It is possible that you’re quite internet-savvy and can look up some data that are not readily available. However, a licensed private investigator often has access to more secure databases because they oftentimes possess a background in security, know the right people, and can legally do so. Because of this, professional private investigators can provide deeper checks and better analysis that in turn produce better results for their clients. Perhaps you or someone you know can also extract data; however, it takes years of experience and practice to know how to do proper and legal data extraction. More so, should there be data that is vague, a private investigator is capable of following up via the right avenue until clear answers are extracted.

Do it the Right Way

Perhaps one of the most commonly overlooked reasons why you need to hire a private investigator to conduct background checks is to make sure that everything remains legal. There is a fine line between stalking, invasion of privacy, and plain background check. Unless you truly know the ins and outs of everything, you might end up committing a chargeable offence by doing a DIY background check. By hiring a licensed private investigator, you can be sure of professional procedures that do not violate any law and can keep you out of trouble too.

Are you looking for reliable private investigation service providers in Toronto and Ontario? Contact us at Haywood Hunt & Associates. We’ll be happy to answer questions you may have and will be glad to assist you should you decide to hire a private investigator from our team.

Why Your Business May Need a Private Investigator

Most people think that a business only needs a private investigator when something goes wrong. Some think that a private investigator is only hired for investigating personal matters such as infidelity or finding missing children. Private investigation services have evolved by quite a lot in the past decade. These days, more private investigators are working with businesses than investigating personal matters.

Nowadays, there is an increasing number of small businesses and entrepreneurs who hire private investigators for a variety of private investigation services such as tracking business partners, doing background checks, and more. Below are the ways that a business may benefit from hiring a private investigator.

Referrals to Attorneys

Private investigators work with lawyers from a lot of fields. They know who overcharges clients, who has a less than desirable track record, and who’s the best. If you want to know which lawyer you should hire for your business, you should consult your private investigator.

Due Diligence Report for People in Key Positions

It isn’t easy to pick someone who will take care of your business the way you would. You certainly can’t afford to hire the wrong CFO. An unprofessional Chief Financial Officer with a history of money problems can leave your business vulnerable to theft from within. A few hundred dollars spent on a private eye’s services can save you thousands or millions down the road.

Smoother Business Acquisitions

It would be a disaster to acquire a business that you know nothing about; hence, a background check is a necessary first step to make sure that you’re not wasting your investment. The information gathered from a background check can also be used as a trump card in negotiations.

A private investigator can provide you with the following data:

  • Property information
  • Corporate assets
  • Parent companies
  • Current and past employees
  • Risk assessments
  • Officers and directors

Look Up Investment Opportunities

Investing in other companies or businesses can be risky. A private investigator check a company and find out if a potential partnership with them will be truly beneficial for you. You can’t beat accurate information to support business decisions especially when dealing with possible issues, bad employees, existing issues in the company, and pending lawsuits, if any exists.

Background Checks

Not only is it smart to background check potential partners, investments, and acquisitions, it is even smarter to make sure that new hires for your business have undergone a background check. One rotten tomato in your staff can spoil the rest. A private investigator can look up risks, uncover patterns of illegal or irresponsible actions, verify educational backgrounds, and check job history to make sure that you have honest and qualified employees. In the event that you suspect a member of your team has been up to no good, a private investigator can put that person in surveillance to verify your suspicions. Imagine the peace of mind you’ll get when you can get clear answers whether an employee has been disloyal or not.

Are you thinking of availing of private investigation services for your business? Contact us at Haywood Hunt for your obligation-free initial assessment. Talk to us about how you want us to help your business grow stronger.