Must Have Components of a Fraud Risk Prevention Program

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What are the must haves of a sound fraud risk prevention program? This question is often asked from us by our clients and small wonder why. Every organization needs one!

Just keep in mind though – a fraud risk prevention program needs to be carefully engineered for it to be of real use for the organization. No one needs a faulty fraud risk management program, right?

Fraud Prevention General Principles

Only the factors affecting fraud varies across various organizations, the risk stays the same since every business is vulnerable to fraud.

One of the general principles in fraud prevention is to assign the responsibility to a manager or a team of managers. What this does is that ensures that all sorts of activities within the organization will be assessed or evaluated for fraud risks. This is the initial step so to speak, and one that will determine the effectiveness of your fraud prevention program.

What’s next?

It’s all about communication! Once you’ve got a fraud prevention program, it is of utmost importance that this should be communicated to every member of your organization. This means e-v-e-r-y-o-n-e, from the mailroom to top level.

Fraud is a hidden risk, and it will remain that way. What you will be accomplishing by having a fraud prevention program is that you’ll be able to minimize your organization’s risk as well as have some solid steps to follow if someone discovers fraud. In case the program was not able to fully deter any fraud from happening, it should encourage whistleblowers to report occurrences of fraud.

Fraud Prevention Controls

By no means is this list meant to be a complete guideline, but this should give you an idea about what measures you should have in place to minimize the possibility of fraud.

Background Screening

Often thought of as a process only necessary for new hires, background screening should also cover those who are being considered for important positions or potential business partners; yes, even third party ones.

Anti-Fraud Training

Information dissemination about the fraud policies of your organization should be integrated into this.

Performance Evaluation

Even trustworthy individuals might get tempted to commit fraud. People who are in incentive-based positions and those who have been passed over for promotions are high-risk and hence, a fair, correct, and transparent performance evaluation is much needed.

Exit Interviews

Those who leave the company may have information which may help in fraud detection.

Segregated Allocation of Duties

Minimizing monopoly in any area is a must.

Access and Authority

Same as above.

Transaction Controls

Any suspicious activity must be reported.

Auditing

This helps a lot in terms of fraud prevention and detection, more so if you conduct both external and internal audits.

Proper Documentation

Ignoring how important documentation is in fraud prevention and detection, its use in instances where a case may be filed cannot be discounted. For organizations with crime or fidelity insurance, proper documentation is priceless!

Fraud investigation and prevention is one of the key parts of every company’s risk management plan and management process. For more information on designing an effective fraud prevention program, contact us and let the best private investigators in Toronto take care of that.

Fraud Investigations and Seeing the Bigger Picture

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With our years of experience in investigating cases of occupational fraud, we’ve proven that it is often the case that a suspected perpetrator of fraud is indeed guilty. After all, there won’t be any smoke if there isn’t fire, right?

It’s not just that, but for a huge percentage of the cases we’ve handled at Haywood Hunt, fraud generally occurs in more than one aspect of a person’s life. Now, this is certainly a matter of concern in fraud investigations.

But why?

Smoke and Fire

If someone is proven to be have committed some form of fraud, it often extends to other work areas as well. For instance, do you think that your employee who got caught tinkering with his or her timecard is only stealing from the organization by fiddling with his or her recorded time? It could be much, much worse. In most cases, proving someone has committed some fraud is like hitting the tip of the iceberg and then unearthing a mammoth after a thorough investigation.

Seeing the Bigger Picture

As fraud investigators, we often treat our initial investigation as an opportunity to have a deeper understanding of the perpetrator for two main purposes, namely:

  1. The person’s motivating factor, and
  2. To see if the deviant behavior or fraud extends to other areas which may or may or may not be related to the case.

As we’ve touched upon on our blog about The Fraud Triangle and occupational fraud prevention, people who are considered ‘nice’ and ‘good’; are capable of committing fraud and excusing their actions in their heads as somewhat normal and acceptable. How so? When someone is pressured in such a way that they perceive doing something is the only way out of whatever predicament they are in, you’d be surprised at what things someone can do without batting an eyelash!

Desperate Times Calls for Desperate Measures

A person with some fraud red flags is more likely to be doing the same in other areas of his or her life. In one of the cases we’ve handled, we were asked to investigate an employee who was proven to be stealing small items from his employer. Now, this is just a petty thing, right? But look at what we’ve uncovered upon further investigation. We found out that this person is managing and running his own business while clocked in and being paid by the company. We’re not saying that an employee having his or her own business is wrong, but working on your business while clocked in at your job is considered to be a form of stealing and yes, it is fraud!

The example above is not that extreme, but if someone is abusing the company’s resources (by stealing company time), there is a possibility that person could be engaged in other forms of fraud such as stealing office supplies, diverting company funds, potential internet abuse, and even potential corporate espionage!

That’s where we come in at Haywood Hunt. We try to see the big picture for you so you need not worry about the small things. If you suspect someone in your organization is committing some form of fraud or that you’re a victim of white collar crime, contact us and we’ll take care of examining the bigger picture. That’s what we call effective and truly thorough fraud investigation!

 

Understanding Why Fraud Occurs – The Fraud Triangle

 

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It is often a baffling question how fraud can happen in your organization; and if you’re asking this question, you’re one of the thousands of executives, managers, and business owners who want to find out how and why fraud happens. So how does fraud happen? What contributes to it? What are the signs it could be happening in your organization?

Understand Why Fraud Occurs

There are many reasons for fraud and a lot of factors can contribute to companies and systems being repeat victims of it. What you need to do is to understand these factors so that you can prevent occupational fraud from occurring at your workplace. After all, 5% of your total revenue could be going straight to the pockets of fraudsters!

The above goes to show that you must spare no effort in trying to minimize the risk of fraud and understanding the factors related to it. That’s fraud risk management in a nutshell, and you should take steps to address this matter as soon as you can. So, let’s talk about the Fraud Triangle.

The Fraud Triangle

Developed by the well-known criminologist Donald R. Cressey, The Fraud Triangle helps us understand the rationales and circumstances behind instances of occupational fraud. The triangle is composed of the following:

1 – Opportunity

Nothing would happen if not presented with an opportunity. In fact, normally honest individuals can be seduced to commit fraud if there is an opportunity.

Fraudsters take advantage of weak internal controls, low likelihood of detection, poor security, and lack of clear policy enforcement to abuse or use their position of trust to get some personal gain. All it takes is one weak moment and opportunity!

2 – Motivation or Incentive

Greed and need are the most common motivations for committing fraud. The temptation becomes too great when an opportunity presents itself as well. If pressured, an individual may commit fraud to cover needs to:

  • Pay bills
  • Sustain an addition (such as gambling or drugs)
  • Meet productivity targets in one’s work
  • Afford a better lifestyle and purchase status symbols such as bigger houses and better cars

3 – Rationalization or Attitude

Yes, even ‘nice’ people can commit fraud! It all boils down to what they tell themselves to be able to excuse such as act as ‘acceptable’. Believe it or not, some very righteous individuals possesses a character, attitude, and set of ethical values that allows them to commit dishonest acts intentionally.

Fraudsters often have a very normal view of themselves and do not consider their actions as wrong, or even bordering on criminal. It is often the case that employees who steal from the company rationalize their acts by reasons such as not getting promoted, not getting a raise, feeling that they are being paid too little, or thinking that their employer ‘deserves’ to  be fleeced. It is human nature to try to get as much as one can get and sadly, fraud results from that.

Now that you understand what The Fraud Triangle is, let this be one of your must-learn lessons in fraud prevention and occupational fraud. Society is vulnerable to white collar crime such as occupational fraud because of inadequate knowledge about how and why it occurs. It’s a great thing you’ve stumbled upon this fraud prevention blog article from one of the best private investigator teams in Toronto to help you along! Contact us and we’ll be glad to explain fraud prevention and detection further to you!

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Lessons in Fraud Prevention and Occupational Fraud

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We’ve been talking about occupational fraud, its detection, and prevention for the past few blogs, but not everyone may be aware what the term means and how their organization is vulnerable to it.

You see, occupational fraud is something worthy of much consideration, more so if you have a business with people working under you. After all, about $3.7 trillion dollars is lost to occupational fraud every year worldwide! Of that degree of loss, only 14% of all organizations are able to recover what was stolen from them. So what is this blog about? This is all about education and finding ways to at least mitigate fraud if not fully prevented. But how? Read on and find out below.

The 3 Steps Set-Up of a Fraud Prevention Program

  1. Know what fraud is and how likely it is to occur.
  2. Pin-point possible sources of fraud.
  3. Act on preventing fraud by having controls and fraud-prevention processes.

A fraud or crime-resistant organization often has a great anti-fraud corporate culture that covers all levels of the organization. It might take a while to take root, and you’ll have to nurture it, but with continuous effort, you can make occupational fraud be a thing of the past for your organization. Take note, the 3 steps above is essential!

So, What is Occupational Fraud?

Occupational fraud is defined as personal enrichment through the use of one’s position to deliberately misuse the organization’s assets or resources. Like what’s mentioned before in one of our blogs, occupational fraud has 4 elements, namely:

  1. It is not easily detected.
  2. It involves a violation of the perpetrator’s fiduciary responsibility to his or her employing organization.
  3. It is meant to benefit the perpetrator materially speaking, and
  4. It results to a loss for the employer or organization.

It goes without saying that the elements described above all means that fraud could be happening at your organization and you may not be aware of it!

3 Categories of Occupational Fraud

Occupational fraud can be as petty as stealing a few dozen folders from the organization’s office supplies, to swindling millions of dollars of organization assets. Here are the 3 categories:

  • Asset Misappropriations is when the organization’s assets are stolen or misused by fraudsters.
  • Corruption is when an individual (or individuals) use their position in the organization to manipulate business transactions in a way that would benefit them materially.
  • Fraudalent statements is defined as when a perpetrator falsifies the financial statements of the organization employing him or her to divert assets for his or her personal gain.

There are a lot more subtypes under these categories but the most common is falsifying financial statements (either by stealing inventory or padding expenses) which accounts for a median loss of about a million dollars for affected organizations. Now, let’s talk about reducing the risk of fraud, shall we?

Minimizing the Risk of Fraud

Totally stopping occupational fraud may not be possible, but there are steps to at least minimize the chances of it happening at your organization. You can try to provide annual training programs, perform thorough background checks, separate different roles or positions, continually scrutinize decisions and processes, have a whistle blower policy or program, and a whole lot more.  What matters is that these measures should be integrated into your corporate culture and that it is clear from the very start that there would be no exceptions for everyone caught, no matter who he is or who she is.

Want to know more about the best fraud prevention practices? Then contact the premier private investigator team in Toronto! We’ll do more than just help you prevent fraud, we’ll catch it when it happens!

Must Haves of an Effective Whistle-Blower Program

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What makes an effective whistle-blower program effective? How does it help with curtailing organizational fraud? Are you aware that more than 40% of all cases of fraud has been detected with a tip from a whistle-blower?

The above are just some of the main reasons why you need to have an effective whistle-blower program. A program like that is one of the best weapons against fraud which any organization can have; but what makes a fraud-reporting mechanism effective? What encourages a person to speak up despite fears of possible retribution or possible loss of friendship and relationships?

What you need are things which can help overcome the barriers described above.

Think it can’t be done?

The following are great incentives for possible whistle-blowers. Make sure you have one or all, and you’ll surely find the perfect combination which will work best with your organization!

So here’s the 5 Must Haves of an Effective Whistle Blower Program:

It Must Be Easy

One of the most crucial factors for under reporting of fraud is because people are not aware of what channels to use to report it. It should always be free and confidential.

A great way would be to have a hotline number which all workers are made aware of (such as during the company orientation or included as a note in the company manual). For organizations which are in areas of the world where 2 or more main languages are used, it would be best to publish the fraud-reporting information in various languages.

It Must be Rewarding

We’re not just talking of monetary gain here, but if a whistle-blower’s work or means of income will be affected by him or her reporting the fraud, there should be an appropriate compensation to cover the loss.

It Must Protect the Whistle-Blower’s Identity

This is perhaps the most important single factor for this type of program. Reporting fraud can endanger the person involved and so, a typical ‘snitch’ would want to stay anonymous for his or her own safety.

Oftentimes, work-related repercussions can also result from being tagged as a whistle-blower. It is not uncommon to hear of companies which refuse to hire known ‘snitches’ for issues such as the stigma attached to it.

It Must Have Consistent Protocols

Everyone who is a part of the organization should have equal access to information regarding means of reporting fraud. There should be clear guidelines as well as consistency. This could mean that you may need to appoint someone as a fraud prevention manager or leader.

It Must Have Recording and Tracking Processes

Recording and tracking of data is highly important in cases of fraud more so if the incidence is something which may involve legal authorities. The evidences, the progress of each case, as well as all relevant data should be a part of the records for future reference.

Receiving a report for fraud is quite tricky. You’ll have ensure to avoid malicious false reports by checking the veracity of whatever is reported to ensure that only real reports are recognized. You should also have a laid-out plan for responding as well as know the steps needed to protect the whistle-blower and cull the perpetrator.

Do your part to help stop organizational fraud and stop thinking that fraud can’t happen to you. There’s quite a few risk management solutions you should be doing and one of them is all about taking the first step by making sure that you are encouraging potential whistle-blowers to report. A great private investigator team can help you in uncovering cases of fraud and unearth the truth for tough cases. Contact us and we’ll walk you through everything.

Think Fraud Can’t Happen To You?

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Most managers and business owners think that their company or organization is immune to fraud, and they can’t be more wrong! As we’ve mentioned in another blog on stopping occupational fraud, about 5% of all revenue in companies and organizations is lost to theft or fraud by partners, owners, and employees who has access to a company’s assets. This means that there is a huge chance that fraud is happening in your organization, no matter how ‘small’ the fraud is.

It Happens

There is no denying that fraud exists, the only things which could be different for everyone would be the level and pervasiveness of fraud. Nonetheless, it is a problem for all organizations big and small. In fact, even the government deals with white-collar fraud!

The real problem with fraud is that not all organizations have taken measures to prevent or minimize it, not even employ ways to detect it for it to be thwarted before it happens. Perhaps it is the thought that one’s organization is immune to it, or perhaps it is complacency; but one thing is for sure, you can do something about fraud and it starts here!

5 Truths about Fraud

The beauty of acknowledging that fraud can happen is that you can be ready for it. You wouldn’t want to be a part of fraud statistics wouldn’t you? Here’s some eye-opening data from the 2014 Report to Nations to help you understand how serious fraud is and why it is important for you to minimize your risks as much as possible.

  • Organizational fraud costs an estimated $3.7 Trillion dollars every year. That is the approximated annual total for the Gross World Product’s estimated revenue loss of 5% to fraud.
  • More than 20% of all fraud cases costs at least $1 million, and that the median loss to fraud is at about $145,000.
  • Owners and CEOs sometimes commit fraud as well, and that the higher in the organization the fraudster is, the higher would be the value of the loss.
  • Fraudsters often have a clean record. They often do not have any criminal history that could be a red signal for fraud. First time offenders are not uncommon.
  • Approximately 58% of all organizations were not able to recover their losses from fraudsters.

It does not look good, eh? So here’s what you can do:

Fight Fraud

What you have to know is that you can do something about fraud. It can be as easy as having more effective policies to discourage and thwart fraudsters or hire some specialists to detect fraud when it happens. In fact, measures to detect fraud has been effective for discovering about 40% of all known cases. There are measures such as careful designs of internal controls and third party audits to help minimize the cases of fraud. It is all a matter of being proactive and understanding that although it is next to impossible to totally eradicate fraud, there are ways to get some control over it.

So what to do? You can start by following this blog and reading up on more of our fraud-related articles. If you want to truly find out if someone has been committing some sort of fraud in your organization, simply contact us and we’ll do our best as one of the leading private investigators in Toronto. It won’t hurt to be more proactive!

Risk Management Solutions You Should Be Doing

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A lot of business owners tend to not have a clue about minimizing the possibility of fraud within their company or organization. That’s too bad, but we’re telling you that it’s time to make a change about that and it can be easy!

You see, by knowing what kind of risks your organization is facing, you’ll have a better chance of mitigating it. It will also give you more chances to increase revenue and reduce losses. Sounds good? Then read along below!

Here’s what you got to do…

First, You Need to Have a Risk Management Plan

A plan helps you keep focused and ensures that you’ll have something to hold yourself to. Studies indicate that a clearly laid out plan increased the possibility of success by a very significant percentage, so get your board together and prepare to talk this out with your team!

Next, You Have to Improve Your Plan

How so? Well, set the tone at the top.

You and your team of managers have the power to set what kind of culture you’ll have in your enterprise. How you act and behave shapes the behaviour and action of your people.

What we mean is, you can’t expect your people to play nicely if you’re a known fraudster, more so if they’ve witnessed you or your managers committing some very questionable things. Lead by example and you’ll see people will follow.

Then, Understand and Use the Fraud Triangle

What? What is this thing?

The Fraud Triangle describes the 3 main factors which has to be present for fraud to occur. Developed by Donald Cressey, it says that there has to be a person who’ll commit the fraud, reason or rationalization for doing so, and opportunities to commit it.

Okay, it’s not anything new, but what we can get from this is most frauds occur because of the availability of opportunity – that’s what we are trying to take out of the equation.

Smash Down the Silos

Independent parts of a company makes it easier to hide things and do things under the table. Break it and you’ll have less opportunities present for fraudsters to trick you.

Incorporate Risk Management in Your Business Processes

Risk management requires frequent and regular visits, just like tending a garden. There has to be checks on HR liabilities and compliance, 3rd party relationships, financial controls, and insurance. This works best when done at every level of your business and is integrated as a part of company culture.

Don’t Forget to Have Management Review of Your Process!

Make sure that there is nearly no oversight by reviewing the risk management process itself on a regular basis. Effective controls are only effective when done right, thereby you have to make sure that the measures you have in place are still appropriate.

And Lastly, Take Care of The Whistleblower

Hey, if someone reported the fraud to you, protect and help that person. Do not let him or her be the fall guy. Let him or her remain anonymous whilst you find out what’s going on or if there really is white-collar fraud being committed under your nose.

Remember, you wouldn’t have known there was anything fishy going on if not for the whistleblower. Make sure that potential and existing whistleblowers are given a safe and healthy way to let you know what’s going on. After all, we’ll need their help in conducting private investigation of the matter at hand.

Want more tips and tricks in identifying organizational fraud and screening new hires? Then follow this blog for the latest tidbits on and tips from the leading private investigator in Toronto! Questions are welcome, all you have to do is contact us and we’ll figure out what to do next.

9 Red Flags of Fraud in Small Business

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1.)  Employee lifestyle and behavioural changes, living beyond their means.
2.) Weak internal controls/ lack of segregation of duties (i.e. one employee handles all the bank statements, cash transactions and deposits). Ensure double manned deposits and over sight on cash controls.
3.) Management overriding company policies or controls without proper authorization
4.) Inconsistent financial results to market trends
5.) Lack of credible documentation or information (i.e. lack of original receipts for expense reports)
6.) Excessive number of account write offs or unexplained adjustments
7.) Accounts not reconciled on a timely and consistent basis.
8.) Unexpected change of vendor or a vendor without a physical address
9.) High employee turnover

Background Checks on Potential New Hires

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Making the right hiring decisions is critical to any organization, regardless of size. But getting it right isn’t easy.
We all know the negative consequences of making the wrong hire – it can lower your organizations overall morale, hinder productivity, and even impact customer relations. But did you know that the cost of replacing an experienced worker who doesn’t work out can cost 50 percent or more of that individual’s salary, and these costs go up if the employee has specialized skills.
There are many things you can do to ensure you make informed decisions and hire quality employees and one of them is to conduct thorough background checks.
A pre-employment background check can not only save you money in the long run, it can also protect your business. How? If your employees come into direct contact with your customers (for example, in a care capacity) and it is learned they caused harm to a customer, your business can become liable. A background check can also provide insight into an individual’s behaviour, character, and integrity.

Many Private Investigation Agencies will offer complete background checks while helping you stay compliant with the law. However, like any industry there are the good ones and the ones to be careful of. When sourcing out your background checks to a 3rd party like a Private Investigation Agency always ensure the agency has qualified individuals that can conduct such searches for you. Visit them at their office(s) to get a feel you are dealing with a reputable team. Ask to see their agency licence which should be visibly displayed within their office. Ask to see and confirm they have the proper insurance to conduct the work for you. Make sure if it is a private Investigation agency you are sourcing to that they are licensed as an agency through the Ministry of Safety and Correctional Services. Today many individuals selling the services are just licenced Private Investigators. They need to be working for an agency to sell such services. If you are unsure contact the Ministry of Safety and Correctional Services Private Security and Investigations Services branch @ 1-866-767-7454.

Please Note: It is strongly recommended that you and your team always consult first with a lawyer prior to engaging and conducting background check programs within your respected organizations

Haywood Hunt and Associates Inc. has a team of specialized investigators that can support your organization with conducting a thorough background check. We are a fully licensed bonded and insured Private Investigation Agency. Contact our office to learn more.

Why You’re Vulnerable to White Collar Crime

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Why indeed? And what’s white-collar crime? Do you know that white collar crimes affects more people on a daily basis than all the thefts, murders, and other ‘violent’ crimes put together in our present society?

Whoa!

Let’s talk about fraud. Fraud is everywhere, and everyone is very vulnerable. It ‘rapes’ and it ‘hurts’. It’s also brutal and relentless; but then, it is one of those things which people are not so effective at noticing, even when it happens right in front of them!

So what’s white-collar crime and why is it so serious?

Let’s Talk About White Collar Crime

Think about this, each time a corrupt public official or shady businessman commits an act of deceit, it’s not just a one or a few people getting affected. We’re talking of thousands here! Millions even!

That’s what white collar crime is all about!

It is about someone committing fraud on a small or big scale but not obvious or clumsy enough to make the police go after them or notice them.

…and that’s why it is so easy to let their acts slide (for the most part). After all, what’s a few white lies? What’s a $0.05 price increase per pill or per kilowatt hour? What’s a few mistakes done over and over and over again? A little padding of expenses won’t hurt the company (or whoever), right?

We let things like the above examples go by unpunished because it is so easy to shrug acts like these as a ‘normal’ part of human condition. Who are we to judge someone when we are all vulnerable to temptation? Can’t we just forgive and give the other cheek? That’s what nice people do, right?

The Vulnerable Mindset

Do you know that people with ‘criminal minds’ can see through someone with a vulnerable mindset? That it’s unbelievably easy to ‘go for the kill’ when someone is simply asking for it?

That’s how white-collar criminals sees things. Naïve and nice people are prime targets. They’re ‘easy pickings’, more so if they have an exploitable weakness.

What’s that?

Being very understanding is an exploitable weakness. Being easily swayed is another exploitable weakness…same as being too trusting.

Have you ever been taken for a ride? Pranked?

If yes, and yes, then it might be time to take a long hard look at how you handle yourself, because this means you’re easily taken advantage of.

So how does this relate to white-collar criminals?

The White-Collar Criminal Mind

White-collar criminals consider your morality, needs, good nature, ethics, desires, and humanity as weaknesses which can be exploited and used against you. They use a potent combination of deceit and persuasion to get what they want. That makes them fraudsters; hence, the term white-collar criminal.

Ouch! Sounds familiar?

What you need to know is that the white-collar criminal is in for the long con. They will make you like them with a combination of charm and deceit. In fact, you’ll like them so much it will be difficult to expose them for who they are.

You see, a white-collar criminal can be generous, nice, and even do ‘good deeds’ – but all with an ulterior motive. Think of it as someone going on a date with the intention of drugging the date after gaining a bit of trust. That’s how it is, only a lot more subtle and really for the ‘big heist’.

What You Can Do

Don’t be a victim. No matter how nice you think someone is, if you feel something is off with that person, distance yourself and try to look at the situation with an objective eye. Better yet, ask a professional or a trusted friend.

Don’t think that the threat of punishment is enough to deter people with a nasty endgame. If caught, they will say sorry, act repentant, and make you feel that you’re being too harsh on them. It’s a never ending cycle and you being taken for a ride just won’t stop unless you stomp your foot on the brake.

To Sum it Up…

If someone is making you doubt yourself or your gut feel of that person is not jiving with what you see, it is best to investigate and hold off trusting that individual (unless you’re family, but private eyes can help with that as well).

Hey, if you want answers, we’re here. All it takes is a phone call and you’ll finally have the answers you want. Remember, white-collar criminals are good, but having a good (private) eye to look out for them is wayyyyy better!

If you are looking for a private investigator in the Toronto area, give us a call today!