W, n ,
of the opportunity arose because of silo-based nan- cial decision-making, which is gradually being eroded with the introduction of shared services, but there are still plenty of silos out there within the government re- porting entity.
You've heard recently about a fraud that was commit- ted outside the public sector, in a not-for-prot, where a boys' football team was defrauded of a signicant amount by a trusted key employee.
at's why, when i look at the management letter an-
alysis that we conduct each and every year, and i see problems about segregation of controls — which is dif- ferent people doing dierent parts of a nancial process
i get very concerned because that elevates the fraud
i get even more distressed when boards of manage- ment respond: "Well, no, they're lovely people. We trust them." Well, i trust them too, but again, it's the situation of opportunity that's the issue. We need to make it so that people are not tempted and it just isn't worth going down that road and committing a fraud or some kind of deception.
over the last 30 years, from my knowledge — and i've been an internal auditor a couple of times during that 30 years — what i've observed is that management has woken up to the existence of fraud, not just as a reac- tion to its discovery but to actually prevent it occurring in the rst place. ere has been a shi in the way that the control structures have been established and played out amongst dierent organizations. at's what we are talking about today — how to get that kind of idea out into the public sector.
i've also found that the multiple uses that people can have with cards need to be constantly monitored electronically so that, if there are issues or unusual trans- actions, they can be picked up quickly and dealt with. it is apparent that from time to time people use these cards inappropriately, and the fact that they can be picked up rather quickly and dealt with is quite important.
 i've got lovely stories, which i won't repeat except in camera, about dierent uses of credit cards that were quite novel and innovative and weren't picked up for quite some time because of the way that they were done and a little thing that occurred within the coding of the credit card transactions.
e big fraudsters are out there, and they're the really
hard ones to nd. But there are a couple of things that auditors know about that allow us to pick them up quite quickly. if you've got a member of sta that just does not take their annual leave — red ag. Quite a few problems are found when people go on annual leave and someone else has to take over and look at it.
if you've got someone that always takes short amounts of annual leave and doesn't really allow any replacements to take on their work — red ag. You've got a problem
there as well. it doesn't mean to say that that individual is necessarily a fraudster. it's just a red ag. You need to investigate the red ags. if you've got systems where there is poor segregation — red ag.
Whose job is it to look at all this stu? e answer is that it's management's. it's the management group that is currently being squeezed the most in order to deliver services. So the risk is actually going up even though the controls are improving as we go.
now, some of the stats you see there are american stats in regard to who picks up these issues. ey may not be directly relatable to the canadian context. it's been my experience that canadians are much more po- lite and much more honest than some other people in the world. as a result, there is probably…. it's part of the dna to do the right thing. But we still need to be careful.
ere still seems to have been inappropriate behaviour.
even if it can't be characterized as fraud, occasionally it can be characterized as unethical or misconduct. ose topics weren't addressed in here, but they were referred to in Stuart's presentation as ethical standards, about conicts of interest. it is important that those issues are also brought in. it's about bad behaviour, not just about dollars or pencils or whatever it is walking out through the door.
it has improved, but the capacity for there to be prob- lems with fraud still exists, and it still exists because of the structure and form of the public service and the ser- vice it delivers.
b. Ralston (Chair): great. anks very much. i wanted to ask a question that arises out of page 65 of the report. ere's a section on corrective action. one of them is criminal referral, and it says: "...which may be a legal obligation. legal counsel and senior management should be consulted before the investigation unit pur- sues this action."
e situation arises sometimes where fraud is detected.
e person may even make a spontaneous confession.
Y e t t h e r e ' s a d e c i s i o n m a d e n o t t o r e f e r t h e m a t t e r f u r ther, and the person is simply quietly dismissed. is there a governmentwide policy that applies, to assist man- agers in making that decision whether or not to refer the matter on to the police for an investigation and pos- sible prosecution? -
obviously, this is completely separate from any labour relations consequences. ere may be dismissal, but that can also come with that kind of referral. my question is: is there a policy?
S. Newton: i'm not aware that there is a policy. i guess from my previous role, if we felt that something was criminal, we'd check with legal counsel, and we would involve the police ourselves, regardless of whether the ministry would involve the police.