In Ontario, elected officials and municipal officers take an oath against “malversation.”
This term describes any corrupt behaviour in the performance of a position of trust and encompasses any act of theft, embezzlement, failure to account, fraudulent misappropriation, the receiving of a bribe or secret commission as an inducement with respect to the award of a contract or other aspect of discharge of a duty, or any other act punishable by imprisonment in relation to any money or other property. All organizations must be ever vigilant against such impropriety and should ensure management are properly trained to deal with it.
Within the procurement area, there are four common signs of such wrongdoing:
- Unexplained changes in expenditures or inventory;
- irregularities in banking procedures;
- changes in purchasing patterns; and
- unusual purchases from a supplier.
Where any of the above symptoms appear and they cannot be properly explained away, it is advisable to conduct a proper investigation, including a detailed financial analysis of the accounts managed by the individual in question.
Other important steps in the process include:
- Interviewing relevant personnel;
- evaluation of suppliers and all transactions;
- reviewing cheque requisitions and other money transfers and pricing;
- conducting inspections of stores; and
- searching for budget or other variances.
Immediately upon detection of wrongdoing, a manager should give immediate notice to his or her superiors of the fraudulent (or other wrongful) act of the employee and should convey to them the complete particulars of the matter sufficient to substantiate the allegation, together with every explanation.
Municipalities in Canada do not make wide use of fidelity bonding of their employees.
Where there is a bond in place for an employee, the bonding company should be similarly notified. As soon as the employer receives information about the loss of money on account of the insured employee, he or she must contact the insurance company and collect the claim form and complete the necessary formalities within the time stipulation.
A failure to follow this procedure may invalidate any claim under the bond. The information provided should include the following:
- Basic background information about the employee responsible for the loss (name, address, resignation, nature of duties, etc.);
- a statement of details concerning the loss, especially the date of discovery, the manner in which it was discovered, the modus operandi followed by the employee causing the loss, the period during which misappropriation or embezzlement occurred, etc.;
- a description of the action taken against the defaulting employee (an explanation as to whether the police have been notified, and if so, the names of the investigating officers, along with a record of any disciplinary proceedings and department inquiries); and
- details about the amount of loss, in particular, the extent of loss as discovered from the books of accounts, direct recoveries, if any, made from the defaulting employee, amounts due to the employee such as pending salaries, allowances or cash security deposited with the employer by the employee.
It is also helpful to provide information concerning any personal or real property known to be owned by the employee and information about any other insurance policies held by the employee.
It is doubtful municipalities are more prone to employee malversation and other aspects of wrongdoing than are other large organizations. What is more of problem is that municipalities lack many of the natural checks and balances against employee wrongdoing that exist within a private sector organization.
There are several reasons for this. Most importantly being, because of the amounts expanded by municipalities, the materiality threshold for audit purposes tends to be quite high with the result that a thief with relatively modest requirements would be able to live quite well on the amount that might easily be stolen below that threshold.
Stephen Bauld is a government procurement expert and can be reached at firstname.lastname@example.org. Some of his columns may contain excerpts from The Municipal Procurement Handbook published by Butterworths.