Court Punishes Small Business for Inadequate Internal Controls

How effective are your company’s internal controls? The Ontario Superior Court recently decided that a lack of internal controls made a company an easy target for a fraud perpetrated by one of its most trusted employees. In an action to recover the more than $260,000 it had lost, the judge decided that the company’s internal controls were so shoddy that it was 50 percent responsible for its own losses, and reduced its award accordingly.

For the full story, click here.

Implications of the Proposed Changes to CSA Internal Control Rules

In the lead article of the premiere issue of the PolicyPro Bulletin, we discussed the March 10th announcement of the Canadian Securities Administrators (CSA) that they intend to withdraw multilateral instrument MI 52-111. That instrument would have required public companies to obtain an audit opinion concerning management’s assessment of the effectiveness of the company’s internal control over financial reporting.

The CSA’s proposed changes were made in response to pressure from the business community, spooked by reports of the high cost of compliance with section 404 of the U.S. Sarbanes-Oxley Act of 2002. At the same time, the CSA have insisted that they are not retreating from their objective of improving internal controls over financial reporting.

Now, Deloitte has published an in-depth paper on this topic, entitled Reporting on internal control: The implications of the CSA’s proposed approach.

The Deloitte paper looks at the topic from several perspectives, including:

• The capital market implications
• The implications for CEOs and CFOs
• The implications for boards of directors
• The implications for small cap and venture issuers
• The implications for external auditors

Departing from the U.S. approach may reduce the cost of compliance for Canadian companies, but Deloitte explains the tradeoffs that Canadian business may have to make in return for these savings, ranging from a perception that Canada is “soft” on internal controls, to increased liability for CEOs, CFOs and boards of directors.

Click here for a link to this excellent paper.

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The improper disposition of credit card and debit card receipts opened the door to misuse of this information by “unauthorized individuals” a report of the Alberta information and Privacy Commissioner has revealed. The report, dated April 19, 2006, tells the story of Monarch Beauty Supply, a west Edmonton shop, that disposed of 2,606 customer credit and debit card sales receipts by tossing them into an unlocked dumpster. These receipts were subsequently stolen, and (in at least one case) were used to commit credit card fraud.

The Economic Crime Unit of the Edmonton Police Service caught wind of this when they received some of the stolen records from a confidential informant. It alerted the Office of the Alberta Information and Privacy Commissioner (OIPC), who initiated an investigation of Monarch’s privacy and records retention and disposal policies. The Information and Privacy Commissioner found that Monarch had improperly disposed of sensitive customer information, and that its employees had not received training in the proper way to deal with confidential records.

Click here for the full report of the OIPC.

Although this case was investigated by the privacy commissioner, it also highlights the need for proper internal controls in the area of records management. Companies must develop systems and controls to keep confidential information confidential, and they must also set standards for appropriate protection of the records when they are retained, and for appropriate destruction of those records when the retention period expires.

For more information see chapter 1.11, Confidentiality and Privacy; and chapter 3.06, Records Protection and Retention in Volume II – Corporate Governance in Finance and Accounting PolicyPro. See also the Personal Information Protection policies (HR 5.07 ON and HR 5.07 BC, respectively) in the Ontario and BC editions of Human Resources PolicyPro.

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This is the intriguing title of the latest "year in review" study by Statistics Canada.

The study concludes that, despite significant changes in the Canadian economy, 2005 was a prosperous year overall, with a 30-year low in unemployment, record equity and housing prices and rising government and trade surpluses.

And the "old economy"? Manufacturing had a very good year. Although affected by higher input costs, particularly with soaring energy and commodity prices, and sqeezed by the high dollar, 62 percent of industries increased output in 2005. As the report notes; "the economy was increasingly pushing against its capacity limits, epecially in Western Canada."

For the full report, click here.

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Section 8 of the Canadian Environmental Protection Act, 1999 (S.C. 1999, c. 33) mandates that an environmental emergency plan may be required of any person (which includes companies, individuals and government bodies) who “owns or has the charge, management or control” of any of the more than 170 regulated substances (above a threshold amount) which, if they enter the environment create a risk to the environment or human health.

Section 201 of the Act also requires that, when an environmental emergency occurs for any of these substances, an enforcement officer or other designated person be notified, and that other measures, such as taking all reasonable measures consistent with protection of the environment and public safety and providing a written report, be undertaken by the “person” who causes or contributes to the emergency.

Environment Canada provides a comprehensive set of implementation guidelines for the preparation of environmental emergency plans. Click here to access this valuable document.

For Environmental Management policies, including Environmental Protection and Hazardous Material Management, see chapter 5 of Operations and Marketing PolicyPro.

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First Reference introduces the latest addition to the PolicyPro Library – Operations and Marketing PolicyPro (OMPP). With a focus on the Operations area of your organization – including engineering, design, production, sales and marketing – OMPP helps you to establish internal controls, reduce risk of loss and ensure compliance with legislation and best practices.

OMPP is a companion product to Finance and Accounting PolicyPro. Like all PolicyPro products, OMPP provides many tools designed to help you create policies and keep them up to date. However, it extends your controls further within your organization – effectively providing guidelines and information for your Operations and Marketing departments (and all associated functions).

Take a look at some of the topics covered in Operations and Marketing PolicyPro. You’ll find all the information you need to establish a sound internal control framework for your organization.

Marketing and Sales

• Advertising and Direct Marketing
• Corporate Image and Communication standards
• Corporate Website
• Customer Relationship Management
• Customer Satisfaction Survey
• Customer Service Management
• Design and Development Plan
• Sales Training

Operations

• Handling
• Packaging
• Process Control
• Product Development
• Production Scheduling
• Receiving

All of the above is included in your annual subscription to OMPP, plus you’ll also receive:

• 30 days - to closely examine the model policies and procedures (with no obligation)
• PolicyPro software on CD – containing all of the content of the manual and compatible within the Microsoft Office environment, using Word and Excel
• Comprehensive print manual – containing over 400 pages of model policies and procedures to be used as hard copy resources in the development of your internal controls
• PolicyPro Bulletin – an e-publication with all the news about internal controls
• Additional Bonus: Building Effective Internal Controls – this Whitepaper serves as an excellent resource in developing internal controls within your organization

Don’t miss your chance to try Operations and Marketing PolicyPro, absolutely risk free for 30 days. Click here for further details.

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About the PolicyPro Bulletin

Editor: Colin Braithwaite, Managing Editor – PolicyPro.

Please do not reply to this Email.

PolicyPro Bulletin is a complimentary service published by First Reference Inc. and is sent to you monthly. Each issue of the PolicyPro Bulletin provides headlines and summaries of news that affects internal controls and policies in Canada.

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Please send any comments or suggestions about the PolicyPro Bulletin to editor@policypro.ca. For information about the PolicyPro Library, visit www.PolicyPro.ca. For information about First Reference and our HR-related products, visit www.firstreference.com. To read our Terms of Use, Disclaimer, Privacy Policy and other legal matters, visit PolicyPro.ca.

This publication is written for informational purposes only and should NOT be relied upon as legal advice or opinions. The reader should always obtain legal advice from a qualified lawyer or other qualified professional, which will be responsive to the case or circumstance of the individual. Please note that the content provided in this Bulletin or any content contained in or made available through any third party website linked to from this Bulletin, is provided "as is" without representations or warranties of any kind. All representations and warranties in respect of Content or Third Party Content, express or implied, including, without limitation any representations to warranties or conditions regarding accuracy, timeliness, completeness, non-infringement, merchantability or fitness for any particular purpose are hereby disclaimed.

PolicyPro Bulletin ISSN: 1718-5866 Copyright ©2006, First Reference Inc., All Rights Reserved.