Commercial fraud has become increasingly easier to commit because of technological advances, contributing to a rise in the number of cases across Canada, forensic accountants and lawyers say.
Last year, 56 per cent of companies surveyed by PricewaterhouseCoopers reported being victims of economic crime in the previous 12 months, compared with 46 per cent in 2003. To staunch this growth, experts recommend preventive measures, such as training staff on different fraud techniques, but as a fallback they stress that acting quickly can mitigate fallout and save client relationships.
Bill Stewart did just that, after his clients unexpectedly started asking whether his company had gone bankrupt this past spring.
The questions came after they received a letter stating all service contracts of his Mississauga, Ont.-based Wilcox Door Service had been terminated, as well as a copy of an Ontario bankruptcy filing for a company with a deceptively similar name. Although a separate division of his business had gone into restructuring, Mr. Stewart said Wilcox Door Service was operating as normal. When he looked at the letter mailed to clients, it was clear that someone had ripped off a logo from his company’s website, used it to build a letterhead, and then forged his signature.
A fraudulent letter sent to clients of Wilcox Door System ripped off a logo from the company’s website, used it to build a letterhead, and then forged the owners signature in an effort to falsely convince customers the company had gone bankrupt.
“It’s one of the lowest things I’ve ever heard of,” said Mr. Stewart, who has about 100 employees, but wouldn’t disclose his company’s revenue.
After hearing the news he quickly sent out more than 3,000 letters, 2,500 e-mails, and 700 faxes to about 3,000 clients in his company’s marketing and accounting databases, informing them that the previous mailing was false. He reacted out of fear: he had fostered relationships to build heavy-duty doors for big name clients such as the Greater Toronto Airports Authority, Coca-Cola, and Purolator, and he couldn’t stand to watch them disappear.
Goodwill with certain clients earned him breathing room, but some, such as Canada Post, were in the middle of renewing his contract and forced Mr. Stewart to prove he was still in business. Others fell by the wayside. “We don’t really know how much it affected us because we have customers out there who just took us off their vendor list,” he said.
Smaller businesses are at risk of longer-term damages, said forensic accountant Edward Nagel, owner of Nagel + Associates. While big firms may have to tackle broader negative publicity if the fraud makes the news, they also have the resources to track the problem and to repair damaged client relationships.
Small businesses often aren’t so lucky. “If they lose one customer, it could represent 60 per cent of their business,” he said.
Mathieu Piché-Messier, a commercial fraud litigator with Borden Ladner Gervais in Montreal, said that once fraudulent activity has been detected, “you’ve got to act right now.
“The following 24 or 48 hours after you discover the fraud are the most important by far.”
Mr. Piché-Messier and his 15-person fraud team tackle myriad cases he said would be much easier to solve if the clients had been prepared. Instead, many business owners expect their corporate lawyer to be capable of handling the cases, even though the lawyers usually have no experience with fraud files. To save his team some work, Mr. Piché-Messier has told his corporate law colleagues to call him as soon as they hear of any fraudulent activity because a slow referral can waste time at the most crucial moment.
To prevent any risk of delay, Mr. Piché-Messier said business owners should have a fraud investigator or forensic accountant on speed dial, which is where Mr. Stewart faulted. His first move was to alert the local police, who told him that any investigation would be a minor concern and could take a year, which he understood. On the flip side, investigators and forensic accountants can immediately start tracing fraud, which can then be used as evidence to obtain court orders against suspects.
Mr. Stewart hired a firm called Total Security Management to put pressure on the unknown mailer. The fraudulent letters have since stopped, but the culprit remains at large and Mr. Stewart continues to get copies of the letters back from his clients.
Bernie Delaney, vice-president at Total Security Management, runs its national investigation team and he too stressed having an action plan set in place. After 36 years with the Toronto police he knows they can do very little with small business claims. “The police are under-manned, under-funded, and their first priority is to the safety of the community,” he said. “You’d rather have them protecting your grandmother and your mother walking down the street at night.”
He also noted that business owners too often aren’t prepared for fraud because they think they’re immune. Most owners “are open-minded [enough] to know that these things happen because they read the paper and watch TV, but they never really think it’s going to happen to them.”
Mr. Delaney and Mr. Stewart said they think they have traced the fake letters to a “door and gate company” but they have no concrete proof. Throughout the process Mr. Delaney never ruled out internal employees as suspects, which he said most business owners fail to consider.
Mr. Nagel concurred. “Small businesses tend to trust their employees,” he said, but there are many cases of disgruntled workers acting out.
Of the companies surveyed by PricewaterhouseCoopers in 2009, 38 per cent of those who experienced fraud said an employee was a main perpetrator. Large financial institutions are often most vulnerable because employees can hide wrongdoings in red-tape, but Mr. Nagel said he also sees a lot of fraud at health care companies and constructions firms.
