Note: This blog was authored by Navjeet Vaid, CPA,
Most organizations have documented policies and procedures
regarding governance, strategy and risk management, however, this
doesn't always translate into success from a Board of
Directors' governance standpoint. Fraud still occurs in many
organizations, but the Board of Directors play an integral role in
fraud prevention, detection and response.
Let's explore the role of the Board of Directors from
SNC-Lavalin and its response to the allegations of fraud which
arose in 2011. The Board took corrective action and went beyond its
typical responsibilities to right the ship at SNC. The Board's
Hiring outside counsel to conduct an internal investigation of
Turning over the results of the internal investigation to law
Revamped codes of conduct and improved internal controls
Increased training and required annual certifications for
employees and board members
Hiring a new CEO with a reputation for ethical values and
Appointment of a chief compliance officer
Resignation of four directors and appointment of three new
Through these actions, the Board was able to begin the process
of restoring SNC's reputation and reduce the risk of a similar
event occurring in the future.
Fraud prevention starts in the board room. The
organization's vision, mission, policies and tone at the top
all trickle down throughout the various layers of the company, from
senior management to middle management to front line employees.
Even though a Board of Directors may be comprised of individuals
with appropriate education, financial knowledge and experience,
fraud and misconduct still occurs in some cases. So why do some
organizations fall victim to fraud while others do not?
The difference is in the details. The Institute of Internal
Auditors (IIA), the American Institute of Certified Public
Accountants (AICPA) and the Association of Certified Fraud
Examiners (ACFE) developed a practical guide to managing the
business risk of fraud which details the roles and responsibilities
of the Board of Directors.
In order to be truly effective in the oversight role, board
members must have a mindset of being independent of management or
other directors. A board member who is complacent, conforms to the
majority or is essentially a 'yes man' cannot provide
meaningful governance for an organization. Board members need to be
willing to question management and other board members in the
decision making and reporting processes.
In addition, board members must ensure they have a deep
understanding of the fraud risks affecting the organization. This
understanding needs to be more than simply high-level descriptions
from management. The board should be aware of how and why the risks
arise, how susceptible the organization is to the risk, potential
impacts to the organization and the mechanisms, methods and
procedures that can mitigate the risk to an acceptable level.
Finally, the Board must have the means, resources and ability to
engage outside experts such as forensic accountants, external legal
counsel and / or consultants when deemed necessary, whether it be
to investigate potential fraud or misconduct, or to seek
independent advice in the decision making process.
The keys to a successful fraud prevention strategy are turning
paper policies into reality by committing to ethical behaviour,
leading by example and holding everybody within the organization
accountable for their actions, regardless of their position within
the company. All members of the board need to be engaged in their
oversight responsibilities through attending and being
well-prepared, in advance, for all board meetings.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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Under the Income Tax Act, the Employment Insurance Act, and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions or GST.
Under the Income Tax Act, the Employment Insurance Act, the Canada Pension Plan Act and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions.
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