Preventing crime and maintaining safe communities is everyone's responsibility. By practising the following personal and property safety tips, you can help reduce the incidents of crime and keep your community safe.
Real Life Scam of Not-for-Profit
The following is a true scenario of a scam that occurred in the Durham Region. The bold type highlights advice from our Fraud Unit on each aspect of the the scam.
Acme Co-operative Homes Ltd.
Acme Co-operative Homes Ltd. is a compilation of events that took place at not for profit housing developments in Durham Region.
John Doe was the project’s coordinator. Mr. Doe reported to the board of directors who were residents of the project and he was responsible for the day to day operations, including the initial financial records. For the most part, the board members did not have business experience and were easily fooled by the man they trusted. It was learned that Mr. Doe did not understand the “not for profit” concept, and had been helping himself and others to the Co-op’s money.
The Co-op had six signing authorities, and any two could sign. Mr. Doe was paid each week. To make things easy, he would prepare four post-dated cheques at the start of the month, and have authorized members sign them. One month, Mr. Doe went to two different sets of signors and asked them each to sign the month’s cheques. He ended up with two sets of paycheques, and was paid double. Mr. Doe was the person responsible to reconcile the chequebook, so no one noticed these extra cheques.
Limit the number of people who are authorized to write cheques.
Without the board’s knowledge, Mr. Doe changed the rules in the project and began accepting cash payments for rent. It was learned that tens of thousands of dollars had not been received by the Co-op. For months Mr. Doe told the board that many tenants were in arrears and some had moved out “owing money”. No one bothered to ask the tenants, as it was Mr. Doe’s job to chase down the late payers.
Make it your policy to receive payments by cheque or payment card.
Mr. Doe always had a pocket full of cash, so that when the entertainment chairman asked for some money for a legitimate function, John Doe would pull the money out of his pocket. He didn’t require a receipt, so when the audit showed that money was missing, he claimed that he had given money to everyone. As a result of members accepting this practice, there was little that could be done about this part of the theft. No one could dispute exactly how much money had changed hands.
All cash transactions should be receipted and backed up with invoices.
Mr. Doe suggested that the board obtain a VISA credit card to purchase goods, and that the card should bear both the co-op name and Mr. Doe’s. This way they would not have to write a cheque each month to Home Depot, St. Clair Paint and other suppliers of maintenance items. They could write one cheque to VISA, and carry a balance if required. It sounded like such a sensible idea.
Having the VISA card was handy for Mr. Doe as he picked up the mail, and never showed the VISA statement to anyone. This way, no one noticed the trip to Florida or furniture being billed to the card. Best of all, the low monthly payments was a snap to get paid. Mr. Doe would show part of the VISA bill to a pair of signing authorities and the $200-$300 payment seemed reasonable. When the auditors asked who had approved the VISA card, board members could recall having given their blessing, but it was never recorded in the minutes.
There were no restrictions or limits on the card discussed by the board, and no second set of eyes checking the transactions.
Although the Co-op had a petty cash system, Mr. Doe ran the petty cash box out of his pocket. He claimed that he had purchased things on behalf of the Co-op. He would frequently repay himself by cheque for these petty cash expenditures, although he would forget to put in the receipts. Board members who were asked to sign these cheques never questioned why they were signing $500 cheques for petty cash reimbursements.
It was an example of having a system in place, but ignoring it.
Mr. Doe knew the ins and outs of the Social Services network. He told Co-op members who were on “Mother’s Allowance” that their rents were going up. The tenants were provided with letters to be given to Social Services advising of the new higher rent, which coincidentally was the maximum that Social Services would pay for the size of that tenants family. Mr. Doe “forgot” to change the “Rent geared to income” calculations in the office, so when one of these tenants paid their rent, Mr. Doe was able to keep the surplus.
Beware of changes to existing systems and circumstances implemented by one person’s decision. Check into why things are being changed.
Mr. Doe found it necessary to change suppliers and contractors that the Co-op had used for years. It was later learned that he gave contracts to friends and family, and may have had some hidden ownership of the newly hired companies.
Mr. Doe had been employed as a building contractor for years prior to becoming the project coordinator. He convinced the board that he would be the ideal candidate to do some contract work around the Co-op. Foolishly the board decided against obtaining competitive bids, so Mr. Doe’s price may have been far too high. Worse still the job was never completed, and Mr. Doe was in charge of chasing himself down.
Policy on arm’s length relationships would have been of use in these situations.
The co-op had coin operated laundry machines, and a committee that included Mr. Doe would count the coin after Mr. Doe brought it to the boardroom. The members would carefully count the money, make a note of how much was there, and then leave the sealed bags in the boardroom for Mr. Doe to deposit. The following week the bag would still be in the boardroom, but would be ripped open, and Mr. Doe would say that he needed to make change for someone. Since ten people had keys to the boardroom, ten people could have stolen the cash. Not surprisingly there was a shortfall that amounted to thousands of dollars.
Again a control was in place, but it was ignored.
Mr. Doe convinced the board that he needed a cell phone. Since he was looking after the invoices, no one knew that most of the calls were personal. When the issue was investigated, it was learned that one of the board members who filed the complaint had been given a phone because he was on the maintenance committee and needed one should an emergency arise. It turned out that he had called his wife on that co-op phone from various places in Canada, as he was a long distance truck driver.
Quite often a thief encourages others to bend the rules, so that the others will be reluctant to speak out about the thief’s abuses.
Mr. Doe thought that it would be wonderful to have his family near him, so when that prime 5-bedroom suite became available, he arranged to have his brother Bob move in. Bob didn’t have kids so was able to rent out a couple of the rooms. Since Mr. Doe was in charge of calculating the rent payable, Bob paid very little, when he did pay. Mr. Doe was able to write into the rent ledger for Bob’s apartment that he had paid. He transferred funds from other tenants accounts into Bob’s account.
Again rules against non arm’s length transactions would be appropriate.
Some people started to complain about Mr. Doe at the board meetings. Uncle Bob and other friendly members installed on the board shouted them down. These complainers found that they could not get things repaired in their apartments. The board members friendly to Mr. Doe received all sorts of benefits, like new carpeting.
Try to maintain a balanced representation on your board.
Mr. Doe loved to play baseball, and convinced the board that they should sponsor his team. Being a generous and fun loving guy, he took the boys out for some cold drink and food after the game and billed it to the co-op, hiding it on the VISA card.
Have an independent person scrutinize your expenses frequently.
Mr. Doe would attend the annual Co-operative home convention at the Co-op’s expense. Spending money on behalf of Co-op was no problem and the board would tell him after paying the bills that he shouldn’t have eaten in that 5-star restaurant.
Set a limit on allowable expenses.
Mr. Doe was on the maintenance committee. Like many shoppers, when he went to Canadian Tire with a list of authorized purchases, somehow something else slipped into the basket. The co-op did not have purchase orders, and the extras were explained away as being required for some other purpose.
Have a system in place to control purchases and expenses.
Mr. Doe did not like to work on those dog days of summer, as the building did not have air conditioning. Members of the executive, feeling the same way, went along with an idea to retrofit the building with air conditioning. The problem was that the capital budget had already been exceeded, so the cost of the new equipment was hidden in the operating budget. The Ministry of Housing eventually found out, but chose to not to go after the executive members who had breached their duty not to spend the operating funds on items that were not authorized.
Bending the rules exposes board members to civil and criminal penalties.
In the end, the co-op employees that committed these thefts went to jail. Many of the alleged theft components could not be proved. That was a moot point because the co-ops did not receive a penny in restitution and likely never will.