Prevent business fraud by listening to your instincts
Written by Fio Connect's President, Douglas Penner, in response to the conviction of Calgary businessman Ian Wilson Fisher for defrauding Arcan Resources.
Arcan Resources, a public junior oil and gas company, was founded in 2004 by Ian Wilson Fisher along with his brother and a close friend. I was CFO and then President from 2006-2015. The company was a great place to work; I was proud to help build a thriving and successful business in a family atmosphere. Although the company struggled through the market crash in 2009, we turned it around and started to grow rapidly through development into a new area.
Between 2008 and 2011, Ian Fisher stole $5 million dollars from our company. As the Chief Financial Officer of Arcan, I not only discovered the fraud, but had to publicly disclose that it took place - a disconcerting situation, to say the least.
I first called to report the fraud to Michael Laffin. Michael was the Chairman of Arcan's Board of Directors at the time, and a very senior partner at Blake, Cassels & Graydon LLP. I consider him to be one of the most honourable men on the planet. In the many meetings that followed, we determined our course of action. Over the next few months, we did our busy day jobs, and at night we worked with forensic accountants and lawyers. There were only a few individuals at Arcan who knew about our audit at this time, and those people were working 20 hour days to gather evidence. It would have been easier to just clean up the books, sweep it under the rug, and move on, but our little team was dedicated to doing the right thing.
The fraud wasn’t a difficult web of deceit – it was very simple. Ian Fisher created false invoices for projects that he oversaw, and then approved them for payment. This wasn’t a one-time accidental cash oversight or a crime to pay for desperate medical expenses. He was well aware of what he was doing. Despite being well compensated (paid over $1 million in total wages and bonuses the year before he was caught), he stole money when the company was struggling, and then stole even more as the company was doing well.
All too often, Management and Directors of good companies choose to ignore the signs of fraud. When it is discovered, they often choose to focus on shareholder appeasement rather than risk company scandal. We chose the much harder and more painful path of fully and publicly disclosing the fraud. I believe this speaks to the integrity of Arcan's Management and Directors involved in this decision.
Convicting the person who committed the fraud is little justice compared to the disaster left in its wake. I have learned that justice does not always equal fairness, obvious does not always equal truth, being right does not always equal winning, and integrity is most important when no one is watching.
I now have the good fortune of using lessons learned to help others. I will often share with my business counterparts tips on how to prevent, spot, and overcome fraudulent activities. According to Inc., here are four ways to prevent (or catch) fraud within your business:
1. Create an anti-fraud policy, with written procedures and checks and balances along the way.
2. Develop an anonymous way for employees to feel safe reporting suspicious activities.
3. Conduct surprise internal audits, and regular external audits.
4. Conduct background checks on all employees, even those at the “top.”
Fraud happens in business all the time, often in the most inconspicuous ways. Know that if your instincts are telling you something is wrong, chances are, they’re are right. At the very least, check it out.
When he's not busy running Fio Connect, Douglas Penner also consults to companies in areas of financial strategies and implementation, financial integrity, fraud awareness, and financial forensics.