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The importance of being ethical
By Paul McLaughlin
Illustration: Shino Arihara
Be it in public practice or industry, CAs are subject to demanding rules of conduct that are there to protect the public
The council chamber where the Discipline Committee of the Institute of Chartered Accountants of Ontario meets to determine the fate of members charged with violating the profession’s rules has a fitting air of solemnity to it. An ornate, high-domed ceiling dominates the spacious dark-wooded room, which is noted for its perfect acoustics. On April 25, 2007, four senior CAs and a public representative sit at a ring of desks in the room’s north end, separated by a considerable distance from the institute’s counsel, Paul Farley, and its lead investigator, Bruce Armstrong, who are in one corner and the defendant, Wanda Liczyk, and her counsel in the other.
It is safe to say that few, if any, accountants can imagine a day when their competence or ethics will be scrutinized by their profession to determine if they have violated their institute’s rules of professional conduct. But it happens to hundreds of CAs each year. The consequences of being found guilty of an offence range from a warning to shape up to far more serious results, the most extreme being expulsion from the profession. This, then, is a cautionary tale, with the very public Liczyk case serving as an example, of what can happen when accountants behave badly.
The ICAO’s case against Liczyk was investigated by Armstrong, a tall, ruddy-faced CA whose floppy white hair is testimony to his three-plus decades as a forensic accountant. Currently a director with LECG Canada, where his practice includes the investigation of professional misconduct charges, Armstrong was a full-time senior investigator for the ICAO for almost seven years, commencing in January 2000. There is an air of decency and fairness to Armstrong that is reflected in how he describes his approach to an assignment. “I’m not an advocate for or against any party involved in a case,” he says. “My job is to try to determine, to the best of my ability, what exactly happened. And to do so in a highly professional manner. My job is not to present an opinion — just the facts and quite often a chronology of those facts.”
Few discipline committee hearings attract outside attention, but this one is an exception. The media and public section at the back end of the chamber is standing room only, as about a dozen reporters and concerned citizens wait to find out what will happen to Liczyk, who gained notoriety as a central figure in the very public controversy surrounding a computer contract between the City of Toronto, where she had served as CFO and treasurer, and MFP Financial Services. When the cost of the contract ended up being more than double its original $43 million estimate, a lengthy public inquiry was held, led by Justice Denise Bellamy. During the inquiry, Justice Bellamy criticized Liczyk for failing to disclose a serious conflict of interest she had with software consultant Michael Saunders, although it was unrelated to the MFP contract. As a result of that revelation, the ICAO began an investigation in 2005.
Last year was unusual for the ICAO’s discipline committee in that two high-profile cases came before it: the Liczyk investigation and that of four Deloitte & Touche CAs charged with professional misconduct for failing to perform their services in accordance with generally accepted standards of practice in their audit of the consolidated financial statements of Garth Drabinsky’s Livent Inc. In the latter case, three CAs were fined and reprimanded. The matter is before the ICAO Appeals Committee.
Normally, the types of complaints about CAs that the ICAO and the other provincial and territorial institutes have to deal with garner little attention outside the profession, although, for the CA involved, they can be extremely serious and potentially career damaging depending on the severity of the matter at hand.
In general, complaints fall under two main categories. “About half relate to professional standards [and the other half] are conduct matters,” says Trish Roberts, the ICAO’s former director of standards enforcement. Although the occasional charge concerns fraud or a similarly serious allegation, the typical one involves timeliness issues, a possible conflict of interest, problems with financial statements or the failure of an accountant to turn over documents or communicate with someone who has replaced him or her. Kay Holgate, a forensic accountant at Grant Thornton in Calgary who has worked on professional misconduct matters in several capacities, including as an investigator, says, “A surprising number of complaints relate to business tax work, personal taxes and small business [issues]. Practitioners sometimes just get overwhelmed.”
“One of the areas of complaints we see in a smaller place like here has to do with the quality of the work,” says Gary Hanna-ford, CEO of the Institute of Chartered Accountants of Manitoba. “We don’t usually get the big problems that you see in the larger provinces.” William Hill, the director of regulatory affairs for the Institute of Chartered Accountants of Saskatchewan, says most of the complaints that come into the ICAS are pretty mundane. Since he has been on the job he has never seen a charge involving fraud. In Quebec, however, the variety of complaints mirrors those seen in Ontario. “We have a lot of people with fraud, criminal records, drug dealing, standards not followed, false invoices, things like that,” says Ginette Lussier-Price, syndic (a person in charge of all investigations who also decides if there are grounds for the complaint to go before the discipline committee) for the Ordre des comptables agréés du Quebec. Although she will not give the details because the matter is under appeal, Lussier-Price says one member who went to prison for misuse of government funds was recently expelled from the profession.
While all the institutes have their own set of rules and procedures, they are generally quite similar in how they respond to and investigate complaints, says John Murray, vice-president of standards enforcement for the ICAO. Hannaford agrees. “I would say that probably 95% of the rules of professional conduct are identical in one province to another,” he says. Hannaford is also the chair of a national public trust committee that is working on, among other matters, harmonizing the discipline process across the country. “There are international standards being established and we want Canada to be able to say we are meeting or exceeding [them] in all respects,” he says.
One consistent feature among the institutes is how the governing bodies respond to a complaint. “We consider each complaint no matter how trivial it might seem,” says Lussier-Price. “Our members need to know we take our obligation to protect the public very seriously,” says Murray. “[But] we don’t engage in a knee-jerk reaction to complaints. We believe in a fulsome investigative process with plenty of expert input regarding the investigators and the experts we hire to back them up. Although the process is set out as adversarial, we focus on fairness rather than winning or losing.”
James Lane, a partner at Bersenas Jacobsen Chouest Thomson Blackburn LLP in Toronto, has worked on more than 40 cases on behalf of CAs who have been investigated or went through the discipline process after a serious complaint had been lodged. He says the accounting profession is far stricter with members who may have done something wrong compared with the bar association. “In my experience as a lawyer, I find it unusual the degree to which [the accounting profession] will look very carefully at whether the members are meeting up to, for example, technical standards,” he says. “They will come down very hard on people because they haven’t maintained their proficiency levels or because they’ve dabbled in an area outside their expertise.”
Why so tough on its members? “I think it’s partly a cultural thing,” says Lane. “This is a profession for which doing things in a precise and correct fashion is the core of what they see as competence in the field. And it’s also a profession, unlike law, that has competing designations. So they want to establish themselves as the pinnacle, as the group that has the very highest standards and restrictions.”
When CAs receive notice that a complaint has been lodged against them, the most important thing to do, says Armstrong, is to “take a deep breath and relax and not fire off a response, especially an angry one, right away. And when you have written a response have someone vet it before sending it in.”
The worst thing a member can do, he emphasizes, is to ignore the process or be dismissive about it. “Cooperation and attitude are very important. If the member needs time to respond, because of their workload, that can be worked out. But ask. Don’t demand. For serious matters, I always suggest the member retain legal counsel.” Armstrong adds that retaining an accountant who has experience in the complaints process can also be helpful. “I always say, in most cases the earlier I can become involved in the process the better it is for the client,” Lane says. “It’s better to err on the side of having legal counsel sooner.”
Depending on the jurisdiction, some complaints can be resolved in an informal process. “If it’s something [minor], we can do what we call an intervention,” says Lussier-Price. “Perhaps we may give what we call a warning to the member, and very often the complainant is very happy with that because all he or she wants is to know that he or she was right and that we did something. There’s also an ethics conciliation, which can take more time.” All parties, including the syndic, must sign an agreement. “The goal is to arrive at a solution,” says Lussier-Price. Saskatchewan also has an informal process. “The parties have to agree they will not have lawyers involved,” says Hill. This process is typically invoked when there are minor contraventions of the institute’s bylaws. “There’s a requirement for an agreed statement of facts and there’s usually guidance [about the process] given to the member,” he adds.
It is important to note that complaints do not have to come just from clients. Anyone can initiate a complaint, including a provincial institute itself. Nor can a CA make a complaint go away by negotiating a settlement with the complainant. “Once a file is opened, it’s not closed until we have determined that there is no basis for proceeding with the charge,” says Hannaford.
All complaints typically are dealt with in two possible stages. The first occurs at the Professional Conduct Committee (PCC) level. The PCC can decide, after reviewing all the available documentation provided with the complaint, whether the matter warrants investigation. If it does, an investigator (or more than one investigator) and sometimes expert witnesses can be directed to give the matter their full attention. In Ontario, for example, there are two full-time investigators and a stable of about 20 contract ones, who may have varying areas of expertise. All Quebec’s cases are led either by Lussier-Price or one of her two assistant syndics. “We use some experts but no other investigators,” she says. In Saskatchewan, where there are only about a dozen or so complaints on average every year (Quebec, for example, received about 500 by March 31, 2007 and 423 complaints by March 31, 2008), its PCC retains a paid investigator when necessary. They hope in the future to use paid investigators more often, where the investigation is more complex. In the past and currently, investigations have been done by volunteers.
The PCC has three options once it has digested all the in-formation, including reports from investigators such as Armstrong. It can decide the member did not breach any rules and close the file; that a breach indeed took place but does not merit laying and prosecuting a charge (often guidance and advice are given to the member); or it can conclude that a breach did occur and warrants charges being laid. In Ontario, as part of its expanded powers the PCC can make charges and, where appropriate, can negotiate the settlement of a charge. The settlement agreement must be approved by the discipline committee before it can take effect.
The complaint (or settlement agreement) is sent to the discipline committee, which will determine whether the member is guilty or not guilty of the charge (or whether or not to approve the settlement agreement). This is a formal process, usually held in public (depending on the jurisdiction), in which legal counsel for the institute acts as prosecutor and can call witnesses and demand evidence relevant to the case. Few cases actually make it to the discipline committee. In Quebec, only 16 went before the discipline committee between March 31, 2007 and March 31, 2008, in a province with more than 17,000 CAs. In Ontario, with 32,000 CAs (and 4,000 CA students, who are also governed by the Rules of Professional Conduct), it was only 19.
If the discipline committee finds the member guilty, there are several punishments it can impose, including a reprimand, mandatory retraining, a fine, suspension and, in extreme cases, expulsion from the profession. All decisions of both the PCC and the discipline committee can be appealed. Expulsion is not necessarily a lifetime sentence, says Armstrong. “I have investigated members who have been expelled for fraud and have reapplied and been readmitted.” However, the process is not an easy one.
Once found guilty, the decision and the details of the case are usually published in an institute’s newsletter and in local newspapers. “One of the big arguments the accountants have with our process is publication,” says Armstrong. “They will pay the fine, they will take the suspension, they will do this and that. What they don’t want is for it to become public.”
He recalls two cases where members tried to avoid publication of the complaint. One case involved a member whose client had given him signing authority to pay bills; in the other case, a member was found guilty of having misappropriated more than $1 million from a blueblood family. In the first case, the member had a son who was also a CA who had the same first name as him. “He begged us not to publicize the case,” Armstrong says. In the second, the CA had psychiatrists come in who said they were afraid he would commit suicide if the complaint became public. His wife pleaded as well. “But the discipline committee didn’t budge.”
One initiative the national public trust committee wants to implement, says Hannaford, is a uniform set of rules regarding what gets published and where it gets published. “It’s not necessarily the same in each province right now,” he says. Changing that practice, and any others, may have some obstacles. In Quebec, for example, the legislative act governing the province’s CAs covers 45 professional bodies, including lawyers, doctors, nurses and notaries. Lussier-Price, who sits on the discipline working group, a subcommittee of the national public trust committee, says Quebec is an enthusiastic member but any change in Quebec’s legislation would mean a change for all 45 professions. “So that is not easy,” she says, “but it doesn’t mean we can’t do it.”
In the ICAO’s council chamber, the disciplinary committee hears that Liczyk and Saunders met when Liczyk was a budget analyst for North York, Ont., at that time a suburb of Toronto. Saunders was working for a US firm that provided North York with information technology support services. In the spring of 1989, they began an intimate relationship that lasted until August 1991. By this time Liczyk had become North York’s deputy commission-er and deputy treasurer, which meant she participated in decisions on work being conducted for the city by Saunders, a conflict she never disclosed. Just as their intimate relationship was ending (they remained friends), Liczyk was one of three bureaucrats who agreed to award Saunders and a partner a lucrative deal to lead and manage the development of a new property tax billing system known as TMACS. Although the invoices from Saunders and his partner from the onset of the project until 1994 have gone missing, invoices that were found from 1994 to 1997 totaled $1.3 million, with Liczyk directly approving $778,000 worth.
When North York amalgamated with the City of Toronto in January 1998, Liczyk became its CFO and treasurer. Although she had no responsibility for IT in her new position, despite having lobbied for such, she convinced Mel Lastman, who had been mayor of North York before assuming the same role with the newly amalgamated Toronto, to select TMACS for Toronto over a competing locally developed system. Until June 2001 when Liczyk left city hall to work for Toronto Hydro Corp., Saunders invoiced the City of Toronto for $2.27 million through two companies. Liczyk directly approved a portion of that amount.
Despite having signed conflict of interest agreements at both North York and Toronto that explicitly call for employees to declare any personal conflicts that may affect an employee’s judgment in acting in the best interest of the employer, Liczyk never revealed her close friendship with Saunders. Her failure to do so resulted in three charges against her under Rule 201 of Ontario’s Rules of Professional Conduct.
For the Liczyk investigation, Armstrong first sifted through all available documentation that he considered pertinent, focusing on the many invoices from Saunders and the other companies with which Saunders was involved. He also met with about a dozen people associated with the case. With that process complete, Armstrong began a series of interviews with Liczyk, meeting with her four times in total. “She was always lawyered up and had her own forensic accountant,” Armstrong says, “but counsel was not obstructive. I found her to be extremely cooperative and highly professional in her dealings with me.”
Armstrong cannot reveal details from the interviews, but he does offer that when he asked Liczyk if her personal relationship with Saunders affected her decisions regarding his obtaining work from North York and Toronto, she said no.
Although her sexual affair with a consultant provided titillating copy for the media and the public, to Armstrong that part was pretty small. One of the objectives was to explore whether Liczyk acquired any personal financial gain from her involvement with Saunders. As far as he could determine, the answer was no. This finding (which was accepted by the discipline committee) was critical. If it could have been shown that she had indeed profit-ed financially, the ICAO’s charges against her would have been much more serious.
Liczyk pled guilty to the three violations of Rule 201 on April 25 (which meant neither she nor Armstrong would have to testify), and counsel for both sides present-ed the panel members with an agreed statement of facts. Following a break during which the panel assessed the case, Liczyk’s fate was announced: her CA licence would be suspended for six months, she would be ordered to pay $22,000 in fines and court costs, and her name and the committee’s findings would be published in the Globe and Mail and Toronto Star newspapers.
A mitigating factor in her punishment, the panel said, is the damaging consequence of the publicity from the Bellamy inquiry and the ICAO’s discipline process. Liczyk had been out of work since January 2005, after resigning from her $320,849 a year position as a senior vice-president and CFO at Toronto Hydro a few weeks after testifying at the Bellamy inquiry (where her dealings with MFP salesman Dash Domi were critically examined).
Lussier-Price believes that greed, in a broad sense, is perhaps the most common reason a CA commits an egregious violation of the profession’s rules. Armstrong notes that addictions and financial stress are other typical causes. But as he reflects on his investigation of Liczyk, another thought comes to mind. “I think there’s a tendency when you leave public accounting to forget about the Handbook and the provincial rules of conduct because you’re so focused on making the situation where you’re working better,” he says. “Maybe in Liczyk’s case, if she had sat back and reflected on some of the situations that were unfolding she might have asked herself some questions, and things might have [turned out] different. You always have to be mindful,” he says, “that you’re a CA.”
Forgetting to do so could be a serious mistake — one that could ultimately cost you that hard-earned designation.
COMMON COMPLAINTS AGAINST CAs Using cases reported by the Institute of Chartered Accountants of Ontario, the most common matters that result in disciplinary proceedings involve problems associated with:
The penalty for the offences depends, of course, on the specifics of each case and the reaction of the CA. While the more serious matters can result in fines, suspensions or expulsion from the profession, many are resolved by sanctions by the Professional Conduct Committee, such as giving the CA a warning or requiring him or her to take courses or some other form of remedial retraining. Questions CAs in public practice should ask themselves to avoid getting into trouble
Questions CAs in industry should ask themselves to avoid getting into trouble
Paul McLaughlin and Bruce Armstrong |
Paul McLaughlin is a Toronto freelance writer
