Mystery payments at Canadian construction company

This is interesting: An internal review at Canadian construction company SNC-Lavalin of certain payments approved by the CEO has resulted in that executive’s departure from the company.

The payments in question were approved directly by the CEO after the CFO rejected them. Documentation was apparently sketchy, as the review revealed that the projects they were attributed to were incorrect.

[The review] reveals payments to contracts that didn’t exist, mysterious agents whose identity “is without substance,” and staffers using emails and password-protected devices that the company couldn’t access.

They can’t be sure that the payments in question weren’t related to their controversial involvement with the former Gaddafi regime in Libya, since the recipients appear to be fictitious. They believe they weren’t, but there’s really no basis for that belief since the report is inconclusive.

SNC-Lavalin has operations in over 100 countries and earned over $7-billion in revenue last year.

The company said improper payments are a result of “management override, flawed design or ineffective enforcement of controls” in relation to hiring agents for two of its projects.

Design is one aspect of internal control, and operating effectiveness is the other. Add to that management’s ability override them, and they’ve pretty much covered all their bases!

Some former employees have conducted company affairs using non-corporate email addresses or had password protected devices to which the company does not have access.

This is incredibly suspicious, as what good reason could there be for using non-corporate email to conduct company business? Always a red flag, but tough to uncover. The article doesn’t discuss how it was in this case, unfortunately.

The original investigation, which was reported at the end of February, was over $35-million in payments which were undocumented. The reporting of this information resulted in a 20% decline in the company’s stock, which has since recovered only about ⅓ of the drop. Clearly, controls at the company are not strong enough and the market believes the environment may be such that more of these types of situations exist.

Now, with these recent developments, it seems that the “tone at the top,” a critical component of a strong control environment (see COSO Internal Control Framework), was not one of uncompromising integrity.

Depending on the nature of the payments, if it is ever determined satisfactorily, this could have implications related to the Corruption of Foreign Public Officials Act, Canada’s version of the Foreign Corrupt Practices Act in the US.


MBA vs. CA – which is better?

Here’s an interesting article that discusses why an MBA is better than a CA. The article is from India but I think a lot of it is transferrable to Canada. Not that I agree with the author in any way – in fact, she is completely and utterly wrong in every available aspect.

Her main reason is that MBAs rise to CEO, whereas CAs rise to CFO.

The reason is simple: being CEO is about vision and leadership. This would require you — at times — to take a leap of faith, even when the numbers are against you. For example, you diversify into a new area of business. This may mean investing a lot of money, literally burning cash in the initial phase. It may look very bad on the balance sheet for a while, but there is a gameplan and eventually it pays off.

The author must, therefore, be contending that leadership and vision are teachable quantities. How else would all MBAs be blessed with such traits but through the always arduous path of study through Masters programs?

Apparently case based study in grad school will endow one with foresight and the courage to use it, but self-directed case based study under the CA program teaches one to look only to the numbers and the immediate effect on the balance sheet.

This is wrong. In any case I’ve written, you have to argue both sides to every issue and reach a reasonable conclusion, keeping the needs of the client first and foremost in mind.

Weighing qualitative and quantitative considerations are critical to writing a competent, well-rounded case response. Keeping the company’s strategy and critical success factors in mind will guide your response and frame your recommendations.

The truth is you can’t look at the letters after one’s name to determine how far they will go in their career. It’s an individual thing. Key is what one does with the credentials after they’ve earned them.