Rescinded [2009-10-01] - Policy on Losses of Money and Offences and Other Illegal Acts Against the Crown

Certain departments have both enforcement and investigative responsibilities within their program areas. Thus, departments such as National Defence, Revenue Canada, and Employment and Immigration Canada, which have their own police force or investigators, may investigate program offences (e.g. unemployment insurance fraud, tax evasion, etc.) themselves. However, associated offences under the Criminal Code and offences under the Financial Administration Act or some other federal statute where the RCMP or a local police department has the primary jurisdiction must be referred to them as outlined in the "policy requirements" section of this chapter. Similarly, program offences by employees themselves are reportable to the RCMP for possible criminal investigation when position, inside knowledge, collusion, or breach of trust, etc. may have been involved.

Any preliminary examination undertaken by a department should be limited to ascertaining whether there is a possible basis to an allegation. As soon as such an examination reaches the point where there is a reasonable basis to suspect that an allegation might reasonably be expected to have some substance, the matter should be reported as outlined in Appendix C.

Persons employed in a law-enforcement capacity, such as peace officers, inspectors and regulatory officials, who, themselves violate the laws or regulations that they are responsible for enforcing are, in addition to the program offence, also possibly in violation of the departmental code of conduct and may even be in criminal breach of trust. Any investigation of such incidents should therefore consider these latter two aspects.

Departments should establish and ensure that employees are aware of procedures to deal with tips about alleged losses, offences, improprieties and improper practices, however obtained or received, and whether anonymous or otherwise.

A person may be accountable for a loss of money without necessarily being the person responsible or culpable. For example, a custodian who fails to follow proper procedure and secure cash or other valuables like taxi vouchers and travellers' cheques might still be accountable for any loss or shortage, even if there is no evidence of criminal action on his or her part.

Unlike petty cash and other accountable advances (see Appendix C, paragraphs 2.1 and 2.2), cashier shortages in the normal course of business would not normally be recovered from the cashier unless negligence was involved. When there is an ongoing problem with a cashier balancing within acceptable tolerances, additional training or reassignment to other duties should be considered.

The Crown has no responsibility under this policy for losses of personal funds.

When, in exceptional circumstances, such as a robbery despite due care and diligence, a department considers it appropriate to indemnify an employee for a loss of an advance against an entitlement to reimbursement for personal expenses like a travel advance, the department may seek the approval of the Treasury Board to make a payment as an extraordinary allowance pursuant to paragraph 11(2)(h) of the Financial Administration Act. This may be done via a letter to the President of the Treasury Board who has been delegated the authority to act on behalf of the Board in certain personnel matters. However, given the requirement to use travellers' cheques, the general availability of travel cards and prudence and good risk-management practices in carrying only minimal amounts of cash, such payments are expected to be extremely rare and of a minor amount. When the making of such a payment is not justified or otherwise has not been approved, the loss must be absorbed personally by the employee who lost the advance or claimed from his or her personal insurance.

Note: Departments are encouraged to consult with the Safety, Health and Employee Services Group, Human Resources Policy Branch, Treasury Board Secretariat before sending a request of this nature to the President of the Treasury Board.

When a manager has not provided adequate direction or has permitted inappropriate operational practices to continue, he or she might be deemed to share in the accountability for the loss. In such a case, a department might consider apportioning recovery between that manager and the employee concerned in accordance with their respective accountability.

Factors to consider when determining the amount of any demand or claim for recovery might include:

• the actual amount of the loss or damage;
• GST and PST, where applicable (the GST refundable advance and remission provisions and the government's PST exemption do not apply to personal use. Thus, in the case of recoveries for personal use of telecommunication services for example, GST and applicable provincial telecommunication taxes must be collected and remitted);
• in the case of a loss involving a fraudulent payment or an unauthorized expenditure, the associated financing costs;
• any additional costs incurred or revenue lost as a result of material or property not being available for its intended purpose; and
• the cost of any proceedings to effect or enforce recovery.

Where a department is recovering a loss arising from falsified claims, falsified documents, false pretences, fraud and the like, the department should insist on immediate recovery in full. It is up to the individual concerned to make appropriate arrangements to raise the money - through a loan with a financial institution; by taking out a mortgage or a second mortgage; or whatever. The Crown should not be financing this type of recovery and, where there are any delays in obtaining payment, should charge interest at full commercial rates.

In general, recoveries in civil proceedings and disciplinary action under labour law are separate from criminal proceedings and are not dependent on the outcome of those proceedings. Thus, when a department determines that disciplinary action is warranted, it should be taken promptly. Any undue delay may adversely affect the outcome if the matter goes to grievance and third-party adjudication.

If all the relevant facts and circumstances are known, it is not necessary to wait for the results of any criminal investigation or proceedings. Subject to prior consultation with the investigating police agency and departmental staff relations advisors, the two may normally proceed concurrently.

Measures to protect both the person reporting an incident or making an allegation and the person implicated or alleged to be responsible include:

• ensuring, to the extent possible, that allegations and reports are not distributed throughout the department, but are maintained in a single personal information bank that has been duly registered in accordance with the terms of the Privacy Act. Preferably, this information bank would be under the control of the departmental coordinator referred to under "procedural requirements";
• except as may be required for a formal legal proceeding or as otherwise prescribed by law, maintaining the confidentiality of persons who reported incidents or made allegations;
• ensuring that information is not placed in personnel files, unless it relates directly to a staff relations action, such as a disciplinary measure and the employee is aware that such action has been - or is being - taken; and
• ensuring that when an allegation against an employee cannot be substantiated
• all records of the matter not required for audit are promptly destroyed,
• records required for audit are segregated and access is restricted to that purpose, and
• any superior (or other person in a position of influence, such as a staffing officer) and any co-workers who had knowledge of the allegation are informed that it could not be substantiated.

Risk assessment and the taking of preventative measures are often as important - and sometimes even more important - than action taken to respond to a particular incident. These should therefore be an integral part of any investigation. As part of any response to an incident, a department should also assess the possibility of the same thing having happened or happening again; first, elsewhere within the department; second, in other departments with similar programs, clientele or exposure; and third, across all departments.

Measures to prevent or minimize losses include:

• giving special attention to areas of significant risk or exposure, such as
• social benefits and other grants and contributions, and
• all major Crown projects and procurement contracts;
• in conjunction with departmental security advisers and, as appropriate, local police or the RCMP, periodically reviewing the adequacy of the facilities for safeguarding cash, travellers' cheques, and other negotiable instruments (for policy, guidelines and standards, see the "Security" volume of the Treasury Board Manual);
• giving particular attention to the following, which have caused losses in the past, and which continue to do so:
  • petty cash that is not properly secured or, if secured, the key is left in a desk drawer or a similarly accessible location,
  • petty cash, money safes, and other security storage facilities that are left unlocked during working hours,
  • cash or travellers' cheques that are transferred between employees without proper receipts or other acknowledgement of the amounts transferred being prepared, and
  • money that is left on a desk or a counter;
• ensuring that, to the maximum extent possible
• payment of locally engaged staff and other persons not paid through the pay system of Supply and Services Canada is by cheque or direct deposit rather than in cash, and
• when such payments must be in cash, the department uses pay envelopes that are prepared in advance, reconciled to the total cash withdrawn for the purpose before being distributed, and signed for when distributed;
• ensuring that procedures for handling cash receipts, petty cash and travellers' cheques are such that the person(s) responsible can be held accountable for losses and shortages and, in particular, that only the person responsible has access to the cash;
• ensuring that adequate instructions on the handling and safeguarding of cash, travellers' cheques, departmental bank account cheques and signature machines are provided to employees who are responsible for them;
• ensuring that employees and on-site consultants are aware and are periodically reminded, and that all new employees acknowledge:
  • that there is a cost associated with the use of the government inter-city telephone network and departmental facsimile services, and
  • that these services are for official business only;
• ensuring that employees who have GTA "TeleCanada" cards (or an equivalent commercial telephone charge card like Bell Canada's Calling CardÔ ):
  • are each given their own access code,
  • understand and acknowledge that they are not to disclose the access code to anyone else and that they are responsible and personally accountable for all calls placed with the card unless it has been officially reported lost or stolen, and
  • are informed of the need to report any loss or possible compromise of their access code immediately, and understand the procedures to follow to do so;
• controlling access to computer terminals and programs to minimize the possibility of unauthorized access and theft, alteration or destruction of software and data; and
• ensuring to the maximum extent possible that:
  • all physical assets are inventoried and their serial numbers recorded (giving particular attention to computers, especially laptop and notebook styles); and
  • safeguards are in place to prevent the loss of physical assets through negligence, malfeasance or criminal behaviour.

(For policy, guidelines and standards, see the "Security" volume of the Treasury Board Manual.)

defalcation (tbd) - is a term usually applied to officers of corporations and public officials who embezzle or misappropriate public funds, trust funds or money held in a fiduciary capacity.

fraud (fraude) - is a deliberate act of deception, manipulation or trickery, with the specific intent of gaining an unfair or dishonest advantage (cheating) or injuring another person or organization. Ordinarily, fraud involves either wilful misrepresentation or deliberate concealment of material facts for the purpose of inducing another person to either part with cash or something else of value or to surrender a legal right.

malfeasance (délit d'action ou de commission) - is the commission of an unlawful act; i.e. the wrongful doing of an act that the doer has no right to do or that the doer is obligated not to do by contract, statute, regulation, etc.

misappropriation (détournement) - is the act of turning money or other property to a wrongful purpose. It is often used in the context of, but is not limited to, the conversion of public funds to one's own use or to the use of others; however, any use not authorized by Parliament is a form of misappropriation.

misfeasance (faute d'exécution) - is the improper performance of a lawful act.

nonfeasance (omission délictueuse) - is the total omission or failure to perform some distinct act, duty or undertaking that one is obliged to do.

robbery (vol avec violence) - is the taking of money, personal property, or any other article of value, in the possession of another, from his or her person or immediate presence, against his or her will, through violence or threat of violence.

theft (vol) - is the taking of money or other property without the owner's consent, with the intent to deprive the owner, temporarily or permanently, of the possession, use or benefit of it. Although both fraud and theft may result in depriving someone of property, a key distinguishing feature is that with fraud the victim is induced through deceit or trickery to voluntarily give up the property. With theft, the owner does not surrender the property voluntarily and, in some cases, may not initially even be aware that it has been taken.

2.1 For the purpose of reporting to law-enforcement authorities, "offences" involve any offence under the Criminal Code or a federal statute or regulation where the Crown is a victim. These include, for example:

• breach of trust by a public officer;
• offences under sections 80 or 81 of the Financial Administration Act;
• theft or misappropriation of public funds or funds belonging to others that have been entrusted to a public officer;
• false or fraudulent claims for a social benefit, a grant, a contribution, or any other program payment, including refunds and rebates;
• forgery and fraudulent endorsement of Government payment instruments;
• conversion of public funds or property to personal use;
• theft of public property or property belonging to others that has been entrusted to - or seized by - the Crown;
• wilful damage to, or destruction of, public property;
• break-and-enter or attempted break-and-enter;
• computer-related offences, such as:
• unauthorized illegal access,
• theft of software or data, or
• alteration or destruction of data;
• colluding, or otherwise arranging with a contractor to bill personal goods or services to the Crown; and
• any fraud, illegality, impropriety or improper interference in the contracting process, such as:
• kickbacks and bribery,
• bid-rigging and price-fixing, or
• deliberate short-shipment or substitution of inferior quality or defective goods.

3.1 For the purpose of reporting in the Public Accounts, "losses" include any loss resulting from an incident referred to above as an offence, plus:

1. public money that is
   1. paid to, or collected or received by a public officer or any other person and is
      • misappropriated, or
      • lost, destroyed or stolen;
   2. paid out by a public officer or other person fraudulently;
   3. issued to a public officer or any other person as an imprest fund or change float, and
      • is misappropriated,
      • cannot be accounted for in whole or in part, or
      • is destroyed or stolen;
2. money belonging to others that is given into the custody of a public officer in an official capacity for any purpose, and is
   1. misappropriated, or
   2. lost, destroyed, or stolen;
3. an overpayment or erroneous payment that is issued or an unauthorized expenditure that is incurred due to
   1. negligence or nonfeasance on the part of a government employee, or
   2. fraud, defalcation, wilful misrepresentation, or any other offence or illegal act on the part of any person;
4. a cheque or other payment instrument issued by the Receiver General or issued from a departmental bank account or a revenue trust account or a benefit warrant drawn on the Receiver General pursuant to section 117(2) of the Unemployment Insurance Act that is fraudulently endorsed and negotiated; and
5. revenue that should have been received or collected, but that was not as a result of malfeasance or negligence on the part of any person employed in the receipt or collection of public money.

1.1 Incidents of theft, break-and-enter, and the like requiring an immediate response are to be reported directly to the local police agency without delay. Subject to paragraph 1.2, below, all other suspected cases of fraud, defalcation or any other offence or illegal act against Her Majesty must be reported promptly to the RCMP for investigation.

1.2 Suspected cases of theft, fraud, defalcation or any other offence or illegal act involving employees that do not require an immediate response by a police agency may be referred to departmental legal services which will consult with the Criminal Prosecutions Section of the Department of Justice before providing an opinion.

1. When, after consulting legal services, it is determined that the act is of a minor, employment-related nature more appropriately dealt with by disciplinary action, appropriate action should be taken after consulting with departmental staff relations advisors.
2. When, after consulting legal services, it is determined that the act is of a more serious nature, in addition to taking any appropriate disciplinary action that the department determines is warranted, the matter must be referred to the Criminal Operations Branch of the RCMP which will decide what investigation will be undertaken and by whom.

1.3 In addition to being reported to law-enforcement authorities for investigation per paragraphs 1.1 or 1.2(b) above:

• all incidents, including those employment-related incidents handled internally per paragraph 1.2(a), must also be reported to the Economic Crime Directorate of the RCMP for statistical and analytical purposes on RCMP form "Criminal Offences and Other Illegal Acts Against the Crown Involving Losses of Money or Property"; and
• when fraud, defalcation or any other offence or violation in relation to the collection, management or disbursement of public money is involved, the following must be reported to the Treasury Board Secretariat, as outlined in paragraph 1.5, below:
  1. any loss or incident that has, or may have, government-wide implications or application, for example, frauds that may also have been perpetrated against other departments or that other departments should be warned about;
  2. incidents that may indicate a weakness in government-wide policies or controls;
  3. other incidents that have been, or are likely to be, addressed or brought to the attention of the President of the Treasury Board in Parliament or through the media; and
  4. any other incident that, in the opinion of the departmental coordinator, is sufficiently serious or significant in terms of its magnitude or its extent to be brought to the immediate attention of the Treasury Board Secretariat.

1.4 Departments must establish their own internal reporting requirements, including identifying, in consultation with their minister, what types or classes of incidents are to be drawn to the personal attention of the minister.

1.5 Reports to the Treasury Board Secretariat, when required, are to be submitted to the Director of Financial Authorities, Comptroller Sector, Program Branch, and shall include as a minimum:

• a preliminary report, within two weeks of identifying a reportable incident, or, in the case of incidents referred to in (iii) above, as soon as the possibility of being reported in the media arises that provides a description of the nature of the loss or offence, the circumstances under which it occurred, and what investigation is being undertaken; and
• a final report at the conclusion of the matter that:
• provides a description of what investigation has been undertaken;
• indicates whether the loss was referred to the Deputy Attorney General and, if a reply has been received, the action recommended or taken by the Deputy Attorney General;
• provides a description of the safeguards or other action taken to prevent future losses and offences under similar circumstances;
• provides a description of the measures taken to recover any loss or associated costs, the amount recovered, and the probability of further recovery;
• indicates the results of any prosecution or legal action that has been undertaken; and
• provides a description of any action taken to discipline a public officer or other person by reason of whose actions the loss was suffered or the offence was committed or made possible.

Note: The actual names of specific individuals should not be included in these reports.

1.6 There does not have to be an actual loss of money or property before an offence is reportable. An attempted fraud that is detected before payment is made is as equally reportable as a successful fraud. Similarly, offences are still reportable, even if the loss is recovered in full.

1.7 Incidents occurring outside of Canada that would be an offence if they occurred in Canada are also reportable.

1.8 Gross losses (estimated when necessary), irrespective of any recoveries, are to be reported in the Public Accounts, in the form outlined in the Public Accounts Instructions Manual, for the fiscal year in which the loss occurred or, when the loss is not discovered in time, in the first Public Accounts in which it is practicable to do so.

1.9 Indemnifications for losses of advances in accordance with paragraph 8 of the guidelines must also be reported in the Public Accounts, but in the section on claims, court awards and ex gratia payments, rather than in the section on losses suffered by the Crown.

1.10 Recoveries against losses are to be reported in the Public Accounts for the fiscal year in which the amount is recovered or, when that is not possible, in the Public Accounts for the next fiscal year.

2.1 Losses of money that require a disbursement to reimburse an imprest fund like petty cash or another person, cashier shortages and all losses of revenue (irrespective of whether a disbursement is required) shall be charged to the appropriation for the related program, after approval by the appropriate minister or such other member of the departmental senior executive committee as may be designated in writing by the appropriate minister. In the case of cashier shortages and losses of revenue, the appropriation is to be charged and the applicable revenues credited with the amount of the shortage.

2.2 The charging of a loss against an appropriation is an accounting transaction only. Departments are still responsible for attempting to recover the loss and must still take appropriate disciplinary action when it is warranted. In this regard, it is to be noted that under section 3 of the Accountable Advances Regulations, an individual to whom an advance is issued is personally responsible and accountable for that advance and losses or shortages are recoverable from the holder or custodian thereof. Thus, petty cash shortages are recoverable unless all of the following conditions have been met:

• the prescribed procedures were followed and the petty cash was properly secured;
• there was physical evidence of theft, such as forced entry; and
• no act or omission on the part of the custodian contributed to the loss.

However, even when one or more of the above conditions has not been satisfied, a custodian may nonetheless be released from his or her accountability, in whole or in part, if the manager concerned assumes full or partial responsibility for the loss by acknowledging in writing that he or she:

• did not ensure that adequate facilities and procedures were in place;
• did not provide adequate direction, instruction or supervision; or
• permitted improper or inappropriate practices to be followed.

In this case, accountability for the loss would shift to (or in the case of a partial release, be shared by) the manager, and guideline 9 on accountability and recovery from managers would then apply.