Journal of Forensic & Investigative Accounting Surveying the Field …€¦ · A BRIEF HISTORY OF FORENSIC ACCOUNTING IN CANADA There are many different accounts of the official origins

Journal of Forensic & Investigative Accounting

Vol. 6, Issue 3, Special International Issue, 2014

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Surveying the Field of Forensic Accounting in Canada

James W. Williams*

Not unlike many other jurisdictions, forensic accounting in Canada remains a highly

valued yet poorly defined area of professional practice inhabited by a number of different

professional and occupational groups each seeking a claim over the field and struggling over its

appropriate boundaries. While there is little doubt that professional accountants have had the

most success in claiming ownership over the field, and thus defining forensic accounting in

terms of accounting-based skills and competencies, groups such as former police officers,

corporate investigators, and IT specialists have sought to challenge this monopoly advancing a

more expansive definition of “forensic accounting” in the process. Even within accounting

circles, divisions and tensions remain as experienced and well established forensic accountants

bemoan the entry of generalists with limited experience seeking to “hang out a shingle” and

capitalize on the symbolic currency of the profession. These various lines of professional and

occupational conflict are only exacerbated by competing systems of credentialization and

oversight – with clients often unsure about the relative merits of the different systems of

assurance – as well as limited legal regulation of the profession. This situation is made even

more complicated in the Canadian context given the divisions between provincial and federal

jurisdiction with many facets of the industry subject to both provincial and federal rules and

procedures.

This paper surveys the field of forensic accounting as it has evolved in Canada over the

past thirty years identifying a number of ongoing issues and challenges for the profession. The

discussion is informed by approximately sixty-five interviews initially conducted between 2000

* James W. Williams is an Associate Professor in the Department of Social Science at York University in Toronto,

Canada.



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and 2002 involving a number of different players in the forensic accounting industry including:

(1) accountants; (2) corporate investigators; (3) current and former police officers; (4) IT

specialists; and (5) lawyers. These interviews are then supplemented with ongoing documentary

research conducted over the past fifteen years. Drawing from this empirical material, the paper

begins with a brief history of forensic accounting in Canada and examines several efforts to

define and codify the field as a clearly identifiable and bounded form of expertise and

professional practice rooted in specific forms of accreditation and oversight. The discussion then

turns to the larger legal environment occupied by forensic accounting firms and identifies several

longstanding concerns with respect to transparency, accountability, and governability which have

yet to be fully addressed by industry practitioners. The paper concludes with a handful of modest

recommendations for the industry moving forward.

A BRIEF HISTORY OF FORENSIC ACCOUNTING IN CANADA

There are many different accounts of the official origins of forensic accounting. One of

the most oft-cited narratives traces the roots of the field to the role of Frank J. Wilson, a former

accountant and investigator in the U.S. Treasury Department, in the conviction of Al Capone in

1931 on charges of tax evasion. And yet, the emergence of “forensic accounting” as a distinct

field of professional practice actually possesses a uniquely Canadian lineage. During the 1960s,

concerns began to emerge in Canada regarding the infiltration of organized crime into legitimate

business. Spurred by the economic and political fallout from several high profile stock market

frauds with alleged connections to organized crime, Canada’s federal police agency – the Royal

Canadian Mounted Police (RCMP) – formed the first specialized national economic crime unit in

1967. This was soon followed by the development of similar units at the provincial and

municipal level. The formation of these specialized squads marked a significant paradigm shift in



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Canada’s approach to economic crime which, up to that point, had been treated as largely a

private wrong remedied through some form or private or civil action (Williams, 2005a; 2008).

From this point forward, police forces became more active players in the investigation

and prosecution of a wide range of cases (Palango, 1998). This created a unique challenge for the

police. In contrast with agencies such as the FBI, which has a long history of hiring lawyers and

accountants to provide assistance and expert advice in investigations as well as litigation support,

the RCMP has always been a police-only organization with sworn police officers making up the

bulk of its ranks. With an increasing number of economic crime cases making their way down

the pipe, the agency was forced to look for outside accounting expertise to assist with its

investigations and, even more importantly, to provide expert testimony in several key cases. This

unique history is relayed by a senior member of the forensic accounting fraternity,

On the criminal fraud investigation side, I think it is unique to Canada

because Canadian police forces have the practice of hiring forensic

accountants. That aspect never happened in the U.S. The FBI only hires

lawyers and accountants anyway. They do their own accounting. The State

level it's the District Attorney and they might often use a revenue type

guy, an IRS guy, or someone would come in as their expert. So the market

didn't really develop in the U.S. for the criminal investigations side of

things (Forensic Accountant #16: 5).

Starting in the early 1970s, a number of practitioners working out of the major

accounting firms began to provide exactly this type of support to the police on a secondment

basis. However, these engagements were constrained by natural limits on the number of cases the

police were able to bring forward. Consequently, this work was provided on a moonlighting

basis with police litigation support ultimately representing a very small percentage of these

accounting practices and valued more as a marketing device than a significant source of revenue,

“[The police] have always needed accountants. It’s just never been called [forensic accounting].

Who would typically do it? Your big audit firm one partner do a little file here, another guy do a



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little file here but never concentrated together in one spot” (Forensic Accountant #16: 2). The

one exception to this model emerged in 1975 when two accountants, Don Holmes and Bob

Lindquist, left their respective accounting firms and established Lindquist-Holmes, the first

dedicated forensic accounting firm in North America. Reflecting the nature of demand at that

time, the caseload of the firm consisted primarily of “litigation support” work for the RCMP as

well as provincial and municipal economic crime units. This was supplemented by more

traditional accounting and auditing functions as well as some civil litigation support work. This

pattern continued up to the early 1980s during which time a full 90% of the caseload of

Lindquist Holmes featured the police as the primary client.

However, starting in the mid 1980s, all of this began to change as the firm expanded its

mandate to include a variety of supplementary accounting and investigative services in areas

ranging from asset tracing and recovery, to due diligence, to corporate investigations, to various

forms of civil litigation work. In expanding into these new markets, the firm quickly realized that

commercial litigation support and corporate investigations were not only much more profitable

than traditional police support work, but also more manageable allowing the firm to generate its

own work as well as to control the flow and pace of engagements. These alternative revenue

streams grew to the point that by the late 1980s the firm’s involvement in police work had

declined to about 10% of its overall caseload.

With fraud emerging as a growing concern of corporations in the 1980s and 1990s and

the police facing budget cuts which impaired their ability and willingness to tackle even the

smallest of economic crime cases (Palango, 1998; Williams, 2008), the major accounting firms

sensed an opportunity and following the lead of Lindquist Holmes established their own forensic

accounting units. This included what was then known as KPMG, Deloitte and Touche, Arthur



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Andersen, Enrst and Young, and PriceWaterhouseCoopers. These investments were also seen as

a means of boosting firm revenues during the economic downturn of the 1980s, a period of

industry-wide retraction characterized by greater competition and the declining margins and thus

profitability of the traditional audit function (Lawrence, 1998). The development of forensic

accounting may thus be viewed in the context of the expansion of accounting firms into a range

of consulting services, the ripple effects of which extend all the way through to the late 1990s

and early 2000s and the collapse of Enron and Arthur Andersen.

Another important aspect of this critical period of development for forensic accounting in

Canada was the hiring not only of forensic accountants but also a significant number of former

police officers as well as investigators and analysts sporting a range of public and private sector

backgrounds. This was part of a more general strategy to create independent units which could

provide investigation and accounting services to clients within the context of a “turn key” model

of fraud investigation and prevention, a type of private police force dedicated to economic crime.

KPMG was perhaps the most aggressive proponent of this model hiring former RCMP

commissioner and former president of Interpol, Norm Inkster, to head its new forensic

accounting unit KPMG Investigation and Security Inc.. With Inkster at the helm, the firm hired

several former RCMP investigators many of whom had been with the commercial crime section

during its heyday in the 1970s and early 1980s. Having completed the mandatory twenty-five

years of service, they were now able to retire from the force while supplementing their pensions

with attractive private sector salaries. While perhaps not as deliberate or as extensive, similar

investments played out at a number of accounting firms with former police officers thus

occupying a critical position in the history of forensic accounting in Canada.



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The development of forensic accounting as a distinct area of professional practice thus

has its roots in the unique relationships between the police and private sector accounting firms

that first emerged in Canada in the 1970s and 1980s. The involvement of accountants in the

investigation of economic crime, including litigation support and expert witnesses’ testimony,

presented a natural opportunity for the expansion of the accounting profession in the 1980s and

1990s with firms seizing on the forensic accounting brand as a means of countering competitive

pressures and boosting firm revenue. This model has since been seized upon by firms in a

number of national contexts with forensic accounting in Canada now dwarfed by its growth in

places such as the U.S., Europe, and Asia which boast larger markets and generate a much larger

volume of work. Beyond its Canadian roots, this brief history also reveals that forensic

accounting is intimately bound up with the prospects and growth strategies of the accounting

industry as a whole as well as contributions from several different occupational groups including

former police officers and corporate investigators working not only out of the top-tier forensic

accounting firms and smaller boutique accounting practices, but also a host of corporate

investigation and private investigation agencies. It is in light of this diversity of services and

players that forensic accounting is best understood as an industry rather than simply a profession,

what I have referred to in previous work as the “forensic accounting and corporate investigation

(FACI) industry” (Williams, 2002; 2005a; 2005b; 2006). This dramatic growth of the FACI

industry has triggered a series of critical questions regarding standards, oversight, and

accountability as well as the very identity of forensic accounting itself. The result has been a

series of efforts aimed at institutionalizing and protecting the professional brand.

ACCREDITATION AND CERTIFICATION



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With forensic accounting, or what is sometimes referred to as investigative and forensic

accounting, continuing to experience significant growth, a key concern in the industry is the ease

with which untrained and inexperienced accountants may simply “hang out a shingle” and

market themselves as forensic accountants. Many of the senior forensic accountants I spoke with

related anecdotes of less qualified individuals – “cowboys” and “dabblers” – entering the field

and calling themselves forensic accountants, while providing a largely inferior service. In the

words of one senior forensic accountant,

I am very concerned that there are individuals out there who hold

themselves out as forensic accountants. . . they have never been near a

fraud case. . . I think our industry needs people who are at it full-time and

the people who skip in and out the way the wind is blowing or whatever. .

.on the one hand it's to my betterment because I know they're going to

screw up at some point. . . But that is a real concern of mine (Former

Police Officer #7: 9).

Remaining with the wild west theme, David Debenham, an Ottawa-based lawyer, indicates that

this self-branding remains a significant cause for concern,

It’s the Wild West out there. People call themselves forensic accountants,

but they are not. Or a forensic accountant may tell you that he is the right

person for the assignment when, in fact, it’s a job for an investigator. You

may even get a good investigation out of it, but it will cost you five times

as much. You have to be a wise shopper (cited in Benedict, 2013: 30).

This fluidity of entry and exit, combined with the lack of professional or institutional ownership

of the forensic accounting brand, thus remains a serious cause for concern.

In response to these growing pains, there have been a number of efforts to codify and

protect the “forensic accounting” brand, part of what Lawrence (1998) describes as a “struggle

within the Canadian forensic accounting community to establish some institutional framework

that will privilege and protect their esoteric knowledge and provide a foundation of institutional

legitimacy for their work” (1118). One of the most notable initiatives in the Canadian context has



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come from the Canadian Institute of Chartered Accountants (CICA), the professional body

representing the Chartered Accountants of Canada. In 1998, the CICA created the Alliance for

Excellence in Investigative and Forensic Accounting (IFA Alliance), a specialist practice area

devoted to forensic accounting and featuring a new designation – CA.IFA – for those CAs

working in the “investigative and forensic accounting marketplace.” According to one

respondent, there are two ways of qualifying for the CA.IFA designation. The first, for more

established practitioners, is “an hour and a half drill session in front of three people where they

grill you on various areas relating to fraud and investigative accounting” (Forensic Accountant

#4: 6). The other, for more recent entrants to the field, is a four hour qualifying exam followed

by the same in-person interview.

As part of this initiative, the Alliance for Excellence has also developed an educational

program in conjunction with the University of Toronto, the Diploma in Investigative and

Forensic Accounting (DIFA), which is,

designed to provide a graduate professional accountant, or equivalent,

with the skills, knowledge, insights and professional characteristics

necessary to successfully respond effectively to: (1) the challenges of

investigating fraud, other aspects of white-collar crime, and other financial

disputes; and (2) the provision of reports, advice, and evidence to clients,

lawyers, and courts for the resolution of situations relating to possible or

pending civil or criminal legal proceedings (www.utoronto.ca/difa).

The program consists of ten courses delivered over a period of slightly more than two years

primarily through a distance-education platform with two one-week residency periods.

Admission to the program is based on four criteria including: (1) a four year BA degree; (2)

minimum of a mid-B standing in the final year of undergraduate study; (3) two years of relevant

experience in accounting; and (4) two letters of recommendation. While not limited to CAs, this

group typically makes up more than 50% of the average class (www.utoronto.ca/difa). The



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diploma program helps to position graduates for successful completion of the CA.IFA exam and

the subsequent qualification process.

In addition to these forms of accreditation and education, the Alliance for Excellence has

also established a set of “standard practices” designed to “protect the public by ensuring

consistency with a minimum standard of practice to be met by all Chartered Accountants in the

performance of IFA engagements. The Standard Practices also provide a framework for the

application of professional judgment in IFA engagements and prohibit offensive practices”

(www.cica.ca). These standard practices, which came into effect on March 1, 2007, include:

engagement acceptance, planning and scope of work, information collection and analysis, file

documentation, reporting, and expert testimony. Interestingly, these Standard Practices are not

subject to the jurisdiction of the Canadian Auditing and Assurance Standards Board or the

Accounting Standards Board, but rather are upheld and enforced through the Rules of

Professional Conduct of the various provincial accounting institutes thus raising questions

regarding the consistency and uniformity of interpretation and enforcement. Another important

development whose implications remain unclear is the decision in 2013 to merge Canada’s major

accounting bodies and designations, including Chartered Accountant (CA), Certified General

Accountant (CGA), and Certified Management Accountant (CMA), into a single designation and

professional body, the Charter Professional Accountants (CPA) of Canada. It remains to be seen

exactly how these changes will affect the CA.IFA designation and whether this will be expanded

to accommodate a broader range of accounting practitioners.

Moving beyond the formal accounting bodies, there are two additional forms of

accreditation in Canada which focus less on the expertise of a specific professional group and

more on what may be loosely described as subject matter expertise relating to investigative



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accounting and fraud investigation broadly defined. This is the realm not only of professional

accountants, some of whom have chosen to pursue these designations either in addition or as an

alternative to the CA.IFA, but also current and former police officers, private investigators,

regulators, and loss prevention and security professionals, part of a much larger and seemingly

more welcoming tent. The first of these more occupationally-oriented designations is the

Certified Fraud Examiner (CFE) administrated under the auspices of the U.S.-based Association

of Certified Fraud Examiners (ACFE). Established in 1988 by former FBI agent Joseph Wells,

and billed as the “world’s largest anti-fraud organization and premier provider of anti-fraud

training and education” (www.acfe.com), the ACFE likewise provides a code of ethics and

professional standards, continuing education, and disciplinary procedures for its members. With

154 chapters worldwide, including several Canadian chapters, the CFE designation remains one

of the most well known and most sought after designations for fraud investigators.

However, a second option exists in the Canadian context, the Certified Forensic

Investigator (CFI) designation developed by the Association of Certified Forensic Investigators

(ACFI). Established in 1991 by a group of CFEs who felt that the ACFE did not adequately

address Canadian issues, including important legal distinctions between the U.S. and Canada, the

ACFI offers similar forms of accreditation, marketing and branding, ethical guidelines and

professional standards, and a disciplinary apparatus through which action may be taken against

members found to be in violation of these standards. Like its U.S. competitor, the ACFI also

boasts a fairly extensive system of education and training including the publication of manuals,

texts, surveys, and studies. In order to qualify for the CFI designation, a number of criteria must

be met. The first is education. The organization has a rating system whereby an applicant’s

educational credentials are allotted a certain number of points up to a maximum of 45. The



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second criteria is experience which is worth five points per year and applicants are expected to

have three good years of experience in order to qualify. Finally, applicants must pass a

qualifying exam which tests their knowledge about fraud engagements and which is based on a

published fraud manual. For a number of years, this accreditation process was much more

rigorous than the competing CFE designation which was awarded largely on the basis of a $300

membership fee. As noted above, the ACFE has now established its own examination and

certification system with at least part of the competitive advantage of the ACFI thus seemingly

lost.

What emerges from these various professionalization projects is that “forensic

accounting” continues to be rooted in a series of multiple and sometimes overlapping

professional and occupational identities and associated forms of accreditation and oversight. As

with many emerging professions and areas of professional practice, this involves a struggle over

jurisdiction, over the boundaries and limits of these fields of practice and the conditions for entry

(Bourdieu and Wacquant, 1992; Dezalay and Garth, 1996; Bourdieu, 1987; Abbott, 1988).

Beyond their gatekeeping functions, these professionalization projects are also clearly geared to

providing assurances to clients not only that they are purchasing something of value but also that

they are getting what they paid for thus helping to mitigate the caveat emptor logic which has

long pervaded the industry. As noted by one senior forensic accountant in reference to the ACFI,

The ACFI is thus providing an accreditation process. . . It's providing

some assurances that the member has the required mindset, has the

required knowledge to pursue a case of fraud basically from start to finish,

has the knowledge of where they are supposed to go, and what's supposed

to be at the end of it (Forensic Accountant #4: 7).

And yet, the fact that these efforts continue to unfold across a number of different

organizations raises a series of challenges with respect to professional oversight and



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accountability across the industry. Variations in professional status, certification, and codes of

conduct frustrate any attempt to develop universally applicable professional standards or “best

practices” for the industry as a whole. Moreover, the fact that these forms of accreditation and

oversight are administered within the context of what are essentially self-regulatory

organizations whose primary mandate is self-promotion, growth, and protection of the

professional brand also raises doubts as to their effectiveness as vehicles for professional

regulation. Membership in these associations is also purely voluntary and largely a matter of

self-identification. There is thus no formal requirement that one belong to a professional

organization in order to claim the title of “forensic accountant” or “corporate investigator.”

Things become even murkier as one moves into the world of private investigators with whom the

larger firms often contract for specific aspects of investigations ranging from wiretaps to video

surveillance. Here there are even more pressing concerns regarding practices such as over-billing

and the use of “old-style PI kid of tactics. . . go and call a buddy in the cops and do a check here,

call a buddy there and do that kind of stuff” (Former Police Officer #9: 5). While some private

investigators hold CFE or CFI designations, these credentials are much less common at this end

of the industry where investigative practices are concealed through sub-contracting arrangements

and where the lack of direct contact with end clients renders these credentials less necessary as a

form of assurance. And yet, unlike their accounting counterparts, private investigators are at least

subject to provincial licensing requirements. They must be licensed in the province of

jurisdiction in which they work (Groot, 2001). However, even here there are significant gaps as

many investigators are able to avoid these requirements simply by self-identifying as

“researchers” or “security consultants.” Thus, one of the recurring issues within the FACI

industry is the diversity as well as ambiguity with respect to core competencies, qualifications,



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and skill sets with most engagements invariably requiring a complex and delicate mix of

accounting, technical, and investigative skills. This breadth and ambiguity admits individuals

with a range of different backgrounds into the “forensic accounting” tent and creates significant

challenges for forms of oversight based primarily on professional and occupational self-

identification. This begs the question of whether there are forms of legal regulation and

accountability embedded in the larger legal environment in which FACI firms operate and which

extend beyond the remit of professional or occupational self-regulation.

LEGAL ENVIRONMENT

One of the most notable features of the legal environment of the FACI industry is its

sheer diversity. Unlike the police and most regulatory agencies, which are generally bound to

one specific legal regime whether it be criminal law or applicable regulatory statute, forensic

accountants and corporate investigators are able to access and work within an array of legal

avenues depending on the needs and interests of their clients. These range from largely private

and informal avenues such as private resolution or termination with cause, to more public and

thus more visible avenues such as civil recovery and restitution and criminal charges. The legal

frameworks to which practitioners are subject, and thus the opportunities for oversight and

accountability, ultimately depend on which of these avenues are pursued in individual cases. In

this respect, it is notable that the vast majority of cases are resolved at the private end of the legal

continuum through either a private resolution (which may include a warning or some form of

private restitution) or termination with cause. Indeed, this private form of customized justice is

one of the key benefits of the forensic accounting industry as many clients value discretion and

are concerned that investigations and their results remain private, this in the interests of avoiding

embarrassing disclosures.



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These informal remedies are also preferred by industry practitioners themselves who

enjoy considerable investigative latitude and discretion and few legal restrictions. As agents of

the employer, they are able to seize computers and smart phones as well as other work product

and employees are required to answer questions directly posed by investigators. In conducting

investigations and interviewing employees, investigators also benefit from their status as non-

state actors which place them beyond the purview of constitutional protections such as the

Canadian Charter of Rights and Freedoms. This stems from a 1986 decision by the Supreme

Court of Canada which determined that the scope of the Charter is restricted to the activities of

state actors, and thus does not extend to either non-state actors or the sphere of private litigation

(Retail, Wholesale Department Store Union Local 580 v. Dolphin Delivery). The principle

underlying this decision was clearly articulated in a subsequent case where it was affirmed that,

“It is important not to import into private litigation the analysis which applies in cases involving

government action” (Hill v. Church of Scientology of Toronto: 1130). A key implication of this

decision is that private sector investigators are able to conduct their activities in the absence of

Charter scrutiny and related due process protections given that they do not qualify as agents of

the state, this despite their performance of what may be construed as a quasi-governmental

function. This status has since been reaffirmed on a number of different occasions in a variety of

contexts and circumstances (see R. v. Shafie; R. v. Swanarchuk; R. v. Wilson). Thus, the

predominantly private nature of forensic accounting engagements means that investigators are

subject to minimal legal restrictions and, even more importantly, none of the scrutiny that would

normally accompany the civil or criminal process,

Well certainly if you are going to be relying upon the evidence to go into

either a civil case or to take it to the police, how you obtain that evidence

is going to have some impact on its weight. And the courts may in fact

decide that they should give very little weight to the evidence if it was



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obtained by some form of abuse. But if all you're going to use that

evidence for is to establish whether or not something has happened and

fire somebody there may be a lesser standard that needs to be applied or

will be applied. All you want is the goods (Former Police Officer #11: 6).

The ability to freely gather information and interview responsible parties creates

additional concerns in cases involving multiple proceedings where investigators seek to transfer

evidence from one legal sphere to another. Of particular interest is the transfer of cases from the

private and/or civil realm to the criminal domain. Some have argued that forensic investigators

would qualify as “agents of the state” under this type of scenario, hence invoking the Charter of

Rights and Freedoms, once they make the determination that a case is indeed a fraud and is to be

passed on to the police for criminal charges. Others have adopted a more objective yet less

onerous test of contact with the police. That is, if an investigator contacts the police and receives

advice of any kind, they may then qualify as an agent of the state (see R. v. Hadjor). Concerns

have also been expressed regarding the ability of the police to use forensic investigators to obtain

specific forms or pieces of evidence which they themselves would otherwise be barred from

accessing. An example would be wearing a body pack to record a private conversation. While

this is perfectly legal for a private investigator, the police would be required to obtain a search

warrant in order to execute such an action. For Scharbach (1995),

the lesson to be learned from [these practices] seems to be that private

actors should conduct their own investigations before calling the police. In

this way, evidence may be gathered in a manner unavailable to the police.

Further, such evidence is admissible in a criminal trial, whereas it would

be excluded if gathered by the police (45).

Moving into the civil realm, a recurring concern involves the ability of accountants and

investigators, working in concert with legal counsel, to employ civil court orders such as Anton

Piller Orders, Norwich Pharmacal Orders, and Mareva Injunctions in order to produce and secure

evidence and freeze disputed assets. While intended as extraordinary measures to be used in a



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limited number of circumstances, these remedies have become more common in recent years. In

reference to Anton Piller Orders, one respondent commented, “Well I think that what was

initially seen as a highly extraordinary remedy when it was fashioned by the English Courts has,

through the ingenuity of counsel, been applied to a myriad of circumstances” (Lawyer #7: 6).

This is especially troubling given that these remedies can have powerful and crippling effects on

unwary defendants,

There are things that you do in the private sector that are definitely in the

best interest of your client, but not in the best interest of the person or the

company on the other side. We were involved in a case where we executed

an Anton Piller order, a civil search warrant. Our client got the warrant

and basically shut down the competitor for almost two weeks. It was all

legal. It was all done through the courts (Police Investigator #4: 7-8).

In the words of another respondent,

Like the case I was telling you about when we did the Anton Pillar they

were stunned. They were like, 'what the hell are you? Are you the cops?'

'No.' 'Have you got a search warrant?' 'No we've got this.' And they're like,

'what the hell's that?.' They don't know what's coming at them (Former

Police Officer #9: 20).

The roots of these investigative tools and procedures in the civil justice system ultimately place

many individuals at an immediate disadvantage as they possess neither the knowledge nor the

financial resources to respond to these court orders.

A recent development in the Canadian legal environment which may provide greater

legal recourse for the targets of forensic investigations under specific circumstances is the tort of

negligent investigations. In fact, Canada is the only common law jurisdiction to have

acknowledged such a right which allows employees to sue investigators hired by their employers

(although not the employers themselves) to investigate suspected misconduct or wrongdoing in

the workplace. This remedy has its roots in a 2007 decision (Hill v. Hamilton-Wentworth

Regional Police Services Board) which provided for the ability of individuals to sue the police



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for negligent investigations. In 2008, in Correia v. Canac Kitchens, the Ontario Court of Appeal

extended this right to private investigators. In this particular case, the employer hired a private

investigator to work undercover to investigate a series of suspected thefts as well as drug dealing

at Canac’s manufacturing facility. Due to a clerical error by the employer, the investigator’s

report mistakenly identified the plaintiff as the offender instead of another employee with a

similar name. The private investigator subsequently failed to verify the employee information

allowing the error to go undetected. As a result of the investigation, the plaintiff was summarily

dismissed and arrested for theft. The Court of Appeal held that there was a triable issue as to

whether a prima facie duty of care was owed to the plaintiff. Interestingly, in their joint reasons

for judgment, the justices pointed to the growing role of private investigation firms in

investigating workplace misconduct and the lack of industry oversight as the larger policy issue

animating their more liberal interpretation of investigator liability,

In our view, the fact that private investigation firms perform public

policing functions but with limited oversight or clear lines of redress to

those injured by their activities strongly favors extending tort liability.

Where, as here, the private firm performs a function analogous to the

public police, they ought to be subject to similar liability (Correia v. Canac

Kitchens).

Soon after this decision, the case was settled for a confidential sum with no decision thus being

rendered as to whether the private security firm was indeed liable for negligent investigation

based on the facts of the case. With no reported judgments against private investigators and thus

little development in the law since Correia, considerable ambiguity remains with respect to the

exact standard of care owed by private investigators and, more importantly, whether this would

extend to cases involving less obvious forms of misconduct, criminal or otherwise.



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CONCLUSION

Despite entering what many would likely consider to be a more mature phase, forensic

accounting remains very much a work in progress. There have been notable advancements on

several fronts with more stringent forms of accreditation and associated practice standards and

codes of conduct. There have also been efforts to further codify forensic accounting as an

identifiable body of expertise. And yet, these initiatives continue to be split amongst a number of

different bodies which, by their nature, are self-regulatory and geared first and foremost to the

provision of assurances to potential clients rather than the institution of strict forms of

governance and oversight. These bodies also subscribe to slightly different visions of the field

with accounting-based organizations emphasizing formal accounting skills and competencies and

more strictly numerical indicators of anomaly and malfeasance, and groups such as the ACFE

and ACFI putting greater stock in investigative skills and narrative-based forms of evidence

gleaned through strategies such as interviews and surveillance. Concerns likewise remain

regarding the larger legal environment of the FACI industry and limitations to legal oversight

and accountability with the central problem being not necessary widespread illegalities or even

questionable practices, but rather an enabling legal environment which combines low visibility

with fairly extensive rights and powers of investigation. This suggests that, rather than simply

greater investments in professionalization projects and an expanding marketplace of assurances,

what is needed is a more serious and sustained examination of the legal status and powers of

investigators as well as the application of legal devices such as Anton Piller Orders and Mareva

Injunctions. Industry practitioners likewise need to tackle more fundamental policy questions

regarding the appropriate balance between the investigative rights of employers and their

representatives on the one hand, and the rights to privacy and due process on the part of



45

individual employees on the other. Recent developments around the tort of negligent

investigations is an interesting move in this direction, an acknowledgment that investigators exist

in positions of power and thus owe a duty of care to those under investigation. However, with

investigative agencies eager to avoid any further clarification and strengthening of this duty, it is

likely that settlements will continue to be the order of the day in future cases thus rendering this a

largely symbolic right. At the very least, the court’s consideration of the larger policy questions

surrounding the growth of private investigations is a step in the right direction.

Many of the very same issues and concerns are no doubt playing out in other jurisdictions

as the FACI industry continues to grow and expand. And yet, in many respects, Canada remains

somewhat unique as the industry not only has a longer lineage in this country but has come to

occupy a much more prominent role in the detection and investigation of fraud, misconduct, and

malfeasance. Canadian police agencies continue to have a minimal presence in this area and

regulatory bodies, such as the Ontario Securities Commission, are regularly criticized for their

inability to tackle significant forms of market abuse (Williams, 2012). The FACI industry, while

much smaller compared to other jurisdictions, thus has a stronger presence in the Canadian

context and plays a central role in the investigation of financial fraud and misconduct amongst its

various other functions and activities. As a result, Canada will likely continue to represent an

important testing ground for the future development of the industry and the contemplation of

appropriate forms of accountability and oversight.



46

REFERENCES

Abbott, Andrew (1988) The System of Professions: An Essay on the Division of Expert Labour.

Chicago: University of Chicago Press.

Benedict, Michael (2013) “Not All Experts Are Created Equal” Forensic Accounting and Fraud.

3(1): 29-30.

Bourdieu, Pierre (1987) “The Force of Law: Toward a Sociology of the Juridical Field” The

Hastings Law Journal. 38: 805-853.

Bourdieu, Pierre and Loic J. D. Wacquant (1992) An Invitation to Reflexive Sociology. Chicago:

University of Chicago Press.

Dezalay, Yves and Bryant G. Garth (1996) Dealing in Virtue: International Commercial

Arbitration and the Construction of a Transnational Legal Order. Chicago: University of

Chicago Press.

Groot, Norm (2001) Canadian Law and Private Investigations. Toronto: Irwin Law.

Lawrence, Thomas B. (1998) “Examining Resources in an Occupational Community: Reputation

in Canadian Forensic Accounting"” Human Relations. 51(9): 1103-1131.

Palango, Paul (1998) The Last Guardians: The Crisis in the RCMP and in Canada. Toronto:

McClelland & Stewart.

Scharbach, T. (1995) “Private Law Enforcement: Dodging the Charter” Appeal, 1, 42-45.

Williams, James W. (2005a) “Reflections on the Private versus Public Policing of Economic

Crime” British Journal of Criminology. 45(3): 316-339.

Williams, James W. (2005b) “Governability Matters: The Private Policing of Economic Crime

and the Challenge of Democratic Governance” Policing and Society. 15(2): 187-211.

Williams, James W. (2006) “Private Legal Orders: Professional Markets and the

Commodification of Financial Governance” Social and Legal Studies: An International

Journal. 15(2): 209-235.

Williams, James W. (2008) “Out of Place and Out of Line: Positioning the Police in the

Regulation of Financial Markets” Law and Policy 30(3): 306-335.

Williams, James W. (2012) Policing the Markets: Inside the Black Box of Securities

Enforcement. London: Routledge.



47

CASES

Correia v. Canac Kitchens, [2008] O.J. No. 2497

Hill v. Church of Scientology of Toronto [1995] 2 S.C.R. 1130

Hill v. Hamilton-Wentworth Regional Police Services Board (2007) 285 DLR (4th

) 620

Retail, Wholesale Department Store Union Local 580 v. Dolphin Delivery [1986] 2 S.C.R. 573.

R. v. Hadjor [2000] O.J. No. 2978.

R. v. Shafie [1989] 47 C.C.C. (3rd) 27.

R. v. Swanarchuk [1990] M.J. No. 696 (QL) (Q.B.)

R. v. Wilson [1994] 29 C.R. (4th) 302 (B.C.S.C.) 309.

About the author:

James W. Williams, Ph.D., is the author of numerous articles on the forensic accounting industry

and the policing of financial crime appearing in journals such as the British Journal of

Criminology, Policing and Society, and Social and Legal Studies. He has also published

extensively on the regulation of financial markets including his recent book Policing the

Markets: Inside the Black Box of Securities Enforcement.

Documents

Journal of Forensic & Investigative Accounting Surveying the Field …€¦ · A BRIEF HISTORY OF FORENSIC ACCOUNTING IN CANADA There are many different accounts of the official origins