THE FICTITIOUS LAWYER

The Ottawa Citizen reports that a Brockville, Ontario, man allegedly posed as a lawyer to defraud clients of almost CAD $2 million. Police allege the man operated a law office in Ottawa when he pretended to be a lawyer to represent a couple in a civil case and another party in an estate and life insurance settlement case. The man also is accused of pretending to broker a business deal for the manufacturing of pharmaceutical devices among three people, Bristol-Myers Squibb, and the Ministry of Health. He appeared in court last week and is awaiting a bail hearing.

Lessons Learned

  • A common and potentially harmful type of fraud for which auditors should be on alert is misrepresentation, which occurs whenever someone knowingly and willfully falsifies a material fact, makes a false or fictitious representation, or files a false or fictitious claim that results in economic or financial loss to the party to whom the false representation has been made.
  • In this case, the alleged fraud may have been prevented had the man’s clients exercised greater vigilance to verify his credentials through the governing legal professional body that licenses lawyers or by contacting a consumer-protection organization, such as the Better Business Bureau, for previous complaints.
  • For organizations with professionally accredited employees, and the internal auditors who are there to help protect the organization’s integrity, the risks and harm caused by misrepresentation can be even greater and pose negative consequences, such as lawsuits, financial loss, loss of reputation, and criminal fines and penalties.
  • Organizations need to protect themselves against such fraud risks by having in place strong human resource and security policies and procedures as well as the related management controls. These controls may include regularly updated professional requirements, employee security screening and background check processes, and clear and specific values and ethics policies/codes of conduct.
  • Internal auditors should consider this issue when formulating their fraud risk assessments and risk-based audit plans and conduct periodic audits to assess the degree of compliance with the organization’s human resources and security policies, likely with an expectation of little or no tolerance for noncompliance given the nature of this fraud risk. Additionally, auditors should examine the adequacy of management controls in this area and, for example, take into account newer forms of misrepresentation fraud, such as in the cloud computing and biomedicine areas.

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