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Centres Count on Professional Accountability

Jan 9, 2014

The snowball effect applies to fraud. It starts out seemingly small: a child care centre supervisor decides to pocket the cash a parent hands over to her for a child’s registration fee. Months later, she collects money from families for enrichment program activities and keeps it rather than depositing it in the centre’s bank accounts and recording it as revenue.

With no one looking over her shoulder, the supervisor’s confidence grows. As she builds a reputation in the community and garners the confidence of board members, she decides to increase her salary without authorization from the board. It is not until a tip reveals that the centre’s financial records do not add up that anyone suspects something is amiss.

This situation of accumulated unethical behavior may seem dramatic, but in the past year the College’s Discipline Committee heard three similar cases, all of which have resulted in the suspension or revocation of a member’s Certificate of Registration.

According to Phil Cowperthwaite FCPA, whose firm audits 130 non-profit child care centres annually, fraud can sometimes involve large amounts of money, some totaling tens-of-thousands of dollars. “Typically, management or a board member with control of finances is involved, and when it happens, it’s always a shock,” he says.

However, Cowperthwaite notes that cases like these are quite uncommon, and that he’s only had clients involved in about a dozen illegal activities within child care centres during his 25-year tenure. “There’s probably more [fraud] going on, but the amounts involved are quite small. Audits are not designed to specifically look for fraud, but when we do catch something, it’s usually big.”

Who is Accountable?

Even when incidents of fraud involving large amounts of money occur, perpetrators are not always reported to the proper authorities. Child care centres often wish to get back some of these stolen funds by working out a settlement with the employee.

However, in the early learning and care sector there is not only legal misconduct, but also professional misconduct. Since the establishment of the Early Childhood Educators Act, 2007, when a registered early childhood educator (RECE) violates the ethical and professional standards of the profession, their actions can be reported to the College and investigated.

When a case of alleged fraud is referred to the College’s Discipline Committee, a panel of Committee members determines
if and to what extent the RECE has failed to abide by the Code of Ethics and Standards of Practice, and what sections of the Ontario Regulation 223/08 Professional Misconduct have been violated. Past College hearings have revealed that in all instances, fraud and theft took place over many years before it was noticed. Members admitted to some of their misconduct in some instances but also tried to rationalize their behaviour.

“Everybody has a reason,” says Cowperthwaite. “But, fraud often occurs in a triangle that comprises motivation, opportunity and rationale. When these factors align, the chance of fraud occurring is much more likely.”

It is up to a centre’s Board of Directors to ensure the proper checks and balances are in place so that opportunities for fraud are reduced. Additionally, boards have a fiduciary responsibility to parents and children as they ultimately suffer the consequences of fewer services and reduced funds for staff compensation.

Cowperthwaite says most centres have insurance that partially covers financial losses resulting from fraud, butthat is not always the case. When there is no insurance and the fraud exceeds a centre’s financial resources, child care fees must be raised to cover the loss.

Checks and Balances

Board members have the ability to minimize the risk of fraud by adopting a system that identifies risks and puts proper internal controls in place.

While child care centre boards usually comprise parents and volunteers who may have limited background in financial matters, financial management can be learned through literature, professional development and consultations with auditors.

Board members can also put in place certain protocols that will lessen opportunities for fraud to occur such as always requesting monthly financial statements from management to ensure accountability for expenditures and income. Cowperthwaite says systems that include controls over changes to authorized salary levels and regular comparisons of budgeted to actual expenditures go a long way. By taking these measures, centres might be able to lower the risk of fraud occurring or remaining undetected. Overall, prevention is always key.

The College takes allegations of professional misconduct seriously, and holds members accountable in ensuring their behaviour aligns with the Code of Ethics and Standards of Practice.