Welcome to Inside Internal Control

The last issue of the PolicyPro Bulletin (December 2007) was really the last issue. The Bulletin has been replaced by Inside Internal Control, and this is the inaugural issue.

We´ve freshened up the newsletter design. But the change in title also signals a more fundamental change in direction. The PolicyPro Library family of products has been supplanted by the new Internal Control Library here at First Reference. What´s the difference? The Policy Pro Library was based on format - each publication was based on the PolicyPro software and format. But the Internal Control Library, and its companion the Human Resources Collection, segment our product line based on the way you, our customers, work.

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Take a look at our new website!

The new look of Inside Internal Control is matched by our new First Reference Website. With a completely redesigned look, and all new content, the new website is easier to navigate and simpler to use. Click here and see for yourself!

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When internal controls go bad....

As a cautionary tale of the impact of failed internal controls, it´s hard to top the amazing story of Jérôme Kerviel, the low-level trader at Société Générale, one of France´s leading financial institutions. Mr Kerviel is now facing charges of forgery, breach of trust and fraud, accused by his employer of causing a loss of 4.82 billion euros ($7.14 billion), which could be the largest-ever trading fraud by a single person.

It´s also generally believed that the fraud affected worldwide economic markets, as the bank desperately tried to unwind some $74.1 billion of bad bets on European stocks. This created a panic on European markets on Monday, January 26th. The U.S. Federal Reserve responded by making an unprecedented emergency rate cut when the U.S. markets opened the next day.

Over the next month or more, we´ll learn more about the details of how Mr. Kerviel subverted the bank´s vaunted risk management and internal control systems. At this point, though, it´s clear that his experience and knowledge of the systems allowed him to keep his activities underneath the bank´s radar.

The Société Générale CEO has likened Mr. Kerviel´s elaborate efforts to hide his activities as being like a "mutating virus." As he said, "The nature of his fictitious and fraudulent operations were constantly evolving. And when the control systems detected an anomaly, he managed to convince control officers that it was nothing more than a minor error."

One of the ironies in this story is that Mr. Kerviel´s financial scheme was probably based on his training in risk control management. Just as hackers are always striving to beat the latest virus control algorithms, there will be fraudsters trying to subvert the latest internal control systems.

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Internet of Things

In our unflagging effort to ensure that our readers are at the forefront of all cool stuff, we write this month about the Internet of Things.

The Internet of Things extends the connectivity of data and people to a connection between people and things, and things and other things - everything from tires to toothbrushes.

The Internet of Things is not a propeller-head´s vision of the future, it´s already here. It is enabled by RFID (Radio Frequency Identification) technology, which we discussed in an article in the August 2006 issue of the PolicyPro Bulletin. It also includes sensor technology, capable of detecting changes in state (e.g. temperature), and nanotechnology, which reduces the size of these other components so they can be incorporated into everyday objects. It also depends on the development of a robust EPC - an electronic product code - that can be used as a unique identifier for every object. Think of the EPC as a Universal Product Code, but expandable to encompass billions of companies and trillions of objects. It´s also electronic, so does not need to be scanned but can be encoded into the RFIDs incorporated into objects.

What kind of cool applications might we see? How about a refrigerator that reports every item in it, checks best-before dates and prepares menu plans?

What problems are inherent in the Internet of Things? Confidentiality and privacy are the biggest ones. When everyday items come equipped with a brain, issues of consent fly out the window.

Want to know more? For a comprehensive paper on the Internet of Things, click here.

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Toronto considering new environmental bylaw

As part of Toronto Public Health´s Healthy People, Healthy Environment initiative, the City is considering a new environmental reporting and disclosure program that would require (through a bylaw) specified facilities to report every year if they use or release specific chemical substances.

In a recent article, Lang Michener LLP comments that such a bylaw would add to the reporting burden of many Toronto businesses, who already report the same kind of data to various provincial and federal government ministries.

For a link to the Lang Michener article click here. For a link to the City of Toronto Healthy People, Healthy Environment site, click here.

See Chapter 5 of Operations and Marketing PolicyPro (OMPP) for ready-to-use environmental management policies and procedures. For more information on OMPP, click here.

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Update on the national do-not-call list

On December 21, 2007 the Canadian Radio and Television Commission (CRTC) announced that Bell Canada would administer the national do-not-call list (DNCL). Bell will be responsible for registering numbers, providing telemarketers with up-to-date versions of the list, and receiving consumer complaints about telemarketing calls. Click here for the news release.

Then on January 28th, it announced that it will seek a third party to investigate DNCL and telemarketing complaints. A Request for Proposal will be issued before the end of February. Click here for the news release.

The CRTC expects the DNCL to be operational by the end of September 2008.

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Coming Soon: Not-for-Profit PolicyPro

First Reference is pleased to announce Not-for-Profit PolicyPro (NPPP), the latest addition to its Internal Control Library. Written by Jeffrey D. Sherman and Stephanie F. Smith (the authors of Finance and Accounting PolicyPro), and co-published by the CICA, NPPP provides expert advice and ready-to-use policies and procedures that Not-for-Profit organizations need in the areas of corporate administration, governance, advocacy, public policy, financial management and human resources.

Not-for-Profit PolicyPro comes at a time when not-for-profit organizations face more risks and potential liabilities than ever before. They have always had a special fiduciary responsibility to protect their clients and assets and to promote their cause appropriately. This burden has become heavier with ongoing changes in law, practice, and public expectations. And NPOs face more governance challenges than for-profit organizations. For example, their boards are often composed of directors who have expertise in the organization´s cause, not the principles of sound governance.

Despite these challenges (and maybe because of them), not-for-profits have a history of effective governance. In fact, many of the improvements made to the governance practices of public companies have long existed in much smaller not-for-profit organizations.

Not-for-Profit PolicyPro is built on this tradition of best practices and responsible governance. Like all the PolicyPro publications, NPPP takes a pragmatic, practical approach that provides board members, managers, supervisors and employees with the guidance they need every day. It contains a full suite of ready-to-use policies and procedures for small and medium-sized organizations. Each policy includes a valuable overview of the considerations that organizations should take into account when developing policies and practices that are right for them. And there are also several primer sections that are designed to give busy executives a quick and easy-to-read briefing on what they really need to know about advocacy, financial management and human resources.

Stay tuned to Inside Internal Control for more details!

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About Inside Internal Control

Editor: Colin Braithwaite, Managing Editor, PolicyPro.

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Inside Internal Control is a complimentary service published by First Reference Inc. and is sent to you monthly. Each issue provides headlines and summaries of news that affects internal controls and policies in Canada.

Please forward Inside Internal Control to your colleagues.

Please send any comments or suggestions about Inside Internal Control to the editor. For information about the Internal Control Library, click here. For more information about First Reference, including our terms of use, disclaimer, privacy policy and other legal matters, visit www.firstreference.com.

This publication is written for informational purposes only and should NOT be relied upon as legal advice or opinions. The reader should always obtain legal advice from a qualified lawyer or other qualified professional, which will be responsive to the case or circumstance of the individual. Please note that the content provided in this Bulletin or any content contained in or made available through any third party website linked to from this newsletter, is provided "as is" without representations or warranties of any kind. All representations and warranties in respect of Content or Third Party Content, express or implied, including, without limitation any representations to warranties or conditions regarding accuracy, timeliness, completeness, non-infringement, merchantability or fitness for any particular purpose are hereby disclaimed.

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