In October easyhome announced it had discovered an employee
fraud at one easyfinancial kiosk estimated at $3.4 million
before taxes (see
story). easyhome's Audit
Committee, with the advice and assistance of legal and
forensic accounting advisors, completed its investigation.
According to a statement released yesterday, the
investigation...
"...confirmed that the scope and magnitude of the
employee fraud was as previously disclosed; there was no
evidence to suggest that the perpetrator of the fraud conspired
with others at the Company; there was no indication that senior
management of the Company or any other employee participated in,
knew of or attempted to cover up the fraud; and that while other
instances of fraud have occurred, no other significant instances
of fraud were discovered." Additionally, the Audit Committee made
a number of recommendations intended to improve internal
controls at easyhome, including:
- the preparation by management, in consultation with the
Company's auditors and under the direction of the Audit
Committee, of a detailed plan for the remediation of identified
control weaknesses, to be provided to the Board of Directors for
its consideration and approval
- formal assumption by the Audit Committee of responsibility for
oversight of the Company's anti-fraud programs
- establishing an independent risk management function, including
hiring a Vice-President, Risk Management
- enhancing legal oversight and assessment of potential legal and
reputational risk issues
- adherence to standard operating procedures ("SOP"), particularly
those related to document collection and retention
- hiring qualified Regional Managers and field auditors and
enhancing SOP review procedures
- developing and enhancing reporting and monitoring of key
performance indicators to assist in the identification of
anomalies and trends, including benchmarking the Company against
others in the industry
- remediating or replacing the easyfinancial transaction software
to address certain process control deficiencies.
The Company has either already taken or intends to take in the
near future appropriate action to remediate these issues and
enhance its internal controls. In addition to other initiatives,
the Company has: hired a Vice President, Risk Management with
extensive risk management experience in the financial services
industry, hired two new field auditors who are independent of
operations and three former Wells Fargo employees as
easyfinancial Regional Managers; increased monitoring of
additional key performance indicators; conducted a review of and
made refinements to its standard operating procedures;
introduced modifications to the easyfinancial transaction
software; and will be implementing a new electronic automated
loan decision-making and identity verification tool. The total
cost of the Audit Committee's investigation, a portion of which
may be reimbursed by insurance, is expected to amount to
approximately $2.3 million, which will be expensed in the fourth
quarter of this year.
As previously announced, the Company is in the process of
preparing restated consolidated financial statements for each of
the two quarterly periods of March 31, 2010 and June 30, 2010,
including the respective comparatives, and the annual
consolidated financial statements for the year ended December
31, 2009 and the associated MD&A disclosures, which will be
completed and filed on SEDAR prior to year end."
The total
cost of the Audit Committee's investigation is expected to
amount to approximately $2.3 million.