To: Mr. Al Fedoruk, Baltimore Home Investments Ltd.
Date: July 12, 2014
Subject: Controls issues, analysis, and recommendations for your business.
With reference to our meeting of July 6th, based upon the information you provided regarding Baltimore Home Investments Ltd. (BHIL), and in light of the analysis to follow, it is evident that a myriad of control deficiencies was the root cause that enabled unscrupulous individuals to unlawfully wrest control of BHIL from you. In order to aid in the prevention of such a disaster occurring in the future, this memo will focus on detailing the control deficiencies, generating alternatives for future application, and evaluating the ...view middle of the document...
After moving to California, supplementary controls were added:
1) the commission and licensing agreement with Wilbur Washburn (results control);
2) remote monitoring to track many daily activities (action control);
3) monitoring employees’ emotional states (action control);
4) refusing Wilbur Washburn check-signing authority (action control);
5) arranging for all corporate mail to be forwarded to California (action control);
6) monitoring of personnel overhead (action control).
As with prior to the move, there is no evidence to suggest personnel or cultural controls were utilized to any degree.
The company flourished in your presence, and crumbled with your absence. It is not difficult to reason, therefore, that the problems were the result of failures in the control system. Personnel controls, such as selection and placement (regarding Joe Carlson and Wilbur Washburn) were poor, and cultural controls, such as formal written codes of conduct, were non-existent.
Action controls failed in a number of instances:
1) inadequate physical constraints regarding the four signed blank checks and the
removal of loan files from the office;
2) no separation of duties for Wilbur;
3) the failure to obtain timely and sufficient legal advice;
4) poor administrative constraints relating to Wilbur’s ability to collect funds directly
from closing attorneys.
Results controls were also substandard. Monitoring of loan applications beyond the level of the loan officer was inadequate, as electronic links to the processors’ files were not established. The consequences of this deficiency are most evident with Joe’s apparent diversion of applications.
Simply, what was adequate when you were strongly “hands-on” was far too inadequate when you were attempting to control BHIL remotely, even with the inclusion of new controls after leaving for California. Compounding matters, proper tone at the top, which helps shape organizational culture, was lost after your departure, with managers failing to serve as role models and the corporate belief system destroyed, the result of employees being led by unethical individuals unwilling to uphold key values (and causing employees confusion as to what values were important).
Alternatives and Decision Criterion
Solutions to these problems, not surprisingly, would involve strengthening company controls, primarily action, personnel, and cultural controls, and alternatives are plenty. Action control alternatives include:
1) implementing electronic links to processors’ files;
2) enforcing segregation of duties;
3) improving physical and administrative constraints;
4) creating and communicating a more detailed set of policies and procedures;
5) requiring two signatures on all checks;
6) obtaining more timely and extensive legal advice and strengthening any
partnership and licensing agreements.
Regarding personnel controls, consideration should be given to...