Q/A To/From the Bank of Canada on their $1.6 M error

After reading the Bank of Canada 2013 Annual Report issued a few weeks back I was stunned to read that they had made a $1.6 Million “inappropriate payment” Stunned because it’s ….THE BANK OF CANADA and stunned because I have yet to find anyone else that drew any attention to the error.  So I proceeded to ask for more information regarding this matter and a few other items including some questions & comments relating to other Unclaimed Amounts including unclaimed/matured Canada Savings Bonds (which I understand now total $420 Million)

I was happy to receive their reply although I can’t say I’m any clearer on how it’s possible that $1.6 Million was paid out “inappropriately” and while I still don’t know if anyone else has concerns about this matter,  I thought I would provide their reply here on my blog.

Their reply to other questions I posed about other Unclaimed amounts will follow shortly as I try to understand their correspondence.

Question to the Bank of Canada re: 2013 Annual Report

Your report notes that

“During 2013, the Bank discovered that $1.6 million had been inappropriately paid to an organization as a result of multiple claims submitted by that organization. The Bank has taken action to recover the funds, and the accounts have been reinstated on the UCBS registry.” Your notes go on further to note that this matter related to the processing of complex multi-account claims made by corporate entities, which have a greater risk of error.”

This is concerning to say the least given the role that the Bank of Canada holds for all Canadians in promoting stability and efficiency of our financial systems & controls and the role the Bank of Canada generally takes in managing our financial risk.

I have a hard time understanding how the appropriate due diligence procedures were not in place to prevent this from very large error from occurring. It’s unclear whether the duplication of claims by the organization referred to was intentional or not. I would appreciate receiving more detailed insight into this issue particularly if this breakdown in internal controls is going to make it even more difficult for Ordinary Canadians to claim their hard earned/tax paid unclaimed balances going forward

Answer from the  Bank of Canada (received April 8 2014)

Since the spring of 2012, a charitable organization has made 4 claims related to unclaimed balances held by the Bank of Canada. 3 of these, valued cumulatively at $1.6 million were paid out in 2012 and 2013. In July 2013, the staff processing the claims became concerned when a fourth significant claim, valued at $1.4 million, was received, and raised the issue to the Bank’s legal department.  A full review of the claim revealed that the organization was not entitled to the accounts claimed, and efforts began immediately to retrieve the funds. The Bank is committed to safeguarding the funds of Canadians that are entrusted to it by law. As the fiduciary, the Bank has the obligation to pursue the return of improper payments. To date, $800,000 has been recovered from the organization. External legal counsel has been engaged to investigate and determine if there is a reasonable prospect of recovering additional funds.

The claims submitted were not duplicates. Based on the results of an independent forensic audit, we have found no evidence that the original requests were fraudulent. However, they did not meet the Bank’s requirements for payment.

A claimant has to file documentation to substantiate they have a valid claim to the funds they have identified. The applications are processed by a team of staff who review the application and related documentation. If title can be reasonably established, a cheque is issued to the claimant. Due to the completeness of the records maintained by the originating banks from whom the balances were transferred, as well as personal circumstances of the account holders, establishing absolute title is sometimes not possible and judgement must prevail.  This can especially be the case for individuals claiming on behalf of account owners who are since deceased, as well as for corporate entities that have been bought out, wound up or merged with other corporate entities. In some cases, a Bond of Indemnity is required when clear and absolute title cannot be established, indemnifying the Bank if a different owner subsequently establishes title to the account.

Upon identifying the weaknesses in the process through an internal review, steps were taken to strengthen the adjudication process and a number of new checks and balances have been established to ensure similar payments are not made. Procedures have been strengthened mainly in the processing of complex multi-account claims made by corporate entities and associations, which have a greater risk of error. The Bank’s requirements reflect the fact that the Bank acts as legal custodian of these funds for the rightful owners. Unclaimed Balances are not Bank of Canada funds, which is why the documentation requirements are in place.

The Bank of Canada has returned some $135 million to approximately 75,000 different account owners over the past 10 years. The Bank has robust practices bolstered by structures that allow the review of procedures and promote accountability, as well as transparency. Mistakes can occur in any organization. The Bank’s record is that when it discovers a mistake has been made, it takes immediate action to correct it. It also takes whatever steps are required to ensure that such an error does not reoccur.  That is exactly what the Bank has done in this instance.

Comments/Questions/Suggestions/ideas ? I would love to hear what other Canadians think