ONTARIO

SUPERIOR COURT OF JUSTICE

COURT FILE NO.: CR-11-70000264-0000
DATE: 20121102

BETWEEN:

HER MAJESTY THE QUEEN – and – NICK ANGELIS

Grace David, for the Crown

Nick Angelis, representing himself

HEARD: October 9 to 12 and 15 to 19, 2012

M.A. Code J.

REASONS FOR JUDGMENT

A. OVERVIEW

[ 1 ] The accused Nick Angelis (hereinafter, Angelis) is charged in a single count Indictment with fraud over $5,000, contrary to s. 380(1) (a) of the Criminal Code . The fraud is alleged to have taken place over a five year period, from December 1, 2000 until January 31, 2006. This is essentially the period during which Angelis was employed as the accounting manager at Dayco Canada Corporation (hereinafter, Dayco), the victim of the alleged fraud.

[ 2 ] The Crown’s initial allegations were that the total amount of the fraud was $1,313,697.29. Angelis pleaded guilty at the start of his trial before me but he admitted only a fraud in the amount of $303,388.33. The fraudulent means that he used to carry out this fraud were described as follows in the facts admitted on the guilty plea:

Angelis physically altered several cheques that were produced by the Company [Dayco] to pay venders for goods received. He physically altered the cheques by erasing the name of the vendor off the cheque itself, typing his name as the payee in place and forging the initials of the two men he reported to: Mr. Frank Reeves (General Manager of Dayco Canada Corp.) and Mr. Jim Young (Vice-President of Finance, Dayco Canada Corp.).

[ 3 ] There were eleven of these altered cheques and Angelis admitted that he received the proceeds of the cheques. They were generally in large amounts, between approximately $25,000 and $50,000. They were all dated in the period from August 2005 to December 2005, with one exception. This would have been the last five months of Angelis’s five year period of employment at Dayco as he was terminated, effective January 13, 2006, with notice given in November 2005. He was terminated for reasons unrelated to the alleged fraud which did not come to light until a few months after he had left Dayco.

[ 4 ] The Crown accepted the limited facts admitted by Angelis on the guilty plea but proceeded to call evidence on a Gardiner hearing, seeking to prove the full amount of the fraud as an aggravating factor on sentencing. The burden of proof on the Gardiner hearing remains the same, that is, the further amounts must be proved beyond reasonable doubt. However, the rules of evidence are somewhat relaxed in that this aggravating factor on sentencing, namely, a larger fraud than what Angelis had admitted, can be proved by any “credible and trustworthy” evidence, including hearsay that meets this description. See: R. v. Gardiner (1982), 1982 30 (SCC) , 68 C.C.C. (2d) 477 at 513-514 (S.C.C.); R. v. Albright (1987), 1987 26 (SCC) , 37 C.C.C. (3d) 105 at 111 (S.C.C.); and ss. 723 and 724 of the Criminal Code .

[ 5 ] At the end of the Crown’s evidence on the Gardiner hearing, I ruled that certain amounts had not been proved, effectively non-suiting the Crown in relation to these amounts. The two amounts were $39,203.62 in personal goods, paid for by the Company and allegedly received by Angelis, and $54,984.22 in allegedly unauthorized overtime, paid for by the company and received by Angelis. The Crown did not disagree that these two amounts, totalling just under $100,000, had not been proved. Angelis then called defence evidence on the Gardiner hearing but did not testify himself.

[ 6 ] Given that the initial allegation was of a $1.3 million fraud and Angelis admitted a $.3 million fraud, and given that the Crown eventually conceded it could not prove about $.1 million of the alleged fraud, the dispute on the Gardiner hearing was over approximately $.9 million in payments. The Crown alleged that Angelis used various fraudulent means to obtain this money. There is no real dispute that the money was obtained from Dayco and that most of it ended up in three bank accounts, operated by Angelis in his own name or jointly with his wife Angela Brown. A small portion of the money was allegedly received by Angelis in the form of cash. The essence of the dispute on the Gardiner hearing is whether Angelis was authorized to receive these large amounts of Dayco’s money for proper corporate purposes.

[ 7 ] Approximately $540,000 of the disputed total took the form of Dayco cheques made payable to Angelis and approximately $250,000 took the form of direct bank deposits from Dayco into Angelis’ joint account with his wife. These are the two most significant amounts in issue. In addition, Angelis allegedly received approximately $70,000 in petty cash from Dayco and approximately $54,000 in the form of goods or services that were paid for by Dayco but were alleged to be for his personal benefit. This latter form of fraud occurred only in 2005, like the altered cheques, according to the Crown’s allegations.

[ 8 ] The approximately $.9 million total of disputed payments was spread over the five years of Angelis’ employment at Dayco. However, the amounts increased dramatically and were not distributed evenly between the five years. In the first full year of his employment at Dayco, namely 2001, Angelis received approximately $34,000 of the allegedly fraudulent payments. In 2002, he received approximately $78,000. In 2003, he received approximately $188,000. In 2004, he received approximately $307,000. In 2005, he received approximately $280,000. Given that Angelis admitted receiving almost $300,000 in fraudulently altered cheques in 2005, the total amount of the fraud alleged by the Crown in 2005 is approximately $580,000. It can be seen that the quantum of the fraud is alleged to have increased significantly each year that Angelis was employed at Dayco as its accounting manager.

[ 9 ] Angelis brought a Rowbotham Application at the beginning of the trial, seeking a stay of proceedings until state-funded counsel was provided. See: R. v. Rowbotham (1988), 1988 147 (ON CA) , 41 C.C.C. (3d) 1 (Ont. C.A.); R. v. Rushlow (2009), 2009 ONCA 461 , 245 C.C.C. (3d) 505 (Ont. C.A.). I dismissed the Application for reasons released during the trial. I was not satisfied that Angelis was incapable of retaining counsel privately or that representation by counsel was essential to his right to a fair trial. See: R. v. Angelis, 2012 ONSC 5833 . As the Gardiner hearing proceeded, Angelis ably and effectively cross-examined the Crown’s witnesses, with some assistance from me. He was familiar with the documentary record and with the issues, focusing his questions on whether the Crown had proved that the approximately $900,000 in payments were or were not authorized for proper corporate purposes. Although Angelis is detained in custody, I had him brought into court early each day and allowed him generous recesses and adjournments so that he could have access to his documents and have sufficient time to prepare his cross-examinations and his closing submissions.

[10] At the end of the Crown’s evidence, I asked the Crown to assist and have four Dayco employees subpoenaed, as potential defence witnesses on the Gardiner hearing. I also asked the Crown to contact counsel, Mr. Moustacalis, who had a limited retainer to advise Angelis at one point and who therefore had some familiarity with the case. Mr. Moustacalis attended court and I asked him if he was able to advise Angelis about whether he should or should not testify on the Gardiner hearing. Not only did Mr. Moustacalis meet with his former client and provide this advice, he went on to remain in court for the better part of a day and assisted Angelis with the defence case by interviewing the potential witnesses who had attended, helping Angelis decide which ones to call and, finally, conducting an examination-in-chief of one of these witnesses.

[11] Ms. David’s conduct, by assisting Angelis in getting potential defence witnesses to court, and Mr. Moustacalis’ conduct, by providing advice to his former client on short notice and without any retainer, represent the highest standards of professionalism. I am grateful to both counsel for their assistance, as officers of the court, in advancing the due administration of justice.

B. FACTS

(i) Introduction

[12] The victim corporation, Dayco, is a Canadian subsidiary of an American parent corporation, Mark IV Industries Inc (hereinafter, Mark IV). The U.S. parent is a holding company and the Canadian subsidiary, Dayco, is one of a number of operating companies held by Mark IV. These operating companies are mainly involved in various automotive businesses. Dayco manufactures and distributes automotive belts. It is a private company with about one hundred and fifty hourly employees and about forty salaried employees. Its offices and plant are located in Toronto.

[13] Angelis became the accounting manager at Dayco on December 6, 2000. This was a salaried position with no bonus and no overtime. His starting salary would have been about $80,000 per annum. There is no suggestion that any of the approximately $900,000 in disputed Dayco payments to Angelis could have been salary, bonus, or overtime payments. In order to be justified as corporate expenditures, the payments would have to be some kind of authorized business expense that Angelis received, either as an advance against the expense or as a reimbursement after the expense was incurred.

[14] Angelis received notice of termination of his employment at Dayco in November 2005 and continued working until January 13, 2006. As accounting manager for the previous five years, he was responsible for payroll, for payments to Dayco’s vendors, for preparation of financial reports, and for managing four or five employees who worked in his department. Throughout his five years at Dayco, Angelis reported directly to Jim Young, the Vice-President of Finance. Young in turn, reported to Frank Reeves, the General Manager of Dayco which was its most senior executive officer.

(ii) The discovery of the fraud by Newton

[15] On January 16, 2006, immediately after Angelis’ termination, James Newton succeeded him as the accounting manager. It was Newton who first discovered the fraud. He was reviewing Dayco’s inventory costs, in late January 2006, by examining all accounts payable to Dayco’s vendors. He came across an entry in the ledger showing payment to a window company, “FCI Windows”. He thought it odd and looked for the invoice in Dayco’s “vendor files”. There was no “vendor file” for “FCI Windows” and there was no invoice. He looked up the company, phoned them, and asked them to send him a copy of the invoice. When it arrived it showed that the company was in the business of “vinyl windows, doors and solariums”, that it had billed $20,582.70 in June 2005 as the “contract price” for a particular “job”, and it gave Angelis’ name and home address in Tottenham as the recipient of the invoice. It did not look like a proper Dayco business expense to Newton and so he took it to his supervisor, Young, who agreed to look into it. Newton later learned that a call was placed to Angelis about the invoice and that he proceeded to reimburse Dayco for this expenditure. Angelis does not dispute this fact, indeed he brought it out. I infer from this conduct that Angelis acknowledged that the expenditure was personal to him and was not for any proper corporate purpose. In other words, it was a fraudulent payment. It is also noteworthy that Dayco’s invoice for this payment had gone missing. However, since the money was reimbursed, this approximately $20,000 payment must be deducted from any loss to Dayco. It will be recalled that the total amount of personal goods and services, paid for by Dayco and allegedly received by Angelis, is just under $54,000 and so this category of alleged loss should be reduced to approximately $33,000.

[16] Newton continued his review of Dayco’s inventory costs and found another suspicious invoice. It was for the purchase of a Buick automobile from “GMAC of Canada”. The purchaser was one Andrea Brown who gave an address in Newmarket. The invoice was dated in June 2005 and Dayco had paid for the car with a normal business cheque in the amount of $18,230.74. Newton knew Andrea Brown to be Angelis’ wife. Newton again approached Young about the discovery of this second apparently fraudulent payment. Young agreed to take the matter to Reeves. I am satisfied that this was a fraudulent payment as there could be no proper business purpose for Dayco to buy a car for Angelis’ wife.

[17] Newton continued his review of Dayco’s inventory costs and found a payment to “Enterprise Rent-A-Car”. When he looked into it, he discovered that Angelis had rented a car for a six week period, from July 31, 2005 until September 17, 2005. The rental agency was in Brampton and Dayco paid $2,283.54 for the car rental. Newton found this suspicious as the car rental was from a local Ontario agency and it was for an extended six week period, unlike a normal one or two day rental for an out-of-province business meeting. Company policy was to use your own car for local business travel and to expense the mileage. Newton again informed Young of this payment. I am satisfied that it was a fraudulent payment as there is no suggestion that Angelis’ terms of employment included providing him with a personal car.

[18] The fourth and last of the suspicious payments discovered by Newton came to light in early March 2006. He had received a call from one of Dayco’s vendors, “Tiger Direct”, about unpaid invoices. He could not find the invoices in Dayco’s “vendor file” for this supplier. He asked “Tiger Direct” to send him copies of the invoices. “Tiger Direct” was a regular supplier of electronic products to Dayco. Once he received the unpaid invoices, Newton noted that the person who ordered the items was Nick Angelis, or simply “Nick”, and that the address given for shipping was to Nick Angelis at Dayco’s Brampton warehouse. The items included two tablet computers, two laptop computers, two digital cameras, and a laserjet printer. These items had all been ordered by Angelis in December 2005 and had been shipped to him at the Brampton warehouse in December 2005, a month before his employment at Dayco was to end. The total amount paid by Dayco on these invoices was $12,695.66. Newton could not find any of the required approvals in Dayco’s files for this kind of capital expenditure. He also found the shipping address suspicious as the Brampton warehouse refurbished used automotive belts and could not have had any use for these kinds of purchases. Newton called the manager of the warehouse who advised that Angelis had called him, in advance, to advise of the impending delivery of these items. This is an example of reliable hearsay, that meets the “credible and trustworthy” Gardiner standard, because the documentation from “Tiger Direct” confirms what the warehouse manager told Newton, namely, that Angelis had ordered these items and had directed their delivery to a location away from Dayco’s head office at a time shortly before he was to leave his job at Dayco. I am satisfied, in all these circumstances, that they were fraudulent payments. Once again, it is noteworthy that the invoices for these payments had gone missing from Dayco’s files.

[19] After the above four sets of fraudulent payments were discovered by Newton, and after Young and Reeves had been informed of them, a much fuller investigation was ordered by the American parent company. The fraudulent payments uncovered by Newton total just under $54,000 in personal goods and services that Angelis ordered and received during 2005. After deducting the amount that he repaid Dayco, the proved loss to the company is just over $33,000.

(iii) The internal investigation conducted by Langless

[20] The internal investigation ordered by the American parent was carried out by David Langless who was the Manager of Internal Control at Mark IV. He came to Toronto for three days in March 2006, together with two assistants, and they worked with Newton at Dayco’s head office.

[21] Newton had discovered one further item of evidence that was particularly suspicious. In his desk drawer, which had previously been Angelis’ desk drawer, Newton found a cut-out of Jim Young’s signature with the standard approval – “OK” – beside the signature. This small cut-out had obviously been scissored from some document that Young had signed and approved. Newton gave it to Reeves. When Langless arrived in Toronto, he saw the cut-out. Langless also found an original invoice from “Tiger Direct” for the two tablet computers. It showed Nick Angelis as the person who placed the order and who then signed the invoice in December 2005. It also purported to show Jim Young’s approval, with the notation “OK” beside Young’s signature. However, this signature and approval had also been cut-out from another document and then attached to the “Tiger Direct” invoice. This cut-out signature and approval are identical to the one that Newton found in what had been Angelis’ desk drawer. Needless to say, this would not have been an appropriate way to obtain Young’s approval for the purchase of the two tablets.

[22] On the basis of the two cut-out approval signatures found by Newton and by Langless, together with Angelis’ admission on his guilty plea that he forged both Young’s and Reeves’ initials on the eleven altered cheques, I am satisfied that Angelis developed the ability to forge necessary approvals for Dayco expenditures and that he used forgery as a tool in obtaining fraudulent payments from Dayco. Of course, the extent of the forgery and the amount of the loss that it caused Dayco remain to be proved. I note that Jim Young later told the forensic investigators that some of his apparent approvals of payments to Angelis had been forged. This hearsay is reliable, as it is supported by the two cut-outs found by Newton and Langless and by the facts admitted on the guilty plea. However, it also does not assist in determining the extent or number of the forged approvals and the amount of Dayco’s loss. Young did not testify on the Gardiner hearing. He was dismissed from his employment at Dayco and he, apparently, cannot be found.

[23] Langless’ investigation uncovered a total of $509,818.52 paid to Angelis, over the five years of his employment at Dayco, in the form of company cheques. None of these cheques were salary payments, which would have been made by direct deposit and which were recorded in Dayco’s payroll records. The cheques totaling $509,000 were referred to as “vendor cheques”, that is, they were paid by Dayco to some party (referred to as a “vendor”) who would provide supporting documentation and necessary approvals, to justify the payment as a proper business expenditure. Each payee who received cheques from Dayco had a “vendor file” where the supporting documentation and approvals were kept. Angelis was a payee who had two “vendor files” opened each year, one for payments made in that year from Dayco’s Canadian dollar account and the other for payments made from Dayco’s U.S. dollar account.

[24] When Langless and Newton looked for the supporting documentation, to justify the $509,000 in cheques paid to Angelis, they could find none. Newton testified that some of Angelis’ “vendor files” were completely missing from the company records and some of his “vendor files” existed but there were records missing from the files. In addition, some third party vendors like “FCI Windows” and “Tiger Direct”, either had none of the invoices for items ordered by Angelis in their “vendor file” or else there was no “vendor file”, as already noted above. These “vendor files” were kept in the accounting department, in a locked filing cabinet near Angelis’ desk. It was unlocked each morning and the accounting manager had access to these files.

[25] The kind of documentation required to justify payment of cheques to Angelis or for Angelis’ benefit, would be an invoice or initial purchase order, an expense report with attached receipts, or a cheque requisition. These documents all required necessary approvals signed by Young, and by Reeves in some cases. The documentation would then be filed in the “vendor file”. Langless and Newton both testified that there were no cheque requisition forms, invoices or receipts to justify the cheques paid to Angelis totalling $509,000. Langless conceded that a very small number of copies of expense reports submitted by Angelis were found in Dayco’s records. They all lacked the necessary supporting receipts. Langless conceded that these few expense reports that were found had been approved, on their face, by the appropriate person. He could not tell whether the approval was genuine or forged.

[26] Langless concluded that there was no legitimate business purpose for the $509,000 in Dayco cheques paid to Angelis. He based this conclusion on the lack of supporting documentation for the cheques, on the nature of Angelis’ work as an accounting manager, and on reports received from others about the absence of authorization for the cheques. Langless recommended a full forensic investigation to his superiors at the U.S. parent company.

[27] Langless also discovered $57,321.25 in petty cash payments to Angelis over the five year period of his employment at Dayco. Because these cheques are made out to “Petty Cash”, anyone could go to the bank, cash the cheque, and then distribute the cash. The inference that Angelis received some or all of this money, in the form of cash, comes from the fact that he endorsed many of the cheques and the cheque requisition forms, apparently supporting these cheques, are in his name. Unlike the $509,000 in Dayco cheques made payable to Angelis, where no cheque requisition forms were found, Langless did find cheque requisition forms to support the petty cash payments. These forms, in Angelis’ name, lack particularity and they lack supporting receipts. For example, some of the requisitions simply state “travel” or “Buffalo Meeting” or “meetings”, with no detailed breakdown of expenses and no attached receipts. These cheque requisition forms generally have the necessary approvals, for example, with Young’s initials at the bottom of the form. Newton conceded that petty cash advances were used at Dayco to pay for legitimate business travel. It should be noted that other Dayco employees, like Sandy Harrison, Mark Lawrie, Doug Lauzon, Bill Hay, and Jim Young all appear to have filled out cheque requisition forms for petty cash that were just as badly particularized and documented as Angelis’ requisition forms.

[28] There is no doubt that these petty cash cheques received by Angelis were poorly documented and they were not in compliance with Dayco company policy. They lacked any detailed breakdown of anticipated expenses, they lacked receipts and there is no record of any unspent amounts being returned to Dayco. Some of these cheques may be fraudulent and some of the approvals may be forged. However, there are cheque requisition forms to support most of these payments and it cannot be determined which approvals, if any, were forged. These payments are consistent with either generally poor business practices at Dayco relating to petty cash or with fraud. I am not satisfied beyond reasonable doubt that the approximately $57,000 in petty cash payments to Angelis, discovered by Langless, were fraudulent.

[29] In cross-examination, both Langless and Newton agreed that someone had to process all of the cheques and had to post them in Dayco’s computerized accounting records. Normally, an accounts payable clerk within the accounting department would perform these functions. This staff position reported to Angelis. The clerk would normally examine attached invoices, expense reports and receipts, or cheque requisition forms, before issuing a cheque and posting the amount in the computerized accounting records. GST amounts would also be determined by the clerk, from the receipts or invoices, and would be allocated to a separate GST account. Price Waterhouse was the auditor and they would review these processes at the end of each fiscal year. Newton had never posted accounts payable in Dayco’s computerized accounting records but he did post journal entries and he would run reports from the accounting system. His job function, as accounting manager, was to supervise the accounting process rather than posting accounts payable. You needed a password to get into the accounting system and to post the accounts payable. Young could authorize this access and a password could be obtained from Tony Iantorno, the information technology manager, but Newton never asked for such access as he did not see posting accounts payable as part of his job function.

[30] There were two ways to create a cheque at Dayco. There was a regular computerized weekly cheque run, when cheques were issued to Dayco’s regular vendors. The computer would print these cheques with laser signatures of both Reeves and Young affixed to the cheques. There was also a manual cheque process, whenever a vendor had to be paid immediately. The cheque would be typed up and computer signature plates, with Reeves’ and Young’s signatures, would be used to sign the manual cheque, provided it was under $50,000. The signature plates were kept under lock and key in the accounting department. If the cheque was over $50,000 it required a manual signature but none of the cheques made payable to Angelis were over $50,000. Normally, it was the accounts payable clerk who would perform these cheque processing functions. Newton, as the accounting manager who succeeded Angelis, had authority over the computer signature plates and over the manual cheque process. However, he had never personally issued a manual cheque. There was a manual cheque log to keep track of each manual cheque and who issued it. There were three different accounts payable clerks during Angelis’ tenure as accounting manager. They were Tanya Cortez, Gertie Marshall, and Gina Piacente. The $509,000 in cheques issued to Angelis included both manual cheques and the regular computerized cheques issued each week.

[31] Newton testified that the accounting manager position at Dayco involved little business travel. He once travelled to a comptroller’s meeting in Europe but, generally, the Vice-President of Finance (who would have been Young during Angelis’ tenure) attended these meetings. Newton twice went to business meetings in Buffalo, took his own car, and stayed overnight. He once went to a meeting in North Carolina. Newton agreed that there was a Dayco warehouse in Brampton, a Dayco plant in Mississauga, and a Dayco sales office in Montreal but he rarely had any need to travel to these locations. Other typical kinds of legitimate business expenses at Dayco, aside from travel, were expenses for meals, entertainment, parking, taxis, postage, telephone, and conferences.

(iv) The forensic investigation conducted by McPoland

[32] As a result of Newton’s initial findings and Langless’ internal investigation, Mark IV retained a certified public accountant in Buffalo to conduct a full forensic investigation. Timothy McPoland has practiced public accounting and has performed audits of public companies for thirty years. He produced a report dated July 7, 2006 that was supported by two binders of documents. The report and the documents were all filed on the Gardiner hearing and McPoland testified.

[33] McPoland’s forensic investigation confirmed the $509,818.52 in cheques payable to Angelis that Langless had found. In addition, McPoland found another $31,073.50 in similar cheques, leading to the approximately $540,000 total referred to earlier in these reasons. More significantly, McPoland’s investigation found most of the altered cheques, which Angelis has now admitted were fraudulent, and McPoland also found $250,946.19 in direct deposits into Angelis’ and his wife’s joint bank account. McPoland concluded that there was no proper business purpose for any of these payments. He based this conclusion on the absence of any documentation to support and justify the payments. In addition, he relied on the large number of cheques and direct deposits and on the large amounts involved. Finally, he relied on the nature of Angelis’ job and whether an accounting manager could properly incur these kinds of expenses.

[34] On this latter point, McPoland conducted interviews and was told that the accounting manager position involved limited travel and entertainment expenses. Newton’s testimony on the Gardiner hearing confirms this hearsay. McPoland confirmed that Angelis did travel to business meetings in the U.S., in particular, to Buffalo. He also confirmed that Angelis and Young travelled together to meetings. Finally, he confirmed that when Angelis attended training seminars, Dayco would pay the vendor directly for these costs rather than reimbursing Angelis with an expense cheque.

[35] In relation to the absence of any documentation to support the payments to Angelis, McPoland’s testimony was much the same as Langless and Newton. He testified that he could not find “vendor files” for Angelis. He did find some copies of expense reports for Angelis but they were not in a “vendor file”, where they belonged, and they did not have any receipts or invoices attached in order to justify the expense claimed. McPoland conceded that Young’s apparent signature or initials were on these expense reports, signifying his approval. When interviewed, Young asserted to McPoland that some of his apparent approvals of Angelis’ expenses were forged. McPoland did not attempt to separate out the forged approvals from genuine approvals on the few expense reports that he was able to find for Angelis. Young was terminated for cause by Dayco, as a result of McPoland’s investigation.

[36] McPoland confirmed that Angelis did not have a corporate credit card. Angelis brought out this fact and agreed, during oral argument, that its significance was that any legitimate business expenses that he paid for, and was to be reimbursed for, would have been put on his personal credit card. Angelis’ personal credit card statements, or the credit card company’s records of these statements, were never produced on the Gardiner hearing.

[37] McPoland prepared a working document that listed the largest “vendors” who received payments from Dayco over the five years that Angelis held his position at the company. It is the kind of document that auditors often prepare, when reviewing financial statements each fiscal year, based on the company’s accounting records. The working document showed that Angelis received $727,370.54 in “vendor” payments from Dayco over the five years. By comparison, senior executives like Frank Reeves (the General Manager) and Bill Hay (the Vice-President of Sales) received $208,435.99 and $403,864.30 respectively, according to the working document. McPoland reviewed the payments to Reeves and Hay and found that they were properly documented and supported in the “vendor files”. One other employee, Tony Iantorno (the Information Technology Manager) received large payments totalling about $224,000 over the five year period, according to McPoland’s working document. One of Iantorno’s “vendor” files for one year (2004) was missing. Some of the supporting documentation for Iantorno’s other years indicated some expenses that seemed “questionable” to McPoland but they appeared to have been approved by management. Newton testified that Reeves travelled extensively and that Angelis had little travel. The fact that “vendor” payments to Reeves were substantially less than “vendor” payments to Angelis was inherently suspicious to Newton.

[38] McPoland was cross-examined on the fact that the payments to Angelis were recorded in the company’s computerized accounting records. The above working document infers that substantially all of the allegedly fraudulent payments were recorded in some fashion in Dayco’s accounting system. McPoland testified that his investigation revealed that Angelis had access to the accounting system, that Angelis could post journal entries and cheques in the accounting system, and that Angelis could authorize cheque runs. This hearsay was confirmed by testimony on the Gardiner hearing.

[39] McPoland’s investigation found an additional $13,080 in suspicious petty cash cheques, apparently received by Angelis. However, these payments suffer from similar weaknesses to the $57,321.25 in suspect petty cash payments identified during Langless’ investigation. This approximately $70,000 total in petty cash payments to Angelis, spread over five years, has not been proved to be fraudulent to the requisite degree.

(v) Defence evidence on the Gardiner hearing

[40] One of the potential defence witnesses, who was subpoenaed and who attended court, was Iantorno. He was not called to testify but the parties agreed that his evidence was as follows: he had no authority to give Angelis password access to the accounting system; that authority would have to come from the parent company in the U.S.; and he had no knowledge whether Angelis had access to the accounting clerks’ passwords.

[41] The one witness called by the defence on the Gardiner hearing was Gina Piacente. She worked at Dayco from 1991-2008 and was the accounts supervisor. Angelis was Piacente’s manager during his five years at Dayco. She processed cheques, invoices and expenses, posted them in the accounting system, and prepared month-end statements. She had a password that gave her access to the accounting system, in order to do data entry. She did not recall seeing Angelis entering data in the accounting system but she assumed that he had access as he would run reports and he would make changes and correct errors made by the accounting clerks. Angelis certainly had “inquiry” access to the accounting system, as a supervisor. There were three accounts payable clerks over the period that Angelis was their manager at Dayco. They all had passwords to allow access to the accounting system. Angelis had access to their passwords. The passwords were kept in a binder, in case the accounts payable clerks were absent from work.

[42] Piacente described the two cheque issuing processes at Dayco. The regular weekly computerized cheque run was based on those accounts payable that had been entered into the accounting system. Most often, these accounts payable had been properly documented and approved before Piacente would enter them in the system. On occasion, she would have to go to Young to get them approved before she entered them. Sometimes she would ask Angelis to get approval for a cheque and he would return with Young’s apparent approval documented.

[43] Piacente also prepared manual cheques, and entered them in the accounting system, if a cheque was needed immediately. There was a manual cheque log which she would initial, after preparing a manual cheque. Angelis also prepared manual cheques as Piacente would occasionally see his initials in the cheque log. There were two machines used to emboss the amount on the manual cheque and then to sign it. They were kept under lock and key. Angelis had access to the keys. The documentation for a manual cheque was often just a cheque requisition form. Sometimes the requisition had not yet been approved, for example, if Young was out of town. Piacente would issue the cheque on the basis that Young’s approval would be obtained afterwards. She would leave the requisition forms in Young’s office, or send them down to him, and they would come back afterwards with his apparent approval indicated on the form. She knew Young’s signature and believed that the approvals were genuine, although she rarely saw Young actually sign any of the cheque approvals.

[44] Piacente often processed cheques and direct deposits that were made payable to Angelis. For example, she processed his travel expenses. She would check the expense reports, the receipts and approvals, and would then issue a cheque or a direct deposit. In the case of manual cheque requisitions for travel, the particulars were often vague, simply stating “travel” with no back-up and no advance approval. Piacente recalled Angelis travelling with Young to comptrollers’ meetings in the U.S. She recalled that most of Angelis’ travel was to the U.S., although he also travelled to Quebec. She could not recall how much he travelled but thought it was a “fair bit”. Angelis also took employees out to lunch and gave them gift certificates at Christmas. These amounts would all be expensed.

[45] Piacente thought that Angelis’ expenses were excessive and she twice spoke to Young about it. She noticed that his expenses were greater than his two predecessors. She once prepared a list of the twenty largest suppliers to Dayco. She noticed that Angelis was on the list and she thought that this was strange. She showed the list to Dave Dickenson, who was in charge of purchasing, but the matter went no further. Angelis would often come to her late in the day, when Young was not available, to ask for a manual cheque. He would tell Piacente that he would get Young’s approval later and she would issue the cheque on this basis. On one occasion, she refused to issue a manual cheque to Angelis when he came to her late in the evening, after everyone was gone. It was for a large amount, it was payable to some third party, there was no invoice to back it up, and there was no approval. She felt awkward and uncomfortable, refusing to do what her manager had asked her to do. The next day, when she arrived for work, she noticed that her office door was unlocked and that a manual cheque was missing. Angelis had keys to her office and he often stayed late in the evening and came in early in the morning. When she later found the missing manual cheque, after it was cashed, she saw that Angelis had altered the name of the third party payee and had made it payable to himself.

[46] Piacente estimated that she processed as much as $10,000 to $15,000 in payments to Angelis in a month, based either on expense reports or cheque requisitions. The expense reports had back-up and they were usually processed as regular computerized cheques or direct deposits. The cheque requisitions did not have back-up and they were usually processed as manual cheques without prior approval. Angelis’ most common form of payment was by manual cheque based on a cheque requisition.

[47] Piacente testified that Angelis had two “vendor files” for payments to himself, each year, one in U.S. dollars and one in Canadian dollars. The “vendor files” were all kept in a locked filing cabinet near his office. It was unlocked during the day and Angelis had the keys. At the end of the fiscal year these files were put in storage but they were kept on site at Dayco’s offices for seven years. When the forensic investigation was conducted, she retrieved the “vendor files” from storage. She did not recall entire files being missing but she did recall that Angelis’ “vendor files” were noticeably lighter. In particular, she noticed that the cheque requisition forms for the manual cheques were missing. She could not recall whether Angelis’ expense reports were also missing.

C. ANALYSIS

[48] The offence of fraud requires proof of deprivation by dishonest means. The mental element is either knowledge or recklessness as to the deprivation and the dishonest means. See: R.v. Olan et al (1978), 1978 9 (SCC) , 41 C.C.C. (2d) 145 (S.C.C.); R. v. Zlatic (1993), 1993 135 (SCC) , 79 C.C.C. (3d) 466 (S.C.C.); R. v. Théroux (1993), 1993 134 (SCC) , 79 C.C.C. (3d) 449 (S.C.C.). The deprivation element need not involve actual loss to the victim, since risk of economic prejudice is sufficient. However, where actual economic loss is alleged it becomes important on sentencing to prove the amount of loss, especially where restitution is being sought as part of the sentence. See: R. v. Eizenga (2011), 2011 ONCA 113 , 270 C.C.C. (3d) 168 at paras. 97-110 (Ont. C.A.); R. v. Drabinsky and Gottlieb (2011), 2011 ONCA 582 , 274 C.C.C. (3d) 289 at paras. 175-185 (Ont. C.A.).

[49] In the present case, the “deprivation” element was admitted on the guilty plea because the victim corporation suffered over $300,000 in actual economic loss of its monies due to the altering of the payee on eleven Dayco cheques. The real issue is the quantum of the total loss, given that the Crown is seeking restitution of a much larger amount than $300,000. The quantum of the total loss also provides some measure of the gravity of the crime. Similarly, the “dishonesty” element was admitted on the guilty plea as unauthorized taking of corporate monies for personal gain is well-established in law as one species of dishonest means. Once again, the real issue is the extent of this dishonest way of obtaining money. Finally, there is no serious issue as to the mental element. Whatever the amount of Dayco’s money that Angelis took for his personal benefit, without proper authority, it can easily be inferred that he took it with full knowledge and awareness that he lacked proper authority and that he was depriving the victim of its money.

[50] Turning to the real issue, namely, the quantum of the unauthorized monies taken by Angelis from Dayco for his personal benefit, Angelis has admitted fraudulently taking $303,000 by forging and altering Dayco cheques made payable to third parties. In addition, I have found that he fraudulently received the benefit of personal goods and services totaling $33,000 that he has never reimbursed to Dayco. I have rounded these numbers down to the nearest thousand dollars.

[51] Leaving aside the petty cash amounts, totaling about $70,000, and leaving aside the approximately $100,000 amount relating to personal goods and overtime on which the Crown was non-suited, none of which have been proved to the requisite degree, the real issue on the Gardiner hearing is the status of the two large remaining amounts: approximately $540,000 in Dayco cheques made payable to Angelis; and approximately $250,000 in direct deposits made by Dayco into Angelis’ and his wife’s joint bank account. Again I have rounded these numbers down to the nearest thousand dollars. The Crown submits that all of these payments were fraudulent. Angelis submits that they were all legitimate business expenses or that, at least, there is reasonable doubt on the point.

[52] I am satisfied that most, if not all, of these $790,000 in payments to Angelis were fraudulent for the following reasons:

• First, there is no documentation to support and justify these payments. That documentation had to exist, in order to issue the cheques and then enter the amounts in the accounting system. It cannot be a coincidence that the documentation supporting numerous payments to Angelis over a five year period has gone missing. I infer that someone systematically removed it and that there was a reason for removing it;

• Second, the total amount of $790,000 cannot be justified as legitimate business expenses for the accounting manager position at Dayco. Angelis’ two predecessors in this position, and his successor Newton, did not incur these kinds of expenses and the nature of the job did not justify these kinds of expenses;

• Third, the amounts are not regular or even remotely consistent in each year, like ordinary business expenses which tend to recur in a generally consistent pattern and amount. Rather, they increased dramatically each year, often doubling from one year to the next. In 2001, the payments totalled $34,000. By 2004, they had increased almost tenfold to $307,000. I infer that Angelis became more confident as he realized the frauds were going undetected. By 2005, he was committing the most reckless kind of fraud, by simply whiting out the payee’s name and typing in his own name on a cheque. The total payments reached $580,000 in this last year of his employment at Dayco;

• Fourth, petty cash cheques were used at Dayco to pay for normal business expenses like travelling to meetings. These amounts were not large, for example, $400 was advanced to Angelis for a “Buffalo Meeting” and $500 was advanced to him for another “meeting”. I have allowed $70,000 for these expenses, paid to Angelis through petty cash cheques. There cannot be an additional $790,000 in legitimate payments for similar expenses. Payments of this magnitude would have to be for some expense of an entirely different order and there is no such legitimate expense for an accounting manager at Dayco;

• Fifth, more senior employees like Reeves and Hay, who travelled more than Angelis, had significantly smaller amounts of business expenses. Furthermore, their expenses were all properly documented in the “vendor files”;

• Sixth, Angelis had developed the ability to forge Young’s signature and Young’s initials. He had also developed the related ability to have fraudulent cheques entered into the accounting system, without detection. The $303,000 in altered cheques were all fraudulent. The further cheques to FCI Windows, GMAC of Canada, Enterprise Rent-A-Car, and Tiger Direct, totalling $54,000, were also fraudulent. All of these fraudulent cheques were issued, approved, and entered into the accounting system without detection. In spite of these facts, Angelis asks the court to infer that the remaining payments totalling $790,000 were all properly authorized, or to have reasonable doubt on the point, simply on the theory that an accounts payable clerk like Piacente would only issue cheques and enter them in the accounting system with proper documentation and approvals. This submission is belied by the admitted and proved facts which, as noted above, indicate that approvals were forged and that fraudulent cheques were repeatedly issued and entered in the accounting system, without detection;

• Seventh, Piacente’s evidence does not actually help Angelis. Her testimony establishes that Angelis processed his own manual cheques, he had access to the manual cheque machines, he had access to the accounting system, he came into the office early in the morning and stayed late in the evening when no one was there, he had access to the “vendor files”, she once caught him processing a clearly fraudulent cheque that he altered and made payable to himself, she routinely issued cheques to him without approval on the basis that he would obtain Young’s approval, and she rarely saw Young actually sign the approvals. None of this evidence supports the defence, indeed, it strengthens the Crown’s case;

• Eighth, it must have been Angelis who removed his own “vendor files”. He had access to these files and he had the opportunity to remove them, when no one else was present. He admittedly committed a $300,000 fraud during 2005, he had two months’ notice of his termination in late 2005, and I have found that he committed a further $54,000 fraud in 2005 by having Dayco pay for various personal goods and services that he received during that year. He, therefore, had a strong motive to remove any documentation that would incriminate him, prior to leaving his employment at Dayco;

• Ninth, if the $790,000 in Dayco cheques and direct bank deposits were legitimate business expenses incurred by Angelis, some or all of them would be documented in his personal credit card records. It cannot be a coincidence that Dayco’s company records relating to these cheques and deposits, Angelis’ own personal records relating to what he submits are legitimate business expenses, and the third party credit card company records relating to these same expenses are all missing or unavailable.

[53] For all these reasons, I am satisfied that most, if not all, of the $790,000 in payments to Angelis are fraudulent. Out of an abundance of caution, I will round this number down to $600,000, allowing for the remote possibility that Angelis incurred some further legitimate business expenses beyond the $70,000 in petty cash expenses that I have already allowed. Angelis could not have incurred more legitimate business expenses than the C.E.O. of Dayco, Frank Reeves, whose total payments from Dayco over the five year period were $208,000. I have, nevertheless, allowed for $190,000 in business expense payments to Angelis in addition to $70,000 in petty cash payments.

[54] In conclusion, the total economic loss or fraudulent deprivation of Dayco by Angelis, that has been proved beyond reasonable doubt, is as follows:

(i) $303,000 in altered cheques, admitted on the guilty plea;

(ii) just under $54,000 in personal goods and services, of which $20,000 was reimbursed, leaving a loss to Dayco in this category of $33,000;

(iii) $600,000 in cheques made payable to Angelis, and direct bank deposits into his joint account, which could not possibly have been for a legitimate business purpose.

[55] The total amount of the proved fraud is, therefore, $936,000. It is on this basis that the sentencing hearing will proceed.

M.A. Code J.

Released: November 2, 2012

COURT FILE NO.: CR-11-70000264-0000
DATE: 20121102

ONTARIO SUPERIOR COURT OF JUSTICE

HER MAJESTY THE QUEEN – and – NICK ANGELIS

REASONS FOR JUDGMENT M.A. Code J.

Released: November 2, 2012