Rev the Report!
May 25th, 2014
Safety certifications sold by the Canadian Standards Association (CSA) don’t mean much. That’s not just the view of RestoreCSA, its the view of CSA certified manufacturers, CSA’s senior managers, and its also the official view of the CSA itself whenever the CSA is hauled into court over unsafe products that they’d certified as being safe.
RestoreCSA recently reported that the actual testing of products for certification is as rigorous and reliable as an Enron audit.
Now we’re hearing that product safety requirements are being manipulated to artificially boost CSA revenue. What does that look like?
Well, inside the CSA there’s a division called the Notices Group. This division is supposed to “help ensure that your products continue to meet the latest standards requirements.” In theory, the Notices Group sends updates to certified manufacturers to advise of changes to various product safety standards. There is no prescribed regularity to such notices, they’re sent at CSA’s pleasure. And that’s where the trouble starts.
Updates from the Notices Group usually require retesting of an already tested product. Upon receipt of Notices Group updates, quoting CSA documentation, “in most cases, re-submittal of samples and / or documentation for testing and / or evaluation by a CSA Group certifier is required.” And, of course, the CSA runs a lucrative product testing facility. So, in sum, the CSA has the power to mandate retesting of certified products whenever it suits them, and then they charge the manufacturers for all that mandated retesting. Its like printing money, and its a pretty big incentive to issue plenty of updates.
This isn’t just a potential problem. According to whistleblowers, whenever CSA has a slow quarter the Notices Group starts churning out new updates. Said one insider, the “updates were for revenue only, a shakedown.” “There were updates without amendments that applied to product lines, [the CSA] charged companies anyway, [and this was done] regularly.” The substance of such updates is usually cosmetic, just enough to justify the new billings. “The Notices Group would up the standard arbitrarily in order to bill for an update. This is called ‘revving the report’.”
RestoreCSA decided to test this accusation against a sizeable chronological sample of recent updates within the Notices Group dataset. If the submitted data is accurate, given CSA’s reporting schedule we should expect to see concentrations of updates in the middle month of each quarter. We should also see a preponderance of updates on or about a single date of issuance, being the presumed date during which the order to “bump” revenue was given. We should finally expect to see a correlation between multiple updates and registrations during the middle month of the quarter. Here’s what we found.
First, 56.38% percent of all randomly sampled updates were issued in the middle month of each quarter. When calculated from the mid-point of each quarter (Feb. 15th, for example), fully 75.53% of the updates were issued during the bottom half of each quarter. Second, 61.7% of all updates in the sample were issued in multiples with other updates. For example, there were eight updates issued for one category on May 22, 2013, another eight updates in the same category on November 19th. In both cases, the date of issuance was in the middle month and after the mid-point of the quarter. Third and finally, 79.25% of all multiple updates were issued during the middle month of the quarter. These are really strong figures folks, politicians would love to win with these numbers. By all three criteria, the Notices Group updates tightly correlate to CSA’s quarterly reporting schedule and we therefore consider them highly suspect.
So how do all these updates get approved? Well, “Milt would rubber stamp the update to get them out, get the revenue.” Who is “Milt”? He’s a colleague of Mustafa and a slick professional in his own right, we’ll deal with him in more detail later this year. Ultimately however, the practice of using the Notices Group to bridge revenue gaps was approved by the CSA’s President of Standards, Ms Bonnie Rose. Whistleblowers don’t waffle much on this one, we’re told that Ms Rose personally “mandated the arbitrary updates.”
Enron was famous for using non-profit centres like the tax or accounting departments to close the gaps between quarterly revenue and expectation. By the middle of the quarter they’d know how big of a gap they needed to close and they’d start conjuring the cash. One Enron manager called these quarterly actions “the stretch.” “‘Every damn year the stretch kept going up,’ [Robert] Hermann would later explain. ‘It just kept getting bigger and bigger. That to me was evidence of the fact [that] we don’t know what we’re doing here’.” Just like the CSA, there was no effective oversight at Enron. And just like Enron, the CSA may shortly be imploding in a wave of scandals.