Firms filling gaps left by public sector

The line between public and private policing is blurring in Canada as government funding for security gets stretched tighter and tighter.

Most of Canada's 1,400 private investigation and security firms are tapping this trend to find new business in areas traditionally patrolled by domestic police forces.

But it is no longer just a game for gumshoes.

In Ottawa, Robin St. Martin has built Iron Horse Corp. from a one-man operation in 1994 to a multimillion-dollar business by filling security gaps left by the public sector. The demand is so great, he is predicting a 35-per-cent increase in revenue for 2005.

"This business is all about investigation and protection, and as the economy grows so does the need for security services," St. Martin says. "People know they will have to pay for it either by increased taxes or by hiring a company like ours."

Revenue reached $1.85 million last year. This year's increase is expected to come mostly from new operations in Toronto.

Since 1998, St. Martin has geared Iron Horse to meet what he calls a phenomenal demand for licensed security guards, which he says has increased guard numbers in Ontario to 40,000 in 2004 from 28,000 in 1999.

Most of Iron Horse's 100 full-time and 300 part-time employees are involved in property protection, which accounts for 55 per cent of the company's business. The company also operates a training academy and graduates are all but guaranteed a job because of a backlog of demand.

"Times have changed. There's a much stronger view of this need for security because of 9/11, but also because prominent businesses know they have to have protection or face serious liabilities," St. Martin says. He adds that the investigations side of his company is also becoming broader.

Like most security companies, Iron Horse offers diversified services and can investigate everything from insurance fraud to theft of intellectual property and marital infidelity.

The scope is becoming so wide that some agencies see their duties as risk-management consultants as much as private investigators.

"Much of the investigation business is about getting information for police or lawyers to use in the legal system. But there's also a growing need within corporations to be able to protect themselves," says Bill Joynt, president of the Council of Private Investigators - Ontario.

"Corporate clients today have all sorts of different requirements and you never know what will pop up next. PIs (private investigators) have to keep pace with crime sophistication," says Joynt, who owns the 110-employee Investigators Group agency in Toronto.

According to many security executives, breaking insurance scams, investigating workers' compensation claims, finding missing people and uncovering information for lawyers remain their core businesses. But they are susceptible to market forces.

"There are parts of the business that come and go, like surveillance. It just shows that agencies have to be far more diversified today and flexible for when those slumps hit," says Geoff Frisby, owner of LCR Consulting Ltd., a two-person agency in Fort Saskatchewan, a suburb of Edmonton.

One effect has been increased co-operation in what was once a fiercely competitive industry. Security companies will now subcontract their expertise to other agencies.

James Thomasen, president of the Private Investigators Association of British Columbia, calls it "service by affiliation" and says it allows smaller agencies to call themselves full-service companies.

One area of investigations that is growing is background checks.

"I've seen a rise in the due-diligence part of employment, where companies want to make sure that prospective employees are who they say they are," says Thomasen, who owns the two'-person Pinnacle Investigations and Security Services Ltd. In Vancouver. "It's expanded into the international level and we're doing background checks in places like the Philippines and the United Kingdom."

Another area that is providing growth opportunities is combating the rapidly evolving styles of theft and fraud. New forms of loss protection often involve technology such as high-end audio-visual surveillance and cyber-tracking equipment.

"The electronic side is new and getting bigger, especially when it deals with identity theft," says John Farinaccio, director of the Canadian Private Investigators' Resource Centre in Montreal. "The demand is being driven by the U.S., because what happens down there comes up to Canada."

A 2003 study on economic crime by PricewaterhouseCoopers found that one-third of companies in North America were victims of fraud and theft, and that the problem of cybercrime was increasing by double digits annually.

As the crimes become increasingly sophisticated, private investigators have to know how to dig deep for information.

Accessing personal information also has become harder since investigators now must have investigative body status under the Personal Information Protection and Electronic Documents Act (PIPEDA) in order to be able to thoroughly examine someone's background.

That is a status that most PIs do not have. In fact, most PIs do not need any certification at all. They do need a licence from Industry Canada, but requirements (except in B.C. and Newfoundland, which have two-year supervisory conditions on licensing) are less stringent than for a driver's permit, says Iron Horse's St. Martin.

"It's the same thing for licensing security guards in Ontario, no minimum standards, and I think it's pretty bad because the business is now all about reputation. When PIPEDA came in it caused a bit of a slump, but I think it was necessary," he says.

"This means as a full-service security company we absolutely must do our due diligence properly and provide top-quality customer service," St. Martin says.

St. Martin, who is about to expand Iron Horse into Quebec, believes there is a need for a national association to create adequate certification for an industry that is now starting to consolidate.

"There used to be a lot of mom'-and-pop shops (in the security guard business) but they're getting bought up by the public multinationals like Securitas and Garda. This is a trend in the whole industry, becoming international because security issues go across borders," he says.

(Mike Levin can be reached at levin@businessedge.ca)