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Forensic Audit

The numerous calls for a Forensic Audit at the North Bay Mattawa Conservation Authority are certainly an understandable reaction from citizens concerned about the financial mess.
The numerous calls for a Forensic Audit at the North Bay Mattawa Conservation Authority are certainly an understandable reaction from citizens concerned about the financial mess. While there may be suspicions by some that fraudulent actions are involved, it really appears that to me that there was simply some poor management and even poorer directorship of the Authority. I do not think that a Forensic Audit is needed.

The normal annual audits ought to have warned management of poor accounting practices if the Generally Accepted Accounting and Auditing practices (GAAP) were not followed. The Auditor’s letter should have been received by the Board at their annual meeting. This should be easy to discover from the minutes and does not require a forensic audit.

Poor accounting and office practices for such a small operation should be easily spotted by any auditor and noted in their management letter. Cash handling and banking are easy to audit or to determine if they are not being done properly. Purchasing practices and payrolls are similarly straight forward auditing jobs. If there were problems and they were reported, then the ‘blame’ moves up the ladder to management. (I am assuming the audits were performed correctly and duly reported to the manager and the Directors.) So I think we can safely eliminate staff as the source of the trouble.

A review of management’s role gets more difficult. Poor management decisions are made every day, most often without any intent to gain personal benefit. Manager’s are human, however if they make too many bad decisions they should be removed by their superiors. It may be beyond a normal audit to discover whether the top brass is receiving benefits of service or cash under the table, but this too would be beyond the scope of a forensic audit unless there is evidence of criminal activity. In a small organization like the Conservation Authority, it is hard to imagine much room for financial finagling although they do have influence on land transactions. But unless a forensic audit had the scope to go outside the Conservation Authority (i.e. a criminal investigation) it would be unlikely to discover these actions.

So who made the decisions that put the CA in such a mess? The next step on the road to perdition is the Board of Directors. While the Board would have little or no information on how well staff is functioning, other than the annual auditor’s management letter, they must have had much more awareness of how management was performing.

Certainly the Board would have approved the business plans for the Interpretative Centre and Jack Pine Hill. They would have looked closely at the financial viability of both and ought not to have approved them if there were not viable or even outside the prerogative of the Conservation Authority’s mandate. If the Board approved these operations and knew they were not viable then the directors have not acted as a prudent person would have and they would be liable. The monthly updates by management to the Board should have warned of impending doom. If the Board did not receive the above information they obviously had no business serving as directors responsible for public and private funds. If nothing was done to correct the problem, then the board is liable.

It is hard to imagine how any director could have personally benefited from transactions at the CA without the auditors picking it up. So a forensic audit would not likely turn up anything new here. Maybe a free ski pass here or there, but nothing amounting to the millions in debt that seemed to have appeared as if by sleight of hand.

So what went wrong at the Conservation Authority that a forensic audit will shed light on? I think we all believe from the media reports that the Authority was poorly managed and directed. Bad decisions were made and continued to be made until enough questions were asked at City Council last fall when the CA approached the City of North Bay to co-sign a loan. The Conservation Authority began unravelling until we now find ourselves today asking for a forensic audit.

The question is who will be held liable and accountable and if there are any avenues open for recovery of the loss is rather easily answered. And the answer will not please many people.

The Councils of the City and its regional partners ought to have known (if they did not) what was happening at the Conservation Authority. They had councillors and appointees on the Board of Directors who had a duty to report to the “shareholder” – the Councils. The City, knowing what a mess the CA was in, went ahead and guaranteed a loan (without any proper collateral) and so they are the ones who are liable now for the end result. Perhaps they weighed the risk of providing skiing for some citizens with the looming loss, although I suspect the other regional partners would have said nay.

The City has a practise of holding directors of their Agencies, Boards and Commissions not liable. It was a standard clause written into the Hydro Shareholder’s Declaration, one with which the Directors of my time, had a problem. Those Hydro Directors wanted to be held liable and accountable for their actions. However, since Council, through its Holding Company, wished to exercise ultimate control (which they did on occasion), the Hydro Board had little choice but to accept the City’s liability clause.

This is one of the few disagreements I had with Vic’s 20/20 Vision – that Hydro should be included in the ABC’s, particularly to separate it from the political process. It was, and is, my belief that the directors of this board should be paid a small stipend and that they should be held liable and accountable for their actions. Perhaps if the Jack Pine Hill venture had been separated from the CA and made a “public” company with the attendant liability, that Board would have acted differently.

But so long as Council wants to accept all liability for the various ABCs actions, partly to attract volunteer members, then we will see that the chips fall near the tree. Directors ought to be held accountable for their actions, otherwise, call them committees of council and openly accept liability. If this were the case with the Conservation Authority, where Directors were liable, I could agree to spending money on a forensic audit.

Without seeing any terms of reference for the Conservation Authority Board, I suspect that they too had a similar non-liability clause, and indeed most volunteer boards would want it. So the City accepts liability and there it ends. The citizens cannot recover damages or losses from its elected officials – all they can do is hold them accountable them at election time. Just as we held the Liberals accountable for their financial mess in the last federal election!

Unless there is cause for a forensic audit based on criminal wrong doing, I cannot support a forensic audit of the Conservation Authority. It appears that everyone involved will be saved harmless except the taxpayer. We can only hope for some kind of financial resolution that lessens the loss (hinted at by Vic on Friday) and importantly, that councils have learned from the experience.




Bill Walton

About the Author: Bill Walton

Retired from City of North Bay in 2000. Writer, poet, columnist
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