November 17/05 Report - Discussion on Compliance Audit
12:00 noon (in camera from 12:16 to 1:20 pm)

The council meeting began at 12 noon with deputy-mayor Bill Kelly in the chair. Mayor Di Ianni was absent from the entire meeting, but all other councillors were present. The meeting went in camera at 12:16 to receive legal advice in relation to the compliance audit of the election campaign finances of Larry Di Ianni, John Best and Marvin Caplan. The council emerged from the closed session at approximately 1:20 pm.

The following is the transcript of the questioning of auditor Ken Froese.

Kelly : "Thank you ladies and gentlemen for your indulgence. We're back in open session right now. I believe, after we have received legal advice, that there are some questions of the auditor so Mr Peace can we ask Mr Froese to come forward possibly to the lecturn because I believe there are questions that some of the councillors may have for you. [pause] Always a place at that table for you sir." Froese : "Thank you very much." Kelly : "Welcome. Thank you for being with us this afternoon. . right up to questions. We do have a speakers' list. Councillor McCarthy?"

McCarthy says hello to Froese: "Can you tell me please, if you feel the audit you did was complete." Froese : We have completed the audit as far as the candidate's conduct but we don't feel the audit is complete, no." McCarthy : "Why don't you feel the audit is complete?" Froese : "The campaign finances include schedule one which is the list of contributions from various contributors, and we haven't finished the audit of that piece of it. So each of the items that we listed as a potential - each of the 16 items that we want to still follow up represents an apparent contravention. Now we think it's pretty unlikely it affects the candidate's conduct, but still needs to be evaluated as an apparent violation, or apparent contravention." McCarthy : "So there is in fact some question about contraventions or political conduct that might fall out of that extended audit?" Froese : "Yes. We think it's primarily related to whether or not the contributors have made appropriate contributions, where the candidates have requested information on these and received information so we think it's pretty unlikely that it relates to the candidates conduct, but there is that chance." McCarthy : "Thank you." Kelly : "Councillor McHattie."

McHattie : "Thanks Mr deputy mayor. Just wanted to follow that session that we just heard just to clarify. So the additional work you're suggesting that still needs to be done to carry on the audit a bit further relates to the candidate's situation as compared to the donors. I.E. the donors. You're not interested in whether the donors have done anything wrong, and pursuing the donors? You're interested in the candidates. The audit itself is about the candidates and its to determine whether there's any other illegal or wrongful contributions that the candidate received?" Froese : "It's whether there are any other apparent violations, that's right. And for that we need information from the contributors that goes beyond what's been provided to date."

McHattie : "Just a quick question about the content of your existing report, beyond carrying it on. It's been brought to my attention that the mayor's campaign changed the donor's name for 36 cheques. And I don't know whether that's an issue or not in the context of what you're looking at. It wasn't talked about in your report, so it may in fact not be an issue from your perspective. But I'm just trying to get a sense of all the different possible contraventions. There's different categories of contraventions and I'm just wondering if that's something you were aware of and probably didn't fall into those categories of issues you were looking at. It appears to be outstanding but it may in fact not be so based on your auditor's opinion. Through you Mr chair." Froese : "There are a number of contributions recorded on the schedule as coming from an entity when the contributions were actually from an individual or for two individuals. So those ended up being corrected in later filings and our audit went primarily to the final financial statement file, so by that stage the proper allocations were made." McHattie : "So there's no question in your mind as to whether that's wrong or not? Changing of the names?" Froese : "No." McHattie: "Through you Mr Chair. Well I think that's pretty clear, Mr Chair, and I think we've got a motion in front of us which will get to. I'd certainly be happy to read that motion when we get to that time, to carry on the audit as per the request by the auditor. Thanks." Kelly : "Thank you councillor. We'll entertain motions in a few minutes. We do have a number of people with questions of the auditor. Councillor Ferguson."
Ferguson : "Through you Mr Chairman to Mr Froese. So you just stated that the audit is not complete. Why would you even bring back an incomplete audit back to the city?" Froese : "That is a very good question. I've questioned myself about that one actually. We wanted to be as prompt as possible. The next stage may take a fair bit of time, because we have to ask companies for records related to tax filings, and that information flow can take awhile. We thought that we had completed enough to be able to report on the candidate's conduct. Whereas there's still . with permission to audit, we thought that we would report at that stage, and do a separate report that dealt with the others where we didn't think they affected conduct that's interesting. Looking back, I would probably do it differently." Ferguson : "There's one line in your report that says according to the auditor any apparent contraventions have been . will be on the part of the contributors and not the candidate. Can you explain that?" Froese : "In the additional items, the candidates have requested information from the contributors that, uh, that is not indicative of an apparent contravention of the Act. However, when we look at it, there are still some issues as to whether or not they provided accurate information back. So to determine whether there is in fact an apparent contravention will require us to look more thoroughly. Now we've interpreted candidates as having to go as far as to look at, as . Justice Culver, to look at where there are any obvious inconsistencies or issues, like common addresses, but not to do corporate searches or go beyond that. So in these cases, the candidates have made enquiries. And the enquiries have come back and have said we're not associated or there isn't an issue, or they've been silent, and yet it looks to us as if there are apparent contraventions there. So to get to the bottom of whether there are we have to continue work." Ferguson : "As per the Municipal Act, through you Mr Chairman, do you have the legal authority to go that far as far as the contributors?" Froese : "That's a legal question, and I think you'll probably get some advice from Peter Barkwell. I'm hopeful that we can. We have talked to a lawyer of our own, as well, and we believe we can. But I don't have a legal opinion saying we can." Ferguson : "Who makes that call?" Froese : "I don't think." interruped by Ferguson : "Or our legal opinion . our in house lawyer indicates that is not within the realm of the Act. Okay, I'm paraphrasing Peter. Peter, could you state it for me." Barkwell's response not picked up by the sound system. Ferguson : "I need to know if we can legally do this or can't." Kelly : "Mr Barkwell would you like to comment on that?" [8:33] Barkwell : "Uh, well two things. A little bit more clarity on what the question is that I'm being asked, and secondly if I were to provide you with legal advice in a public forum I would appreciate a council indication that that is permitted. The privilege belongs to council, not to me. As long as council wishes to hear me in public they can." Kelly : "Councillor, would you like to rephrase the question to our solictor? You need your mic on there." Ferguson : "The question seems to be to, okay. First of all the candidate's conduct was cleared in terms of the audit? Yes or no to that." Kellby: "Mr Froese?" Froese : "Yes, I've tried to answer that since it's, uh, it's cleared in relation to their conduct and, but there's a slight chance that in reviewing the 16 additional items, that there's further information." Ferguson : "Now you're saying to make sure this is squeaky clean you've got to pursue the other sixteen?" Froese : "Oh, each of them represent apparent violations, whether or not it affects the conduct of the candidates." Ferguson : "Your opinion is we should go that, should do that. That's fine, but I need to know is that legal, is that by virtue of the simple act that you're saying yes, either way you say it." Froese : "I'm saying I'm not a lawyer." Kelly : "Mr Barkwell?" Barkwell : "So long as the auditor is seeking to answer the question whether there have been apparent contraventions of the Act by a candidate, he is acting within the scope of the Act, and it is, uh, permissible, and indeed our obligation to fund that." Ferguson : "Okay, back to you Mr Froese. Did you not already say that the candidates current conduct was already . that way?" Froese : "I believe that would be in accordance with the Act as Peter has stressed to continue the audit." Ferguson : "Okay. Crass general question. How much time and how much more money." Froese: "The time depends upon cooperation and we estimated to Mr Rinaldo that it was in the range of $13,000." Ferguson : "Even more crass general question. This wasn't an attempt to get more fees?" Froese : "For this we've already spent a lot more time than was [obscured by background comments]. Ferguson : ".councillor McHattie?" McHattie : "I'm suggesting that he is doing." interrupted by Kelly : "Can I please have some order here. Councillor Ferguson has the floor." [McHattie is heard off mic "Embarrassing"]. I'll let the auditor answer the question. If he feels it's embarrassing, I'm sure you can articulate that councillor. Thank you. Um, councillor Whitehead?" Whitehead : "Thank you Mr Froese. Through the chair, have you ever been in a situation of doing something similar with respect to the Municipal Act?" Froese : "Exactly along these lines? No. ." Whitehead : "Do you have standards within the audit, within your own professional organization on how audits are conducted? Is that correct? Through the chair." Froese : "That's correct." Whitehead : "And you believe that your recommendation on this particular audit is consistent with those standards?". Froese: "Yes." Whitehead : "Uh, you indicated that you had sought, or had discussions with outside lawyers with respect to the Act. Was it the advice of those lawyers that you're certainly within the Act in regards to pursuing the balance of this audit?" Froese : "I didn't request a legal opinion. Their view was that it was consistent with the Act, but I don't have a legal opinion." Whitehead : "Thank you. That's all." Kelly : "Thank you. Councillor Jackson." Jackson : "Thanks Mr deputy mayor. So in essence Mr Froese I've heard you say that the audit is not complete?" Froese : "That's correct." Jackson : "Uh, just curious - status of Mr Caplan's audit please?" Froese: "Uh, we now have the additional information from the bank that we requested and it should be ready for next week or so. We need to do one more interview with Mr Caplan." Jackson : "Thanks, Mr Deputy Mayor." Kelly : "Councillor Bruckler?" Bruckler : Just a couple of comments to get clarity for my own purposes and that is, the audit to date has indicated that there's no question of .. Correct?" Froese : "That's correct." Bruckler : "And no contraventions of any of the elections act by either of the candidates as well?" Froese : "What we've said is there are apparent violations of the Act and in our view they weren't intentional on the part of the candidates." Bruckler: "I think having said that, we've had this cloud hanging over our heads for some time now. To proceed forward with this and get rid of those concerns which the auditor has - within the context of the Elections Act - I think there's some debate around here as to what is and what isn't not allowable within the Elections Act - I guess as you move forward with this, that will be determined. Thank you Mr. Deputy-Mayor." Kelly : "Further questions? Councillor Jackson I'm going to ask you to take the chair. I just have one question if I could. You mention in your report, and I believe one of the previous speakers alluded to this, but I'm a little confounded by this. The quote from your report is we confirm that we have completed the portion of our compliance audit related to the conduct of Mayor Di Ianni and Mr Best, in accordance with our understanding of the requirements of the Municipal Elections Act 1996. But the portion of the compliance audit related to the contributors to those campaigns is not complete. That's end of quote. Now you're telling us before the committee today that you feel, that well, maybe we haven't completed the audit as opposed to the conduct of the contributors. I'm, I think it's some indication from you is what changed your mind from the time you wrote the report until you appeared before us today?" Froese : "I don't think my mind's changed. Would I word it a little differently? I might. What that was intended to say is that the candidates appear to have acted in accordance with the Act in dealing with these issues. I don't know what will come out in relation to the 16 responses, or the 16 different groups of contributors, but the issues there relate to information provided to the candidates. And when we look into that I'm sure a number of those will turn out not to be apparent contraventions of the Act. Others may be apparent contraventions of the Act. Once we understand the apparent contraventions of the Act, we'll be able to find out whether or not the candidates had any knowledge of that, and we think it's unlikely. That's why we did issue those first reports. We, uh, in these cases a number of these contributors have actually said we're not associated, we were okay in what we did, but things look to us to need more work. If the contributors, as an example, are associated and responded they are not associated, that to us is something that goes to whether or not the contributors acted appropriately. And then we want to ask the second question - did the candidates have any knowledge of that." Kelly : "Can I ask through you Mr Chair, I assume, Mr Froese, this isn't the first audit you've done. You look like a well-travelled and experienced individual?" Froese : "That's right." Kelly : "So you've done a number of audits. Why then would you use language such as I've just quoted in the report and then come back to us and say, well there's a possibilty that that may not be complete? In other words, once you finish your report, and you file that report with the people who contracted you to do it, isn't that your understanding the language in that report is full and complete and that the wording is your word and your indication as to how you feel this audit is done?" Froese : "That's a fair thing to say." Kelly : "Well then why would you come back to us today and say maybe not?" Froese : "Mainly because I didn't realize there would be any issue as to the second piece of the assignment. I assumed it would continue on in the normal course without the level of debate and without the potential of not going forward. So normally we would do the final phase and if there were any adjustments or requirements to change the wording, we would have the chance to do that. But we thought it was appropriate at the end of that stage to give some sense that the candidates had acted appropriately in relation to what we had looked at. So that's why we issued those reports." Kelly : "Again, Mr Chairman, you're just telling us now that according to your report you thought the candidates had acted appropriately, and now you're saying well maybe not. And I'm asking again what was the motivation for you to suggest that all of a sudden well we're not quite sure about that? You already filed the report. You didn't come back with an interim report. You didn't classify this as an interim report. You classified this as your report. Why are you coming to this committee today and saying well now we're not sure?" Jackson : "Mr Froese, one more time please." Froese : "The report does say that we're proposing a second phase. It's pretty clear that we proposed doing more work. I understand what you're saying about the wording, but I don't see any, any problem with what I've written to you." Kelly : "And your indication now not withstanding what you've written in your report is what you seem to be telling us seems to be somewhat contradictory to that, that you want to pursue the contributors and suggest that well maybe it might reflect on the candidates." [there is a disturbance among councillors]. Jackson : "Members of council. Each member of council has their opinion to express. This isn't just Q and A's. They can express their opinion, and councillor Kelly is expressing his opinion along with his questions. Carry on councillor Kelly." Kelly : "Thank you Mr Chairman. I'm simply quoting from the report. This is not a report. I'm quoting from the report, that says, according to this report, that the compliance audits relating to Mayor Di Ianni and Mr Best, in accordance with our understanding of the requirements, uh, that this is done, related to the conduct of these contributors is complete, but these campaigns is not complete. So in other words, you feel that you want to pursue the contributors, and feel that the information that you might garner from that might in fact change your final report?" Froese : "There is that chance. I think it's unlikely, but there is that chance." Kelly : "Thank you Mr Chairman. I appreciate." Jackson : "Councillor Kelly. Are you finished now?" Kelly : "I'll take the chair back. We have some second time speakers?" Jackson : "Yes, McHattie and Whitehead." Kelly : "Councillor McHattie?". McHattie : "Mr Chair, I call the question.". Kelly : "I'll entertain that motion. Do you have a seconder? We'll actually, Brian, I don't know if we have a motion before us right now." McHattie : "Yeah." Kelly : "You didn't present the motion." McHattie : "I can speak to that, Mr Chair." Kelly : "All right, why don't you present the motion, get a seconder, and then we'll have some discussion on that. Brian, do the motion first, and then I'll let you speak to that." McHattie : "Okay. Thanks. The motion is to - there are a number of whereas in the motion. Maybe I'll go to the therefores. The first part is the auditor be authorized to continue the audit of the campaign finances of candidate John Best until such time as the auditor is satisfied that he's identified and reported all apparent contraventions of the Municipal Elections Act by candidate John Best. And part (b) is the auditor be authorized to continue the audit of the campaign finances of candidate Larry Di Ianni until such time as the auditor is satisfied that he's identified and reported all apparent contraventions of the Municipal Elections Act by candidate Larry Di Ianni. And (c) that the auditor be requested to deliver a final report with respect to both candidates, Best and Di Ianni, stating he is satisfied that he has identified all apparent contraventions of the Municipal Elections Act of each of Mr Best, Mr Di Ianni and Mr Caplan. And lastly, (d), General Manager for Finance and Corporate Services be authorized to all reasonable accounts of the auditor performing any such continuations of the audits of Best, Di Ianni and Caplan." Kelly : "Now do you have a seconder? Councillor Collins. Okay. Councillor McHattie do you want to speak to that?" McHattie : "No, I think that's straightforward. It's certainly been proven to my satisfaction that we need to continue the audit. I agree that perhaps it wasn't all that clear in the writing of the first report that we received. But I received clarification here today so I'm satisfied with moving in this direction." Kelly : "Okay. Discussion on the motion? Councillor Ferguson." Ferguson : "Through to you to Froese. Any idea of the timetable?" Froese : "Well, we'll try to proceed as promptly as possible. If we get responses very quickly it's probably still three weeks minimum." Kelly : "Councillor Merulla." Merulla : "Just out of curiousity what would be the worst case scenario?" Kelly : "Mr Froese?" Froese : "I know you have another election next year and we don't want to be reporting in the middle of that, so hopefully by six weeks, would probably be the worst case. We may have to say if we don't get responses in certain cases, this is all we've got and we'll have to report that there may be an apparent contravention. We just don't know. So we'll have to go as far as we can in a certain period of time that's reasonable and then we'll call it finished." [noise and laughter - apparently associated with problems with Merulla's microphone] Merulla : "Now with respect to - no - was it voluntary. The request for information that we put forward, is it voluntary of the contributors, is it something that can be mandated somehow?" Kelly : "Mr Froese?" Froese : "The Act gives us the powers under the Public Inquiries Act. There is a legal opinion as to whether or not someone could dispute whether or not we have those powers, but we will request them under that Act. So it requires them, it requires people to respond to answer questions under oath if we ask them to appear, and it does obligate them to produce records." Merulla : "You made mention of the fact that there's a possibility that they wouldn't comply. Under a worst case scenario, I'm just wondering, what steps would be taken at that time, and it would be through the legal channels?" Kelly : "Mr Froese, I think the essence of the question is if they don't comply, what are your options at that stage, sir?" Froese : "I'll be speaking with Mr Barkwell." Merulla : "Thank you Mr Chairman." Kelly : "Councillor Whitehead." Whitehead : "I was just going to ask that one question for clairification. You are an accountant and do audits of various kinds. The question I have is that it appears to me that you, you had looked at this as an interim report with respect to concluding your audit. Have you ever had an audit interrupted in this way? Did you ever have an audit where there's a second piece to it, that you had to mention in your report?" Froese : "I did a lot of investigating tra. accounting, and in that area that happens quite often. It happens less often in financial statement audits, but quite often in this type of case." Kelly : "Further questions? Hearing none, we have a motion before us moved by McHattie, seconded by Collins. All in favour? Opposed? Motion is carried. Thank you ladies and gentlemen and thank you for the discussion. Mr Froese, thank you for coming before us this afternoon." Froese : "Your welcome." [25:09]