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Forensic audit finds 'inappropriate culture of spending' at TNRD under former CAO Sukh Gill

The audit also found there was a lack of control in the finance department and a lack of oversight and governance by the regional district board. The audit looked at financials at the TNRD between 2015 and 2019
TNRD board meeting Dec 16 21
The TNRD board listens to a presentation of the BDO Canada forensic audit on Dec. 16, 2021.

The findings of a forensic audit of spending at the Thompson-Nicola Regional District confirm what was reported in Kamloops This Week’s investigation of the same issue earlier this year.

In its summary, BDO Canada stated: “There was an inappropriate culture of spending within the TNRD, which had the effect of drawing in and involving many employees.”

It found there was lack of controls in the finance department and a lack of oversight and governance by the regional district board.

In February, KTW published a series of stories that detailed hundreds of thousands of dollars of what appeared to be excessive spending under former CAO Sukh Gill, who left the regional district suddenly on Feb. 14, 2020.

Gill was handed a severance package in excess of $500,000 amid a legal agreement that his departure be described as a “retirement.”

The actual reason for Gill’s departure has not yet been explained, but TNRD board chair Ken Gillis has told KTW it was not related to spending issues.

Upon publication of the series of stories, Gillis said the board did not know the extent to which spending occurred and called the amounts “surprising” and “somewhat distressing.”

As result of the KTW stories, the TNRD board ordered a forensic audit and changed numerous policies. In addition, the RCMP began a criminal investigation, which is ongoing.

The forensic audit has been completed and a summary of it was presented at the Thursday, Dec. 16, TNRD board meeting by CAO Scott Hildebrand and BDO Canada representatives Simon Padgett and Jervis Rodrigues.

Auditors cited a number of activities that perpetrated the “inappropriate culture of spending,” activities cited by current and past regional district employees

These activities include many of those cited in the KTW investigation, including:

• Gill’s pay and expenses were significantly higher than CAOs in other regional districts;

• Frequent and excessive level of spending on meals and entertainment;

• Improper splitting of expenses or directing subordinates to pay and claim reimbursement for expenses;

• Purchase and distribution of gift cards and time of a personal nature without specifying who was receiving them.

Auditors also noted expenses reimbursed with no approvals, lack of scrutiny in approving expenses and meal expenses above meal thresholds contained in bylaws and policies of the TNRD.

“The former CAO appears to have created, or encouraged, a culture of bypassing financial internal controls in respect of expense claims,” BDO Canada stated.

In addition, the audit found there was a practice of writing names of people on receipts when those people were not present at dinners, lunches or other events.

Earlier this year, a former TNRD employee told KTW their name was on a receipt, but they said they did not attend that dinner with Gill. Another person at the regional district told KTW their name was attached to an out of town event, despite the fact they were not at that event. Padgett said others during audit interviews also said their names were attached to receipts at events they did not attend.

In the audit’s summary of observations about Gill’s expenses, auditors stated “false listing of employees” and noted Gill charged meal expenses to his corporate credit card in excess of claiming his per diems.

In addition, auditors found that Gill, during a 2019 government trip to Uji, Japan, claimed per diem expenses and charged meal expenses on his personal days.

The audit also reviewed $755,258 in expense reimbursements and found $197,008 (26 per cent) did not have itemized receipts as support and $13,102 (two per cent) had no approvals. The audit noted Gill approved $503,913 (67 per cent) of sampled expenses and chief financial officer Doug Rae, who remains with the TNRD, approved $669,195 (89 per cent) of sampled expenses.

The audit used as an example an expenditure highlighted in the KTW investigation, that of the TNRD spending $8,602.41 to rent a champagne room at the Barefoot Bistro in Whistler on Sept. 13, 2018, during that year’s Union of BC Municipalities convention.

Auditors noted the cost was split into two transactions: “Employee A was directed by Employee B to pay a proportion of the $8,602.41 separately.”

Auditors noted no itemized receipts were provided for expenses and those who attended the champagne room event were not listed in receipts.

In its vendor review summary of observations, auditors raised concerns about the procurement and tendering policy and Gill’s relationships with businesses.

As with the KTW investigation, the audit cited “frequent and excessive level of spending on meals and entertainment” and listed the top 10 food and beverage vendors at which TNRD money was spent between 2015 and 2019.

In order, the audit’s top 10 list includes Nandi’s Flavours of India ($26,836), Terra Restaurant ($20,644), Dorian Greek House ($14,579), Hotel 540 ($10,573), The Keg ($7,157), Bearfoot Bistro ($6,899), Cactus Club ($6,684), Moxie’s ($5,729), Al Porto Ristorante ($5,664) and Mitz Kitchen ($4,924).

(A full list of where money was spent during that time can be found on KTW’s investigation spreadsheet by clicking here.)

BDO Canada offered a number of recommendations to improve corporate governance and oversight, policy and bylaws, human resources, internal auditing and finance department operations. Those recommendations are below.

The BDO Canada forensic audit included more than 20 interviews and a review of more than a dozen policies/bylaws and a review of more than 45,000 email documents and more than 12,000 other documents.

It examined 876 management and 264 board expense reimbursement documents and reviewed all expense documents of Gill. The audit also reviewed 75 per cent of expense documents of seven management staff and 25 per cent of board expense documents.

The audit also reviewed the TNRD’s procurement and vendor process, analyzed Gill’s per diem claims from 2014 to 2019 and looked at telecommunications expenses during the same time span.

Final report not yet released

Last week, Hildebrand told KTW the full report would be released this week, after the presentation to the board.

However, he said at the board meeting that the full report cannot yet be released, pending legal review, as the report is highly sensitive and contains confidential documents.

A copy of the summary presented to the TNRD board can be released.

Both Hildebrand and Rodrigues said they are disappointed that the full report cannot yet be released to the public, but both said that will happen in due time.

“I am confident it will eventually be released once all the lawyers have reviewed all the content and the form of the report,” Rodrigues said, noting the summary presented includes all salient information.

A time-consuming audit

Rodrigues said the forensic audit encompassed more than 1,500 hours of work.

He said that was due, in part, to longer than anticipated interviews, noting people were “very willing to stay longer and talk with us in depth.”

Going forward

“Our staff deserve better and our staff deserve to be heard,” Hildebrand said, referring to the audit that noted staff concerns in the past were ignored.

He added that residents and taxpayers also deserve better.

He said the regional district fully accepts the conclusion of the audit and the mistakes that were made. He said the TNRD should accept and own all recommendations of BDO Canada.

About those recommendations

“There are shortcomings at the board level,” Padgett said, noting the recommendations are meant to be constructive.

Recommendations include:

• the board taking government ethics and financial skills training, at least annually;

• the board should delegate more to audit committee;

• internal audit looks at rotation of all department

• zero tolerance from the top down for any breaches of rules;

• a total review of the organization about is vulnerabilities and have a plan to manage risks. An annual fraud-risk review be implemented.

• enhance and create a formal whistleblower policy, one that is external and confidential (Padgett noted whistleblowing is the No. 1 method for uncovering wrongdoing);

• review TNRD’s code of conduct (for example, family members are not included in conflict of interest rules);

• compensation benchmarking be implemented;

• improve exit interview process as such dialogue may have revealed problems sooner.

• ethics governance and fraud training for human resources department so it can roll them out for all other departments;

• implement internal audits as such an audit would have found this issue and saved the TNRD money in the long run;

• review duties and responsibilities of the chief financial officer position and beef up internal audit role.