Nova Scotia’s Public Accounts committee met this morning to discuss this:
Witnesses included:
Ava Czapalay – Deputy Minister, Labour Skills & Immigration (LSI)
William A. (Bill) Smith — Ombudsman
Nancy Hoddinott — Senior Executive Director, Skills & Learning Branch, LSI
Jason MacLean — President, Nova Scotia Government & General Employees Union (NSGEU)
As you may recall, Island Employment (IE) was a third-party provider of employment services whose chief funder was the Department of Labour and Advanced Education (LAE) now Labour, Skills & Immigration.
IE was headed by executive director Jane Orrell (wife of former Northside-Westmount MLA Eddie Orrell) with oversight from a board chaired by Murdoch Moore. The organization closed last November after an investigation by the Ombudsman found evidence of “misuse or gross mismanagement of public funds” and the provincial government terminated its contract with the agency, throwing 30 unionized employees out of work.
Labour Minister Jill Balser refused the NSGEU’s calls for a forensic audit of the agency and in December, referred the case to the Cape Breton Regional Police.
That’s ground I covered in my initial report on the story, I will now add any new information I gleaned from today’s session and I think I will do it by witness.
Czapalay
The Deputy Minister began by stressing that EI was an independent organization and that its board had “sole legal and ethical responsibility” for its operations.
She said the finding of wrongdoing in the Ombudsman’s interim report, received in December 2020, prompted LSI to consult the Justice Department and the Internal Audit Centre. The red flags raised in the final report, received in April 2021, combined with their consultations with Justice and the Internal Audit Centre and the “disappointing lack of reaction from Island Employment’s board of directors and senior management” led the department to end its contract with the agency.
Under questioning, Czapalay elaborated on IE’s response. She said they’d reached out to the board chair for a meeting but he insisted the executive director be present, so they declined to attend. She also said the department “received a note” from IE’s senior management team saying they would like to use some residual funds to increase their salaries. (Ouch.)
Czapalay said:
The employees themselves were not at fault. The fault is with the board and the senior management of Island Employment. The board could have saved these jobs. The board could have responded differently to us, as a major contract provider with Island Employment.
Asked why they didn’t simply replace the board, Czapalay said IE was an independent organization and the province did not have the power to remove the board, adding that the board could have removed the executive director.
Czapalay said that decision to end their contract was conveyed to IE’s executive director on September 22, although staff was not advised of it until October 1. She says the department moved quickly to find a new provider.
In November, according to Czapalay, former IE employees came to them with new information — information not contained in the Ombudsman’s reports. This information prompted them to turn the matter over to the police. Jason MacLean would later state that the new information involved allegations about missing RRSP contributions.
Asked repeatedly why her department had not called for a forensic audit into IE, Czapalay said that they did not believe a forensic audit would reveal anything the Ombudsman’s report had not, while a police investigation would “go beyond what a forensic audit could discover.”
Czapalay also claimed her department had “accepted and completed” the recommendations in the Ombudsman’s report.
Ombudsman
Smith was born in Whitney Pier, one of 10 kids including two sets of twins, which has no bearing on the Island Employment case but is interesting (Smith cited his personal background to explain why he understood the importance of a steady income.)
Smith said his investigation began in September 2018 (which means two years after the 2016 reorganization of the province’s employment services system that increased IE’s budget and responsibilities) but the description of it as a “two-year” investigation is not strictly accurate — he says his office advised the Department of Labour and Island Employment that they were conducting an investigation in April 2019, but it took almost 16 months to get necessary documents — covering four years of operations — from Island Employment.
Smith said they had to send three staff members at various time with their own scanning equipment to gather the necessary documents and that they were “met with a variety of excuses” by IE.
Smith said the initial response he heard from the Department of Labour was that it was planning to pursue a forensic audit and he doesn’t know at what point this plan changed. He also contradicted Czapalay, saying the LSI has not yet “accepted and completed” all the recommendations in his report.
Smith said when he spoke to management at Island Employment, they felt that the Department of Labour was “very conversant” with their operations and business, but when he spoke to people in the LSI, he found the department “basically sends the money out the door” and relies on program policies and guidelines to govern expenditures. But he said the guidelines don’t speak to procurement at all, nor was there any suggestion expense claims and per diems at IE should be “along the lines of provincial rates.”
He also said the department’s “audits” of the agency were “superficial at best” and that it relied on an online system for reporting expenses that was “just a reconciliation of amounts.” If you spent $900, you had to have a receipt for $900, but there was “never any question of whether it was a legitimate and necessary expense.”
The IE board, he said, was aware of many of these practices but “had no concerns with them.” He then shared a couple of terms used in the board world that I’ll record in case you want to sound board-savvy, “Hindsight, oversight and foresight” and “Nose in, fingers out, but not hands off.”
In response to a question, he said it was never their intention that IE’s funding should be cut and people thrown out of work.
“Our recommendations were remedial in nature,” he said, they “saw that ship was off course and heading for rocks” but “thought the vessel could be righted.”
Hoddinott
Hoddinott explained the department’s oversight process that includes meeting with providers on a quarterly basis for financial and activity reporting and an annual review that involves finance, activity, client outcomes, client numbers and items around improving programming.
She said that at some point during every three-year contract they conduct a compliance audit.
In answer to questions from committee members, Hoddinott said they’ve engaged two providers to replace Island Employment: the YMCA, which will receive $1,557,000 annually from the department, and le Conseil de développement économique de la Nouvelle-Écosse (CDÉNÉ) which will receive $281,000.
Hoddinott said the money will fund 23 positions and is “fairly equivalent and close” to what IE received.
MacLean
MacLean accused the government of “throwing the baby out with the bathwater” by cutting IE’s funding instead of following the Ombudsman’s recommendation that they continue to investigate the agency to see whether a forensic audit was necessary.
He said without a forensic audit, “those in management who are responsible are allowed to escape accountability without full disclosure of the truth.”
He also said the new service providers are offering lower pay, fewer benefits and introducing new qualifications that make it hard for previously employed workers to get their jobs back.
MacLean went into some detail about the former IE employees’ concerns about their RRSP contributions, saying they involve missing contributions, inaccurate remittance amounts, unauthorized transfers and, in one case, he said he was told that the interest owed on missing contributions was “paid from a personal bank account.”
He also pointed out that the public can’t view the Ombudsman’s reports, which have not been made public except for excerpts in the office’s annual report.
MacLean says it’s important the public find out the truth about what happened because the former employees — who blew the whistle on their employer thinking they’d be protected — not only lost their jobs but find themselves tainted by the scandal.
Final thoughts
The session began with Shelburne’s PC MLA Nolan Young, vice-chair of the Public Accounts Committee, proposing to make all subsequent meetings virtual until Dr. Robert Strang deems it is safe to return to in-person meetings.
This passed, because the government has a majority on the committee, but as CBC’s Jean Laroche pointed out on Twitter, the NDP and Liberal members voted against the motion “because as they rightly noted” Dr. Strang has no jurisdiction over Province House and his office has not directed the operation of the Legislature.
The Tories ended the session by voting down a motion by the NDP’s Susan LeBlanc to ask the Auditor General to conduct an audit into what transpired at Island Employment.
Kendra Coombes, MLA for Cape Breton Centre-Whitney Pier and NDP Labour spokesperson, issued a statement after the committee meeting:
The government still refuses to answer basic questions about what happened at Island Employment. While I’m pleased these services are returning to Cape Breton sooner than expected, it is disappointing that we still have no answers on why the government was unwilling to guarantee employment to the former workers at Island Employment.
The government was also unable to answer basic questions like how much money was misappropriated and where it went. This is unacceptable and the people of Cape Breton deserve answers.
