An investigation by Nova Scotia Auditor General Kim Adair has revealed “gross mismanagement” of public funds in excess of $1 million by Island Employment Association (IEA), the now-defunct Cape Breton third-party employment services provider whose chief funder was the Department of Labour and Advanced Education (LAE), now Labour, Skills & Immigration (LSI).
IEA was headed by executive director Jane Orrell (wife of former Tory Northside-Westmount MLA Eddie Orrell) with “oversight” from a board chaired by Murdoch Moore. The organization closed last November after an investigation by the Office of the Ombudsman (summarized in the Office’s 2020-2021 Annual Report) first found evidence of “misuse or gross mismanagement of public funds.”
Ombudsman William A. (Bill) Smith’s investigation was triggered by a complaint received in September 2018 from “a group of individuals associated with” the agency. Jason MacLean, then-president of the Nova Scotia Government Employees Union (NSGEU) which represented the Island Employment workers, told media those “individuals” were unionized workers at the agency.
The Ombudsman provided an interim report to LAE in December 2020, then issued his final report, which found merit in the complainants’ allegations, in April 2021—four months before the provincial elections that brought Tim Houston’s Tories to power.
Houston’s Labour Minister, Jill Balser refused the NSGEU’s calls for a forensic audit of the agency, instead cutting IAE’s funding—throwing 30 employees out of work—and referring the case to the Cape Breton Regional Police.
But in January 2022, the all-party Public Accounts Committee, after hearing from witnesses including the Ombudsman, voted to ask the AG to conduct a forensic audit of IAE. (Actually, the Tories on the committee initially voted down the motion, which came from the NDP’s Susan LeBlanc, but after the meeting, the PC vice-chair of the committee wrote the chair to say the “no” vote had been an error and that the Tories did, in fact, want a forensic audit.)
On Tuesday, as noted, they got it.
Vacation & OT
The Ombudsman’s report was damning, but pales in comparison to Adair’s. The AG’s report identified issues of mismanagement of public money worth $1,000,900, some of which—$293,000 to be exact—was tied directly to the executive director:
Each of these issues is explained in cringe-making detail which you can read for yourselves, I just want to highlight two items that illustrate the sheer gall involved in this “mismanagement,” some of which occurred after the Ombudsman issued his scathing report and the province terminated its contract with IAE in September 2022.
As part of an early termination agreement, LSI paid out “up to 225 hours or 30 days” of accrued vacation pay per IAE employee. But IAE itself made additional payments (out of “general funds”) to the executive director, who claimed to have accrued 272.5 vacation days, and one of the operations managers, who claimed to have accrued 73.17 days, despite the fact that IAE policy allowed staff, with the consent of the operations manager, to carry over a maximum of five vacation days beyond March 31 of the following year:
…the Executive Director and one of the Operations Managers accumulated substantial vacation hours beyond the limit. Additional payments made by IEA to these staff members were paid out of general funds and could not be tied to a specific funding agreement. The following table represents the number of hours and days of banked vacation attributed to these staff members, and the total amount ultimately paid out after IEA ceased operations. These payments were inappropriately calculated at the individual’s final rate of pay even though the applicable hours had been accumulated at various rates of pay.
By way of comparison, the total accrued employee vacation paid by LSI was $35,470.
The AG found “no evidence of approval of vacation carryover for these individuals” and, in fact, identified 34 days when the executive director was out of the office which “were not accurately accounted for as used vacation days.”
And if you’re wondering where the board was in all this:
Board members indicated they did not track unused vacation or management overtime and had no way of knowing whether the banked figures were accurate.
Although the Board Chair and Vice-Chair signed the cheques for these payments, we noted neither of these individuals appeared to do so with a full understanding of the nature and extent of these payments. There was also no evidence of approval of these payments in the Board minutes to demonstrate this was discussed amongst the full Board.
A similar game was played with overtime (OT): according to the agency’s employment contracts, OT was not paid in cash but could be accumulated and used as time off, with the supervisor’s approval:
Despite this, the Executive Director accumulated significant overtime hours stretching back approximately 20 years without any pre-approval. At termination, the Executive Director’s overtime hours totaled 1,174.88 hours or 156.65 days. This was ultimately paid out at termination; however, LSI did not fund any of it as part of its termination funding, it was paid out of general funds and could not be tied to a specific funding agreement. This payment totaled $54,584.69 before deductions.
The AG, with admirable restraint, writes:
…paying employees for unused vacation and overtime dating back 20 years at their final rate of pay is highly unusual.
“Highly unusual” is one way of putting it.
Also, it is important to note that IEA policies, signed annual employment contracts, and audited financial statements all indicate these amounts were not owed. No other IEA employees received similar payments when IEA wound down. Alternatively, this money should have been donated by IEA to another registered charitable organization to support its work in the community.
I’ll spare you the fudged mileage claims and the double dipping and the “alleged” kickback scheme and the “mismanagement of leasehold improvement costs” to focus on the $339,000 worth of transactions with conflicts of interests, for which there is a helpful flow chart:
Choosing the most egregious example here is not easy, there’s a wealth of riches, but this one kind of jumps out at me, a “Friend of the Executive Director’s relative” received program funding for educational programs:
2014 to 2015: $31,165 in federal tuition funding for two programs paid directly to them by IEA. Claim forms did not contain any receipts or supporting documentation to confirm whether the individual enrolled in the program. All cheques included the signature of the Executive Director as one of the signers.
Governance (or lack thereof)
According to the AG, there is blame all round for the financial and fiduciary mess that was IAE:
You have certain managers and staff engaging in unethical and unprofessional behaviour, a board exercising poor governance, and a department that did not provide effective monitoring and oversight of Island Employment Association and it all led to an egregious mismanagement of public funds.
The AG had a laundry list of “concerns” about the board, headed (for almost 20 years, apparently) by Murdoch Moore:
In fact, the AG was actually unable to say for certain who was on the board because the minutes of board meetings would sometimes note as missing a member who didn’t actually appear on the agency’s “identified Board member listings” (including, presumably, the listing filed with the Registry of Joint Stock Companies):
For example, one member was not included on the Board member listing but was noted as a Co-Chair in meeting minutes from February 2017 to May 2018. Additionally, no mention was made of any absences or voluntary resignations. We also found instances where members ceased to be included in listings without mention of their resignation in the minutes.
Of the 15 principles of good governance laid out in the 2020 to 2022 Nova Scotia Employment Assistance Services (NSEAS) Program Policy, the IEA board met precisely none.
The board had no committees to oversee finance, audit or governance; it permitted board members to receive services from IAE, although this was against its own policies; it did not keep adequate meeting records and those that were kept were not always accurate (the AG says the Call to Order and Adjournment times did not make sense with “meetings lasting either 12 hours or five minutes.”)
The board chair, who “held the role throughout the Executive Director’s almost 20 years of employment,” was responsible for conducting the executive director’s performance reviews:
Through the Executive Director’s employment from 2001 to 2020, there should have been 19 performance reviews; however, the employee file only contained
nine. Additionally, for all appraisals conducted between 2015 to 2020, the Executive Director received a rating of five out of five, representing outstanding performance in every competency area. Annually, there were between 64 to 78 competency areas evaluated; therefore, appraisals do not appear to be objective or reasonable.
The Treasurer was “unaware of their duties beyond signing cheques” and missed 24 board meetings, including 10 of 11 meetings held in one year. The secretary “was not aware their role included responsibility for keeping records of board actions, recording meeting minutes and assuring society records were maintained.”
Protecting Public Interest
The list of LSI failures is shorter but no less concerning:
The Labour Ministers in charge over the monitored period were Liberals in the Stephen McNeil government—Kelly Regan (October 2013 to June 2017) and Labi Kousoulis (June 2017 to February 2021). Fun fact: Regan now serves as chair of the Public Accounts Committee which ordered the forensic audit.
The AG’s criticism of the Department boils down to a failure to follow appropriate processes in awarding funding to IEA in the first place, followed by a failure to oversee IEA’s use of those funds, but these are, of course, huge failures. Without the provincial department’s lax oversight, senior management at IAE would have had no ability to mismanage funds.
It cost LSI $476,986 to terminate its agreement with IAE, but the AG found these costs to be reasonable.
Review & Revise
In my initial reporting on this story, I guessed that the four-year period covered by the Ombudsman’s investigation had been that immediately following the reorganization of the provincial government’s employment services system in 2016 and it seems I was correct.
That restructuring saw the government establish Nova Scotia Works (a “one-stop job search and career advice resource”), end funding for specialized employment services—like those for women or people with disabilities (the Ann Terry Project was a local victim of this consolidation) and shrink the number of employment services providers across the province from 52 to 18. This resulted in the chosen organizations receiving “significantly” more funding—IAE received $9.84 million in Nova Scotia Works funding between 2016 and 2021.
Given the amounts involved and the LSI’s insufficient oversight and management of the funds given to IAE, the AG concludes it is “critically important for LSI to evaluate and monitor whether these organizations warrant entrusting them with annually over $22.8 million of taxpayers’ dollars.”
Adair calls on the LSI to conduct a “comprehensive assessment” of the Nova Scotia Works program beginning with:
Determining whether program objectives have been established and are being met.
(Failing to meet objectives is one thing, failing to the establish them in the first place seems spectacularly irresponsible.)
In fact, the Ombudsman, in his report, also came down hard on LSI (or LAE as it was at the time), calling on the Department to “review and revise” the rules Nova Scotia Works agreement holders were expected to follow and to “ensure that spending by these agencies is conducted in accordance with provincial government policies to promote consistent, sustainable, transparent, accountable, and ethical spending of taxpayer dollars.”
But the LAE, according to the Ombudsman:
…was inclined to move incrementally on changes that might increase their accountability for such agencies, and to bring them closer to complete adherence to main-stream public service procurement and spending standards. LAE also appeared inclined to reflect the issues back to the agency as opposed to considering deficiencies in the program.
Balser, as noted, acted swiftly once in office—too swiftly, according to the NDP’s Labour spokesperson (and MLA for Cape Breton Centre-Whitney Pier) Kendra Coombes who said in a statement on Tuesday:
Today’s report helps bring some clarity and closure to the situation with Island Employment. Years of Liberal government lack of oversight, followed by a hasty decision of the Houston government led to a period of lack of services for the people of Cape Breton and uncertainty for the workers who were left unemployed.
Coombes noted that the report will be discussed during a meeting of the Public Accounts Committee scheduled for later this week.
NSGEU president Sandra Mullen also issued a statement that focused on the impact of Balser’s decision on IAE’s employees:
It was the dedicated workers of Island Employment who brought this misconduct to the attention of government, and this report validates their concerns. Rather than deal with the issues at hand, government tried to make the problem go away by simply ending the contract with the agency, meaning that the workers who stood up and did the right thing were left unemployed. They did nothing wrong, but paid the price for government not providing the proper oversight. It’s not right.
Balser, for her part, said Tuesday said the LSI had accepted all the AG’s recommendations and had already begun to implement many of them, “including requiring service providers to provide more detailed financial information to us, periodic reviews of providers’ financial practices by external auditors, and other monitoring mechanisms.”
Balser also expressed her “sincere thanks” to the people who “did the right thing and reported the misconduct,” to which the NSGEU’s Mullen replied:
The Minister’s thanks does little to help pay the bills, put food on the table or deal with skyrocketing inflation. What they needed was government to have their back and ensure their jobs were protected. This was not their fault, yet they are paying the highest price.
As I reported at the time, government provided IAE workers eight weeks’ severance and left them free to apply for jobs with the service providers that replaced IAE—the YMCA and Conseil de développement économique de la Nouvelle-Écosse (CDÉNÉ). Jason MacLean told Public Accounts that the new jobs were lower paid and offered fewer benefits.
Inner workings
The AG’s report provides what the consultant’s call “granular” detail about IEA’s structure and operations, including this organizational chart showing that by October 2021, the office had 32 staff:
IAE’s responsibilities, according to the AG, consisted of helping Nova Scotians:
- Find a job, write a resume, or cover letter, and prepare for an interview;
- Access computers and accessible workstations, career guidance and coaching, workshops, information sessions and funding for skills training; and
- Connect with potential employers
From 2016 (after the reorganization in employment services described above) to 2022, IEA received 40% of the Nova Scotia Works funding for Cape Breton Island:
The AG’s report says these post-2016 totals represented “a substantial increase” in funding for IAE which:
…extended employment-related services across Cape Breton Island with their main office located in Sydney. It also had offices in Port Hawkesbury, Cheticamp, Inverness, St. Peters and Arichat. The total number of client cases served by IEA between 2016 and 2021 was 13,431 [emphasis mine].
To be continued…
The final line in the AG’s Tuesday press release reads:
The Auditor General – in accordance with the Auditor General Act – has been cooperating with Cape Breton Regional Police’s Major Crime Unit, which has an active investigation underway.
