CBC News has obtained a copy of the report written by the accounting firm Meyers Norris Penny that says rules at the University of Regina were breached and changes are needed to prevent it from happening again.
The report was ordered in 2011 by the board of the International Performance Assessment Centre for Geologic Storage of CO2 (IPAC-CO2).
Based at the University of Regina, IPAC was a new non-profit company, announced in November 2008, that was going to help set industry rules for the underground storage of carbon dioxide.
The provincial government and Royal Dutch Shell each contributed $5 million. Ottawa kicked in $4 million.
So there was money, and it started to flow.
Later, the IPAC board became concerned about payments that had been made to a private company, Climate Ventures Inc. (CVI), for computer services.
At one point, more than 60 per cent of all the money IPAC was spending was going to CVI, a vendor that had IPAC as its only Saskatchewan customer. By June 2010, IPAC had paid $2.6 million to CVI for IT and other services.
U of R officals under scrutiny
The conflict-of-interest angle, according to the report, was that two university officials — Ian Bailey and Malcolm Wilson — were for a while directors of CVI and also involved in running IPAC in its startup phase, the report said.
"Dr. Malcolm Wilson and Mr. Ian Bailey were both employees of the University of Regina during the period where they acted as IPAC management," the report said.
"The conflict of interest whereby they were directors of CVI, a significant vendor to IPAC, should have been disclosed to either an official at the university or to the IPAC board."
The report goes on to note that Meyers Norris Penny has "no evidence that Dr. Wilson or Mr. Bailey monetarily benefited from their relationship with CVI."
Changes to CVI back-dated, report says
It notes corporate records originally said Wilson and Bailey were directors of CVI as of Aug. 27, 2008. On April 3, 2009, new records were filed that removed them as directors, backdating that removal to Aug. 29, 2008.
The report details some unusual aspects of the relationship between IPAC and CVI, including the fact that CVI was hired without a tender or a written contract being signed. Instead there was an "unexecuted contract" and a "handshake" agreement, the report said.
The "sole source justification" — why CVI was the only company for the job — was provided by the remaining owner of CVI, Henry Jaffe.
"It appears Mr. Jaffe was in an opportunistic position to consult on the creation of a company, and then create the company himself," the report says.
By June 2010, IPAC had paid $2.6 million to CVI for IT and other services.
New managers asked questions
Bailey and Wilson later departed as acting management. When new managers arrived at IPAC, they found that CVI claimed it owned the computers and other assets it had purchased with IPAC dollars. IPAC disagreed, and eventually got the assets back.
The report recommends that the U of R tighten up its rules concerning contracts and financial controls, and ensure that the rules already in place are enforced.
"Specific controls at the university were breached that enabled the potential conflict of interest and executed conflict to occur," the report says.
No conflict, official's lawyer says
Jaffe, Bailey and Wilson were not available for interviews.
Through his lawyer, Wilson has said there was no conflict of interest in his involvement at CVI and that he received "no dividends, financial benefits or income" from the company since Aug. 29, 2008.
The lawyer says Wilson originally received 100 common shares of CVI but those shares were "transferred" back.
Because IPAC has used millions in taxpayer dollars, the case has attracted the interest of politicians.
It's a potential headache for the Saskatchewan Party government, originally a big fan of IPAC, which sees carbon dioxide sequestration as an important part of its climate change policy.
The NDP Opposition, meanwhile, says it wants the provincial auditor to investigate.
(With files from Geoff Leo)
WHAT HAPPENED AND WHEN: IPAC AND CVI TIMELINE
(Sources: Meyers Norris Penny report, IPAC news releases, CBC research)