HALIFAX - A forensic audit will determine what happened to money given to a now-defunct regional development agency that lost more than $200,000 in loans and left some municipalities on the hook for a $590,000 line of credit, the Nova Scotia government confirmed Tuesday.
Percy Paris, the economic and rural development minister, said the audit into the South West Shore Development Authority will begin within the next month.
"It's an attempt to find some answers that the citizens of Nova Scotia ... and the businesses in the southwest region deserve some answers to," Paris said in an interview. "There's some things that haven't been accounted for."
In a February 2010 report, provincial ombudsman Dwight Bishop said considerable concerns had been raised about the agency's management and administration.
Among other things, Bishop found the board didn't follow provincial guidelines for spending $600,000 the province gave the authority in 2005 as a maintenance fund for the former Shelburne Youth Centre.
The study was prompted by complaints from local citizens regarding transparency in the expenditure of public money.
In May, Bishop reported that several municipalities had exceeded their authority in 2004 by backing a line of credit for the authority. The organization was shut down in June 2010, throwing seven employees out of work, including CEO Frank Anderson.
Bishop found the municipalities in Shelburne and Yarmouth counties showed a lack of due diligence under the Municipal Government Act.
As a result, Bishop said municipal taxpayers in nine communities had lost more than $200,000 in loans and some were on the hook for an extended line of credit of $590,000.
Bishop also found Anderson appeared to be in a conflict of interest and that board members acted as a "rubber stamp" for his actions.
At the time, Premier Darrell Dexter said there would be no financial bailout.
On Tuesday, Paris said the audit will find out where the money went. As well, he confirmed that any money the province receives as part of bankruptcy proceedings will be invested in the region for community and economic development.
However, Paris said the funds will not be used to compensate businesses that are still owed money.
"The intent of the reinvestment is not to pay bills," he said. "Who would you pay? What would be a fair distribution of that money? ... What we will do has yet to be determined."
Liberal Leader Stephen McNeil said the NDP government should have called for an audit long ago. He also challenged Paris's decision not to offer compensation to local businesses.
"This isn't the first time that people would be dividing up money based on percentages," he said.
"What we have here is a government that stood up for the banks and ordered the municipalities to pay them back, and now they're standing in the way of small businesses receiving some of their money back. It's unfair."
The authority was recognized as the primary development agency for the towns of Shelburne, Clark's Harbour, Lockeport and Yarmouth, as well as the districts of Argyle, Barrington, Shelburne, Yarmouth and Clare.