08/03/2012 10:26 EDT | Updated 10/03/2012 05:12 EDT

Audit of bankrupt Nova Scotia development authority given to RCMP, minister says

HALIFAX - The Nova Scotia government has asked the RCMP to examine a forensic audit of a now-defunct regional development authority to determine if the agency broke any laws before it imploded, leaving dozens of businesses on the hook for more than $2 million.

Economic Development Minister Percy Paris said Friday the audit of the South West Shore Development Authority prompted him to ask a four-member panel of business and community leaders to review the province's regional development model.

"It was this minister who came in and said, 'Enough is enough,'" Paris told a news conference. "It was this minister who had questions about how (the agency) was operating deficits."

The audit, conducted by Ernst & Young, found the authority lost money every year between 2003 and 2010, except 2008 when it received $1.8 million for the sale of a former naval base.

The report says CEO Frank Anderson earned between $79,000 and $90,000 annually between 2003 and 2009. However, the auditors were unable to find references to board approval for his base salary and Anderson confirmed there was no employment contract.

Anderson could not be reached for comment Friday.

The audit also found problems with expense claims, duplicate invoices, the CEO's pension plan and cheques being held back from suppliers.

"There was a lack of diversified skill sets on the SWSDA board, for example, there was limited or no expertise in legal, economic development or project management," the audit says.

"The extent of the financial and project information was not sufficient to enable effective oversight by the board."

The audit examined $76 million in transactions between 2005 and 2010.

The non-profit group shut down in June 2010 and sought restructuring under the Bankruptcy and Insolvency Act six months later.

The provincial government says the agency owes the province $475,000 while dozens of unsecured creditors are owed more than $2.3 million.

The forensic audit, which started last fall, found that more than $400,000 in cheques payable to suppliers were held back and never sent out.

As well, the report says Anderson had claimed that $424,000 in invoices submitted to the Atlantic Canada Opportunities Agency in fiscal 2010 had been paid, but the report says that was not the case.

Ernst & Young said Anderson told auditors the provincial government and ACOA knew the authority was having cash flow problems and were aware that not all invoices had been paid.

The audit also revealed that a previous report from consultants at Grant Thorton found payments were made by the authority to an individual pension plan, whose sole beneficiary was Anderson.

The report says auditors were unable to find board approval for pension payments that totalled more than $74,000 from January 2007 to February 2010.

As for the CEO's expenses, the audit found he submitted $48,500 in meal receipts for reimbursement between 2005 to 2010. During the time, the audit says, there were 180 instances when Anderson claimed a per diem — totalling $3,000 — on the same day receipts for meals were submitted for reimbursement.

The report says the CEO told auditors that he often bought meals for others but would refrain from buying food for himself. As a result, the report says, he would submit the receipts for his guests and claim the per diem for himself.

"In a discussion with two board members, they indicated that it was their recollection that Frank did eat meals at which the board member was present and they were entertaining guests," the report says.

The report also raises questions about expense reports submitted by Anderson following a trip to Paris for a trade show in April 2007. The report says the CEO filed expense reports worth $7,000, but the auditors were unable to determine what portion should be classified as personal expenses.

The report says the CEO stated none of the expenses submitted were personal.

At the time, the authority's expense claim policy did not require details to be provided on the receipts, the report says.

In a February 2010 report, provincial ombudsman Dwight 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.

Bishop later reported that several municipalities had exceeded their authority in 2004 by backing a line of credit for the authority.

As a result, Bishop said municipal taxpayers in nine communities lost more than $200,000 in loans and some were on the hook for an extended line of credit of $590,000. That money has been repaid.

Bishop also found Anderson appeared to be in a conflict of interest and that board members acted as a "rubber stamp'' for his actions.