FCT had a Third Party Independent Audit and had presented the Audit Report in the off-again-on-again Annual General Meeting (AGM) last November 14, 2021.
Failing grade
Yale PGC LLP, the third party Independent Auditor, issued FCT a qualified audit report for 2016, 2017, and 2018.
On page 1 of the Opinion Section of the Independent Auditor’s Report, the Auditor stated:
“We do not express an opinion on the statement of operations and statement of cash flows of the Centre. Because of the significance of the matters described in the Basis For Disclaimer of Opinion on the Statements of Operations and Cash Flows section of our report, we have not been able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion on these statements.’’
Note: The Auditor repeated this non-expression of opinion in all three years (2016, 2017 &2018).
What were the serious disclaimers for a non-expression of opinion?
The following paragraphs, as lifted from the Independent Auditor’s Report, contain the basis for the disclaimer of opinion:
- Non-compliant Method of Accounting
“The books and records of the Centre were prepared on a cash basis. This method of recording transactions is not in accordance with Canadian Accounting Standards for Not-for-profit Organizations, which requires the use of the accrual method of accounting.”
- Insufficient Audit Evidence
“We were unable to perform the procedures necessary to quantify the adjustments required to present the financial statements on an accrual basis as we were not able to obtain sufficient audit evidence in the form of payment receipts or purchase invoices to support the amounts recorded by the Centre as program revenue and donations, as well as expenses for professional fees, programs, repairs and maintenance, office and general and amortization.”
- Unavailability of Supporting documents/invoices
Property and Equipment
“The Centre reports property and equipment on its books at a cost of $902,985, the amount of which was not subject to audit verification as documents supporting the purchase cost and calculated amortization amounts were not available. While assurance was obtained over the existence of the property and equipment, we could not verify the accuracy of the carrying amount.”
Loans Payable
“The Centre reports loans payable to current past board members as well as and related service providers on its books at $535,206. Of this amount, $175,256 is payable to the past Board Chair for legal expenses paid on behalf of the Centre, the total of which was not subject to audit verification as supporting invoices were not available. As a result of our inability to obtain assurance over the reported amount of property and equipment and certain loans payable, as well as items making up the statement of operations, we are not able to determine the impact of these items on the opening and closing balance of the Centre’s deficit.”
Note the Audit classified salaries, allowances, and legal costs payables under a new category as loans payable. Never in FCT’s prior years’ financial statements were loans payable reported.
- Conflict of Interest in Loans Payable
“The amounts due to the board members are considered to be related party transactions if management has the ability to exercise significant influence through its presence on the Board of directors. Transactions with related parties are in the normal course of operations and are recorded at the exchange value, which is the amount of consideration established and agreed to by the related parties.”
Composition of loan payable:
Due to past board chair $ 152,994
Due to board members 119,296
Due to individual related to board member 262,916
$ 535,206
Note the Audit classified salaries, allowances, and legal bills payables as loans payable.
Despite disclaimers still no light on the $678,000 payables
Amid the many and severe deficiencies, no verification of actual transactions occurred, particularly with the significant payables at issue.
The Concerned Members (CM) would have prescribed the scope of the Audit to include the reporting of:
- Any significant or unusual transactions entered into by the Organization that the Board of Directors should be made aware of, i.e. Cash Receipts and Disbursements, Accounts Receivables, Accounts Payables/Accruals, Reconciliation of Accounts, Leases and Contracts, Grants and Donations
- Any deficiencies in internal controls that are of sufficient importance to merit the attention of the Board of Directors
- Any lack of compliance with the Organization’s policies, financial or other relevant legislation
- Any lack of accountability in the use and management of the Organization’s assets
Anticipating this dilemma, CM has been asking for a copy of the scope provided by the Board to the Yale PGC LLB. CM sent twelve correspondences to the FCT Board between August 3 and November 12, 2021, to no avail. FCT Board largely ignored the follow-ups letters. Up to this writing, the FCT Board has kept the audit scope from CM.
First an engagement review, then an audit
FCT has undertaken and paid for two financial engagements so far.
The first was an engagement review of the 2017 and 2018 Financial Statements by SRCO Professional Corporation in 2019. The second was the recent Financial Audit of 2016 – 2019 Financial Statements by Yale PLC LLB.
Neither engagements have shed light on the $678,000 questionable salaries, allowances, and legal costs that surfaced after the 2017 $5.9M sale of the Parliament building.
FCT appears to exclude any governance audit and due diligence work from the scope of work. The focus is more on the reporting, not the financial numbers and accounts validation.
FCT members have yet to see a report on audit findings and corresponding recommendations as to operational improvements.
Would FCT funds have been better spent with the audit scope more properly defined?
In the meantime, FCT Board still in denial
FCT Board claims everything was explained and clarified in the June 2019 Special General Meeting (SGM), as reported in the 2019 AGM Minutes.
CM recalls during that SGM, Leo Mascarinas, a Board Member then, confirmed that the Board since 2006 has been paying salaries and allowances to a Board Officer and a related FCT Member. The Board authorized the payments according to their 2006 Board meeting minutes. This compensation arrangement was unbeknownst to the FCT membership and the community. Why the Board acted on its own to pay co-board member and a related FCT member was never explained.
Mascarinas further elaborated that because FCT operated on a cash basis, FCT did not report these salaries and allowances and the accrued payables in the annual Financial Statements that the Board presented for ratification during AGMs.
In 2017 after the building sale, it was the time to quickly settle the $678,000 payables as funds were available. And subsequently, as a course correction, the members were to be made aware of accrued salaries, allowances, and legal bills and the need to restate the past four years of financial statements (2016-2019). Why after more than 10 years would FCT Board suddenly reveal massive payments and serious adjustments to its financial statements? This was not clarified.
Interestingly, in 2017, the Board conveniently issued a Special Board Resolution to authorize the settlement of all the payables retroactive and otherwise, again unbeknownst to its membership.
The Notes To the 2016 Financial Statements referred to this as follows:
“Amounts recorded as expenses have been approved by the Board of Directors through a special resolution, under the authorities vested to them by the Centre’s constitution. Expenses were recognized in the year it was determined that they would be payable”.
Let us just move on
In the meantime Dr. Nanette De Villa was quoted in the 2019 AGM Minutes as having said, “Mistakes were made in the past but not intentional, that FCT Board is working hard to rectify what was done in the past and the past should be laid to rest.”
For the last five years, CM has yet to see FCT publicly own or admit to mistakes they made, much less correct those mistakes.
We don’t know what mistakes Dr. De Villa wants laid to rest.
Transparency
For years FCT has drifted from the norm seen in Not-For-Profit Annual General Membership (AGM) Meetings.
Firstly, documents for discussion and approval of the membership are usually shared weeks before the AGM for members’ review. The FCT Constitution (Article 6, Section F) even specifies it.
Now attending members are handed the documents just before the AGM session begins. For example, in the recent November 14, 2021 AGM, the members were given about 40 pages (2016, 2017 & 2018) of the Auditor’s report as they took their seats. You can hear rumblings about how FCT could expect its attendees to read through these reports minutes before the Auditor stepped in to ask questions.
For the record, CM on November 5, 2021, one week before the 2021 AGM, officially asked the FCT Board for copies of the Audit Report and followed up on November 11, 2021 two days before the AGM. As usual and in keeping with the Board’s track record, the request went unheeded.
Secondly, the media always attended the AGM as part of FCT’s community information sharing. Now all media are banned. Hired Security folks ensure that press people don’t come in.
No wonder some members worry aloud about FCT’s openness and transparency.
Equally disturbing are comments from certain Board members as to why FCT issues get aired in the media. Again, the Board needs to examine its transparency record in responding to official member correspondences and requests. In essence, by playing deaf-mute, the Board drives the members to the media.
Thanks to Concerned Members
In 2017, CM raised questions on the $678,000 payables. Receiving no satisfactory answers to the payable questions, CM then tabled a motion in the 2018 AGM for a Third Party Independent Financial Audit.
With no action from the Board, CM in 2018-19 followed up with two Petition Letters for a Special General Meeting (SGM). In the June 2019 SGM, the Board wavered and relented doing an Audit. Instead, the Board opted for a Financial Review Engagement, leaving the payable questions unresolved. In 2020 CM had to issue an Open letter to the Board again to comply with the AGM-approved Third-Party Audit motion.
If not for CM’s persistence and perseverance, the 2021 Third-Party Audit would not have happened. FCT’s non-compliant cash accounting system, weak financial controls, and flawed record-keeping would persist and would not have been officially flagged as a deficiency.
The crucial objective of CM was to see to it that the FCT Board recognizes and accepts its operational deficiencies, adopts corrective actions, subscribes to sufficient transparency measures, and finally, commit to a reformed and proper level of governance and operations.
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