Auditor's report raises questions about Portland Hotel Society executives' salaries and spending

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      An independent auditor’s report of the Portland Hotel Society paints a picture of an organization that is inept at maintaining financial records, and either woefully incapable or unwilling to exercise financial oversight of senior executives.

      Findings of the audit by KPMG Forensic were released today (March 20) by B.C. Housing following the resignations of all executive managers and members of the PHS board of directors less than 24 hours earlier.

      Perhaps the most damning of questions raised in the KPMG report concern discrepancies between certain employees’ salaries as outlined in employment agreements versus those individuals’ gross incomes as reported in T4 documents.

      Those discrepancies appear largely the result of vacation pay delivered to executive managers. It’s stated that vacation pay was “unusually” added onto salaries and calculated based on a percentage of salaries as opposed to as a percentage of hours worked.

      “The average payout for vacation pay for four individuals we reviewed was approximately $20,000 per year,” the report states.

      Executive and administrative managers with children also received child care benefits ranging from $4,800 to $7,020 per individual per year.

      The report also calls attention to executive managers’ use of PHS credit cards. Those questions pertain to PHS founders and co-executive directors Mark Townsend and Liz Evans (who are married), as well as Dan Small and Kerstin Stuerzbecher.

      Over the three-year period 2010-2012, Townsend was responsible for $476,279 in credit card charges and expenses, Evans for $140,138, Small for $107,124, and Stuerzbecher for $152,292.

      The report provides no clear evidence indicating that PHS credit cards were used to purchase goods or services intended for personal use. However, it also repeatedly emphasizes that PHS could not account for how much money was spent, and that PHS repeatedly declined to provide KPMG with receipts and supporting documentation that would allow for expenses to be accounted for properly.

      A lengthy appendix details credit card expenses that KPMG found could not be fully explained. Those include:

      • $5,749 for a trip to Europe taken by Townsend
      • $2,455 and $4,860 in travel expenses attributed to Stuerzbecher
      • 23 charges totally $14,647 for travel with Air Canada spent by Townsend and Evans
      • $14,955 for travel with British Airways spent by Townsend
      • $9,266 spent by Townsend and Evans on a trip to New York City
      • A number of additional flights and travel expenses

      The report notes that those charges were defended by members of the PHS executive management team and described as related to conferences.

      There were also charges for a limousine service, visits to spas, beauty care, clothing, and entertainment.

      In addition, there is $9,000 in cash advances for which KPMG states it could not obtain any documentation.

      Another section of the report takes issue with the lease of Townsend and Evan’s basement, which has been used by PHS for a fee of $1,400 per month.

      The report notes that up to four employees use the basement as an office for PHS business on a regular basis. But it calls attention a lack of answers on how the cost of the lease was established.

      KPMG also found issues related to how PHS establishes and operates contracts with affiliates.

      For example, a PHS affiliate called DTES Community Janitorial Supplies buys materials in bulk and then sells them to PHS at a markup ranging from 28 to 36 percent. KPMG also found there was a “risk of a mismatch” between contracts awarded to an affiliate called DTES Maintenance and work that was actually performed.

      The report goes on to raise questions of whether PHS has exercised the appropriate oversight of spending.

      “We were told by multiple interviewees that there is no monitoring or authorization of PHS executive expenses,” the report states. “Substantial funds are spent by PHS management using their PHS credit cards or through expense reimbursements.

      “In general, management has a greater ability to override internal controls and policies and avoid detection. We recommend that Board establish a process to monitor and authorize the payments of expense claims and credit card charges of senior PHS employees.”

      As an independent auditor, KPMG had a mandate to review the PHS board of directors' management capabilities, the accurateness and completeness of records, and the effectiveness of controls over expenditures, among other areas.

      In May 2013, KPMG provided a draft of its report to PHS in the interest of allowing PHS to respond to questions raised therein. The final report notes that PHS did provide a written response to KPMG, and that information in that response was taken into consideration when KPMG composed the final report released today. However, PHS declined to give KPMG permission to include excerpts from the PHS response in its final report.

      PHS is a nonprofit that receives the majority of its funding from B.C. Housing and Vancouver Coastal Health.

      It is best known for operating Insite, North America’s first and only legal supervised injection facility. It has also led the way on methadone treatment in Vancouver, needle exchange and distribution, and more controversial harm-reduction programs such as crack-pipe vending machines. In addition, PHS operates 16 housing sites in Vancouver that are home to more than 1,000 low-income residents.

      According to filings with Revenue Canada, PHS revenue for 2013 exceeded $35.5 million, with 61 percent of that money coming from the government. For that year, management costs accounted for nine percent of expenses.

      Comments

      23 Comments

      blah

      Mar 20, 2014 at 1:07pm

      Limousine services, spas, beauty care, clothing and entertainment? Yeah, those things really help the homeless. $20,000 in vacation pay? Time for Canada Revenue Agency to get involved.

      tf

      Mar 20, 2014 at 1:43pm

      I found the executive at PHS to be no more corrupt than any other corporate body.
      I think the witch hunt is a political one, cloaked under scandalous headlines.
      “Oh, shocker – a limo!”
      For 11 employees; anyone travelling from the airport knows that one limo is more cost effective than 3 taxis.
      Why don’t provincial legislators take the ferry instead of flying direct? It’s about time vs. money.
      To force the PHS executive and board to resign is ludicrous and politically motivated. I don’t justify some of their spending habits but why doesn’t the province just work with them to make changes?
      What do we think will happen to the PHS social enterprises, drug support programs and housing with the province in charge?
      Do we think a province-appointed board will fight as passionately for the down-trodden as Mark or Liz have done for 20 years? I don’t think so.
      The headlines and targeting of PHS curiously follow the approval of the Local Area Plan for the DTES; I wonder how much Bob Rennie receives per meeting to sit on the board of BC Housing?
      The province didn’t like the advocacy work that PHS did for their programs and now the PHS is being punished for providing support that no one else would.
      The auditing of PHS is about political ideology and not about “shocking” expenditures.

      RealityCheck

      Mar 20, 2014 at 2:20pm

      Time for the police to get involved. This is shocking, shameful stuff.

      realist

      Mar 20, 2014 at 3:48pm

      Shameful.

      renFromVan

      Mar 20, 2014 at 5:12pm

      We don't, or haven't been told, how much of this money was spent promoting the Safe Injection Site internationally. I do know that they had to do that to help keep Harper from getting rid of it.

      ...I also don't know of a any managers in private companies that don't "pad" their expenses a bit now & then.

      c.bedfordo2@gmail.com

      Mar 20, 2014 at 6:09pm

      SHAME! SHAME! SHAME!

      Criminal charges should be investigated.

      How do you sleep at night!

      Lauren

      Mar 20, 2014 at 7:07pm

      @renFromVan,

      Because managers in private sector ""pad" their expenses a bit now & then" makes it okay?

      taxpayer

      Mar 20, 2014 at 8:38pm

      Who do they think they are?! Members of the board of a BC Liberal Crown Corporation?

      demonocracy

      Mar 20, 2014 at 10:47pm

      Although no one wants to hear any explanations re PHS spending right now, I bet there are some that would justify a lot of it. We're all acting like an angry mob of bloodthirsty idiots, attacking anyone who has a laser dot on their head without bothering to check who's actually holding the pointer (and WHY?). We're only getting one side of the story here. How can you piece together a truth with only little bits of information that are taken completely out of context? Why would our government keep throwing money at them for 23 years if there was really such "irrational spending" going on?

      out at night

      Mar 21, 2014 at 7:46am

      @ demonocracy

      "How can you piece together a truth with only little bits of information that are taken completely out of context?"

      Yes, how indeed, when the organization, under its executive who've been spending all this dough, doesn't keep receipts?

      It's simple accounting, accountability, common (oh, so common) business practice to monitor and be able to explain financial transactions of all kinds.

      The executive's failure to maintain proper records places them on the hot seat, even IF those expenses can somehow be justified. Who doesn't keep good records? People with something to hide? Plain stupid people? People with too much hubris, inflated sense of virtue?