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Soon after, we published on The Coast website a previously unreleased audit of TCL that the provincial department of economic development had conducted in 2010. That audit raised many of the same issues that Munroe would highlight two years later.
Then, provincial auditor Jacques LaPointe announced he too is conducting an audit of TCL. LaPointe is tight-lipped about what exactly he’ll be looking at, but said he’ll publish his results later this year.
Now, Halifax council has directed its finance staff to hire yet more financial consultants to audit how TCL has been managing the Metro Centre. This comes at the behest of their auditor, Munroe, who said his July audit was merely a surface investigation and called for a much more extensive review of the city-TCL relationship. Council Tuesday voted unanimously for the extended audit, which will cost at least $50,000, and take many months. Chief bureaucrat Richard Butts agreed the audit was entirely appropriate, but the “five or six issues” the audit will look at are so convoluted Butts wasn’t able to list them off the top of his head.
Were Butts able to unravel the many threads, he might have listed these issues:
City representation on TCL Board For decades, three city councillors and the mayor have sat on the TCL board. The politicians haven’t given that position the attention it deserves, and when the ticket scandal shit hit the fan at council, two of them felt they had a conflict of interest and recused themselves from the conversation, illustrating that not only are councillors on the TCL board incompetent, they have divided loyalties. Munroe suggested the city explore booting the councillors and instead appointing finance staff to the positions.
Bogus salary charges For managing the Metro Centre for the city, TCL has long been charging part of its executives’ salaries to the city, for the time the executives supposedly devoted to Metro Centre affairs. Problem is, that time allotment appears to be pulled straight out of someone’s ass—there’s no documentation for it whatsoever.
Detailing the loss from tickets Munroe had looked at only how Trade Centre revenues increased after the takeover of Metro Box Office, and did not try to give an event-by-event breakdown of ticket sales to arrive at an exact loss to the city, which is likely greater than he reported.
Looking at the 40-cent payback Likewise, after TCL took over Metro Box Office it pulled another undocumented number from its collective ass: for each ticket sold to a Metro Centre event, the city would be paid 40 cents. Well, except for group sales, where the city got nothing. Maybe the 40 cents was wildly inappropriate. Maybe there should be an inflator, or a different arrangement entirely.
Take Metro Centre back Is there any good reason why TCL should be managing the Metro Centre at all? The city could write another secret contract with Nustadia, the firm that operates the four-pad arena and The Oval, to run the Metro Centre, or the city could manage the thing itself.
The Coast has filed multiple public records requests related to these issues, and will continue to follow the story.
"The relationship [of TCL] with HRM is governed by a 1981 operating agreement that does not reflect changes in the organizational structure and operations that have occurred over the past 30 years," reads the executive summary of the audit. "The focus of the original agreement was the construction of the Metro Centre. The original agreement needs to be updated to incorporate changes that have occurred over the past 30 years. Specifically, it should address the establishment of Ticket Centre Atlantic for ticket sales, distribution of commissions on ticket sales and the maintenance expenses needed to support the aging structure."
The actual agreement was signed on May 14, 1982, not in 1981 as reported by the auditor. You can see it here; note the hand-written addition of a clause on page 5 saying that profits from the Metro Centre should accrue to the city.
The 2010 audit said that resolving the ticket issue was a "high priority," and made the following recommendation (#3 in the audit):
TCL and HRM need to update the 1981 operating agreement to reflect current practices and operations. The agreement should also define the organizational fit for Ticket Centre Atlantic, the disposition of ticket sales and the distribution of commissions received from ticket sales. The operating agreement must include the level and nature of reporting that needs to be provided to HRM with respect to the Metro Centre operations.The provincial 2010 audit recommendation was given to TCL executives, and the auditor reported their response:
TCL acknowledges the observation and will begin exploratory discussions in the next months with HRM on their position with respect to updating the operating agreement between the parties.But, as we now know, no changes were made to the ticketing operations, and two years would go by before the city's auditor general, Larry Munroe, Wednesday made essentially the exact same recommendation as his provincial counterpart (page 13):
3.3.1 On the basis the present ticketing arrangement continues, the OAG recommends HRM negotiate a contract with Trade Centre Limited governing commission payments for tickets to Halifax Metro Centre events. This negotiated commission structure should follow from a full and robust assessment of all possible structures (i.e. including possibilities such as minimum charges or profit sharing, with the best value to HRM being the goal) and reflect the substantive business received from the Halifax Metro Centre. It should not simply be an exercise in documenting the current arrangement.So what happened? How is it that in 2010 the provincial auditor stressed that the ticket confusion was a "high priority," and that management agreed with that assessment and would begin resolving it "in the next months," but no changes have been made two years later?
3.3.2 Given the circumstances which gave rise to the existing arrangement, the OAG recommends any revised commission calculation be applied, to the extent possible, retroactively to April 1, 2006.
I put that question to TCL spokesperson Suzanne Fougere. Her response:
We did some work internally in Trade Centre, in relation to our position on the matter, and the discussion did start with HRM, but at the time there was also the on-going discussion related to the convention centre, which would've coincided with some of the same time frame. And HRM expressed an interest in looking at the matter in the future in conjunction with the governance of the new convention centre as well. Now obviously that changed with the subsequent report from Larry Munroe related to the concerts [that is, the June, 2011 report on the concert scandal].I asked Fougere for documentation of that claim—an email conversation, whatever, demonstrating that in fact that the city asked for a delay in resolution of the matter. She replied that the person responsible for the documentation isn't in the office today, but she'll get it to me as soon as possible. Still, "that's our position on the matter," she says.
I have a call out to the city on this as well, but I expect it'll have to wait for comment until Fougere gives me some meat to back up her claim.
As I said this morning, there's a lot of passing the buck going on here. If the city did in fact ask for a delay, it raises first of all the question: Who is "the city," exactly? And, secondly, under what authority was this "high priority" matter delayed? Still, I don't think it absolves Trade Centre's Fred MacGillivray, who retired on April 1, 2009, of primary responsibility for lifting the Metro Centre box office, but does indeed add a degree of nuance.
See the entire 2010 TCL audit here.
Fred MacGillivray says its Scott Ferguson's fault.
Scott Ferguson says it's Fred MacGillivray's fault.
Darrell Dexter says it's the city's fault.
Peter Kelly says no way is it the city's fault.
This is all very silly. Auditor general Larry Munroe's report on the ticket scandal clearly lays out the evidence, and assigns blame in exactly the right measure. To wit:
1. The Metro Box Office was a city-owned asset worth many millions of dollars.
2. With no authority to do so, Trade Centre Limited lifted the operation from the city and incorporated it into TCL.
3. There was never a council vote authorizing the transfer.
4. When the transfer happened, Fred MacGillivray was president of Trade Centre Limited, and so ultimately responsible for everything that happened within the organization.
That's just the facts of it. So the primary blame rests with Fred MacGillivray, full stop.
There is a secondary level of blame, but it does not change any of the above. As Munroe's report illustrates, many months after the fact of the transfer, an unnamed city staffer alerted then-CAO Dan English to the change in ownership, and besides writing a couple of emails to MacGillivray loosely complaining about it, English took no substantive action. Certainly English should be faulted for letting a very valuable piece of city property get taken away without doing anything about it.
But we live in "the buck stops somewhere else" time. People like MacGillivray and English were supposedly hired because they're effective managers who can turn entire bureaucracies around and get results. Their abilities were so valued they were given huge salaries and in MacGillivray's case, a bonus million dollar pension. Yet when something goes wrong, these very same super managers say they aren't accountable, there's someone else to blame, they can't possibly control those unmanageable bureaucracies under them.
I've come to expect this sort of blame-shifting from chief executives, but even I was surprised by Darrell Dexter's comments:
Halifax Mayor Peter Kelly and three regional councillors sit on the Trade Centre board, including when the transfer was completed in 2006.Dexter is completely, 100 percent, utterly, wrong.
“As a result of any kind of commercial transaction, the various parties bear their own responsibility for the agreements they enter into, one way or another,” Dexter said after a cabinet meeting Thursday.
Look, let's cut through the crap about who knew what when. It simply doesn't matter. It doesn't matter if Peter Kelly knew about the transfer. It doesn't matter if the three councillors on the TCL board knew about it. It doesn't even matter if Kelly and the three councillors voted in favour of the transfer, at the TCL board.
The simple fact is that even if they knew, and even if they voted in favour of it, Kelly and the three councillors had no authority to shift a multi-million dollar city asset to someone else's control. The TCL board didn't have that authority. Fred MacGillivray didn't have that authority. Scott Ferguson didn't have that authority. Dan English didn't have that authority.
The only body with the authority to transfer a multi-million dollar city asset away from the city was and remains the full city council, with a duly recorded vote, and with a duly sworn deed executing the transfer. There is no other legal way for that transfer to happen. None.
And council never voted on it. It's not enough to say, "hey, Peter Kelly knew," or "those three councillors knew" or even "everyone on council knew and were cool with it." That's not enough. There needs to be an official vote, made in public, in a legal manner. Which, again, never happened.
Look, I'm just a douchebag newspaper reporter, not some high-faluting corporate CEO worthy of a million dollar pension. But even I know this basic fact of governance: you can't just take shit away from the city without going through the proper legal mechanism. And yet, that's exactly what Fred MacGillivray did.
I don't know why people are trying to obscure the simple fact of the improperness of this. I especially don't know why the premier is trying to confuse the issue.
Dexter should stop spouting this nonsense. And the rest of us should refuse to be hoodwinked by the calculated confusion being sown.
As we've reported before, besides the government pension that all provincial employees receive, MacGillivray managed to negotiate an additional bonus pension that last year was valued at over a million dollars.
Given what we know about MacGillivray's culpability with regards to removing the box office receipts from city coffers, it makes no sense for the city to agree to have any responsibility for MacGillivray's pension.
But if we're not careful, the city may soon be on the hook for not just half of MacGillivray's million dollar pension, but also half of Trade Centre Limited's deficit, which last year was $40.7 million.
Let me explain.
Last year, in Munroe’s extensive report on the concert scandal, he noted that that scandal had its roots in 2006. That year, Fred MacGillivray, who was then the president of Trade Centre Limited, a provincial crown corporation, simply took the operation of the city-owned Metro Centre box office and made it a part of a new TCL operation called Ticket Atlantic. MacGillivray did not have the approval of either the TCL board of directors or of city council to make the move, and when meekly questioned about it later by former city CAO Dan English, MacGillivray brushed English aside.
Because the takeover of the box office was never vetted by auditors or financial staff, it left the city-owned bank account for ticket sales in the hands of TCL. It was that bank account that would later become the conduit for $5.4 million in improper loans to concert promoter Harold MacKay, the last $359,550 of which was never repaid.
In a report published this afternoon, Munroe examines the tortured management of the Metro Centre. In 1982, the city signed a vague contract authorizing TCL to manage the Metro Centre but, notes Munroe, there were no specific financial arrangements laid out, no benchmarks, no performance reviews, no lines of authority spelled out. To this day, says Munroe, the city has no idea if the Metro Centre’s concessions or box seat sales or other rentals are bringing in the best possible return, and no one thinks to pursue the matter.
As for ticket sales, in the late 1990s and early 2000s, the Metro Centre was using a ticket system called "Select a seat." As Munroe explains (pages3-5; "OAG" is Office of the Auditor General):
In 2000, Trade Centre Limited (as manager of the Halifax Metro Centre) began investigating possible replacement systems, as the current system was reaching the end of its useful life. As a result of this research, Trade Centre Limited contracted for a replacement system which became operational in July 2005.Remarkably, notes Munroe (page 21), TCL had "issued a request for proposal titled 'Request for Proposal (RFP) for The Provision of Ticketing Software and Hardware at Halifax Metro Centre a division of Trade Centre Limited.' It is concerning to note the title lists the Halifax Metro Centre as a division of Trade Centre Limited. Neither the Halifax Metro Centre, nor its ticketing operations were a division of Trade Centre Limited at that time."
In November 2005, box office operations were rebranded from “Metro Centre Box Office” to “Ticket Atlantic”. Subsequently, during the 2006/07 fiscal year, this business line was transferred (retroactive to April 1, 2006) from Halifax Metro Centre to become a business line of Trade Centre Limited. Trade Centre Limited’s current management advised the item had been discussed with the then CAO of HRM and had been discussed by the Trade Centre Limited’s Board of Directors on various occasions, which included four members of Regional Council, although there is no documentation available to confirm or deny these assertions. The transfer happened apparently unbeknownst to HRM business unit staff.
When the OAG initiated its review of this transfer, neither Trade Centre Limited nor HRM was able to provide written documentation regarding the authority under which the transfer took place, approval by HRM for the transfer or substantive analysis to support the decision process. In fact, the financial information provided by Trade Centre Limited as support for why the transfer was needed is inconsistent with financial information previously provided by Trade Centre Limited.
The formally documented minutes of Trade Centre Limited’s Board discussions show no reference to approval by the Board of the purchase of the ticketing software or transfer of Ticket Atlantic to Trade Centre Limited, although documentation does demonstrate management presented Trade Centre Limited’s preferred vendor for ticket sales software to the Board in May 2004.
A firm called Paciolan won the tender, and continues to supply software to TCL to this day. I hope to have more on that part of the issue with a later post. Note that Munroe does not name the company in his report, referring to it as "Vendor X."
After TCL took over the ticket operation, MacGillivray decided, apparently on his own, that the city would receive a 40-cent commission for each ticket sold to a Metro Centre event, except for group sales, season tickets and complimentary tickets.
Since TCL took over the box office, TCL has reported $1,206,024 in profit through ticket sales, plus an additional $597,187 that went to the city, representing a 40-cent per ticket commission. Munroe documents the amount going to the city, both before and after the take-over, with this chart:
Whether 40 cents is appropriate or not is an open question, but also Munro notes that the city did not receive even that money for many tickets sold for Metro Centre events. Moreover, those figures represent profit, and TCL was charging costs to the city as well, including a percentage of management salaries for operation of the Metro Centre, with no clear documentation for how those percentages were arrived at. Oh, and Munroe says there was at least one instance, and possibly more, of TCL double billing the city for a single expense.
Munroe says the ticket arrangement started when TCL bought new software for ticket sales. I’ve been told that besides the software, TCL also took over control of computer hardware from the city, a suggestion that Munroe had not considered.
Councillors on the committee were clearly angry. Sue Uteck said she thinks the city was inappropriately billed $1 million for a Metro Centre scoreboard, and that the police forensic accounting unit should be called in to investigate. Linda Mosher says she was opposed to a bonus pension awarded to MacGillivray, but was reprimanded for stating her opinion publicly. Barry Dalrymple suggested that the city boot TCL out of the Metro Centre and run it itself.
Today's events are just the beginning of this stage of the story. In coming days we'll hear more from city councillors, Trade Centre staff and reaction from other observers, and we'll certainly learn more details as reporters drill down into the information and as city staff brings forward unreleased information. Expect at least several more posts from me in the coming days.
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