Charlottetown council releases redacted copy of long-awaited forensic audit

The City of Charlottetown has released a long-awaited forensic audit report, after councillors voted 7-2 to do so during a special meeting Monday night.

Some parts of the 36-page report are blacked out, after the city's lawyers said that had to be done to "meet the City's disclosure obligations pursuant to the Municipal Government Act and the Freedom of Information and Protection of Privacy Act."

BDO Canada prepared the report after concerns were raised about how some city finances were being handled — specifically, a whistleblower complaint dated Dec. 11, 2019. 

That complaint was from former deputy chief administrative officer Scott Messervey, who had been fired by his boss, CAO Peter Kelly. 

Kelly himself was fired without cause in May 2022 after CBC News published stories about Messervey's letter and other complaints about Kelly's leadership at City Hall.  

The BDO audit was commissioned in the fall of 2023 and found that "the transactions raised in the Complaint are generally confirmed to have occurred. Certain of the transactions appear to have breached stated procurement or expenditure policies."

However, BDO Canada said its team had not found any instances of potential fraud. It went on to say: "The risk of fraud exists as a result of poor adherence with internal controls or, in some instances, inadequate internal controls." 

One example of redaction in the report reads as follows: "The Complaint includes references to [REDACTED] role and responsibilities. We understand that complaints have been made to Chartered Professional Accountants Prince Edward Island ("CPAPEI") with respect to [REDACTED]. We have not investigated the allegations regarding the professional conduct of [REDACTED] and do not make any comments in respect thereof."

With regard to internal controls over finances, an example is given in another section of the report: "Our analysis identified an instance where the per diem allowance was claimed for seven days of travel out of province while the conference attended by the employee was conducted over three days. An explanation for the additional days' per diem allowance was not provided in the claim record."

Other issues cited by the auditors: 

• "The financial records that we reviewed in respect of capital projects were often incomplete. Records for actual and budgeted costs are not consistently maintained, thereby making comparisons difficult."
• "We understand that certain electronic devices or computers are believed to remain in the possession of former employees or elected officials. However, the City has historically not maintained asset inventory records to track IT equipment. Some of the equipment has been sold by the City to former employees or officials."
• "We understand that awarded tenders are to be approved by Council. Hence, the expanded scope of the tender awarded for paving in [REDACTED] should have been subject to a separate tender and/or subject to approval by Council. Neither appears to have occurred."
• "There is an apparent breach in the Procurement Policy for the approval of the engineering service for the CWWF [Clean Water and Wastewater Fund] capital projects."
• "No assets or revenues in respect of naming rights or [REDACTED] from [REDACTED] are recorded in the City's accounts."
• "We have not identified instances of apparent fraud upon the City. However, we have observed deficiencies in the application and enforcement of internal controls, including in regard to the management of electronic devices, travel allowances and expense reimbursements, agreements in respect to access to City resources, capital expenditures and so forth."

2 votes against release

Councillors Mitch Tweel and Bob Doiron were the only councillors who voted against the release of the redacted report on Monday evening.

They said that's because they wanted the full report released, without any sections blacked out.

Doiron had been the subject of a harassment complaint Kelly filed after Doiron said the CAO's actions with regard to the paving project BDO auditors mentioned had constituted "a major breach of city policy." 

Doiron was later the subject of a $26,000 code of conduct investigation and was eventually fined the equivalent of $10,000.  

Coun. Julie McCabe said she was voting in favour of releasing the redacted version because otherwise, legal challenges could have meant a long delay in the public seeing any of BDO's findings. A number of the other councillors present echoed those concerns.

Mayor Philip Brown said the forensic audit the city received on Feb. 6 has cost $230,000 so far, and he suspected some of the invoices were not yet in.  

On Tuesday, he said that while there were no findings of fraud or misappropriation of funds, the report did identify problems that should be taken seriously.

"There were inefficiencies in the practices that this city government has been doing over the last number of years. Now it's time to correct them," Brown said.

"Sometimes government lives in a bubble. And then a situation like this has happened, where allegations were made against the city municipal government. Now we have a report that says, 'Here's how you make amendments to your practices so those past sins that were committed can be reconciled.'"

Messervey reacts

For his part, Messervey said in a statement to CBC News that he was pleased that the auditors substantiated many of his concerns. 

"Although I believe the report contains many unnecessary redactions, it still unequivocally supports the conclusions I reached at the time, as well as Councilor Doiron's long-held position that there were serious issues at City Hall.…

"It's unfortunate for taxpayers that it took all this time, undue hardships on individuals, and hundreds of thousands of dollars to look into some of the issues at City Hall," the statement continued.

I think there are still some serious unanswered questions.— Scott Messervey

"I think there are still some serious unanswered questions, such as why council did not act in February 2019. If council had acted, would the city be where they are today and paid the money they have?

"I hope residents, councilors, and the province work to investigate why this was allowed to happen, hold those responsible accountable, and put forward appropriate legislative and/or administrative changes necessary to avoid such issues in the future."