Hi there, I'm Blair cook. And in this lesson, we're going to look at a case study. It's a case study right in my very own hometown, and it's a case study of executive expense scandal. For the past six weeks, Jen and I have been observing a very public expense scandal unfolding before our very eyes. And it makes for an incredible story around ethics. What makes this case any particularly interesting is how it has snowballed in a few short weeks into a full blown scandal.
Now, I'm going to let you decide for yourself whether or not this is a case of fraud or just poor judgment by the individuals and those with oversight responsibilities. Jen and I know personally a number of the people involved in this particular case study, and so we're really going to try to stick as much as possible to case facts. However, if we do express any opinions, they are just that about pinyons and the case study that we're going to talk about today has to do with the eye Wk Health Care Center. The eye Wk Health Care Center provides regional care for the three maritime provinces in eastern Canada, where Jen and I happen to live to women and children. Given that Jen and I both live literally across the street from this world class facility, and is where all of our seven daughters had been born.
Jen and I have a particular interest in this case. By the numbers, you can see that the eye Wk delivers literally thousands of babies each year 10s of thousands of emergency visits, and delivers on hundreds of thousands of clinical visits. This is a large, well known critical piece of the healthcare infrastructure in our region. The organization has been recognized by external parties as being one of the top 25 employers in all of Atlantic Canada. The eye Wk brand is one of the most well recognized and well respected brands by the citizens of our region. This brand recognition is instrumental instrumental in raising funds each year to keep expanding the capabilities of the health care center.
The eye Wk Foundation, which is the charitable arm of the eye, Wk health center raised over $50 million last year alone from the community. With that background in mind, let me tell you the story of what's been going on the last six weeks on July 13 2014. Nearly three years ago, a new CEO of the I Wk Health Center was appointed and the IWA Health Center is the arm of the Wk responsible for the operations of the hospital. Tracy kitsch was appointed with very high expectations and she was recruited from Toronto's world renowned Mount Sinai Hospital, her nursing and healthcare background made her an ideal candidate to lead this region's flagship healthcare institution. Now, because we are all financial people listening to today's case study, you should all know that the health care center had an operating budget of approximately $300 million, which was mostly funded as you can see by the government, which makes the Wk a public sector enterprise.
However, the Wk is governed by an independent and volunteer board of directors. Director appointments are approved by the provincial government. And in a recent call for nominations just last fall, note the skill sets that they seek quality and corporate performance governance, technology and innovation, enterprise risk management and community and stakeholder relationships. In hindsight, the board had no idea how important these skills would be a year later, when the proverbial He'll shit hit the fan. The current board of directors as of today looks something like this. And again, we're right in the midst of this scandal.
It's a very diverse group and mix of people. The chair in the past chair both work for the electric utility. We have a mix of people from both the private sector and the public sector and the healthcare sector. We have three people who have executive positions inside the eye Wk itself. Also notice that there's a number of directors who are professional directors with the ICD designation. As a professional director myself, I'd say that on paper, the board had the talent and the skills necessary to fulfill fiduciary responsibility.
Now while the board has a mandated 19 directors, it has operated in recent years with only 17 directors with two vacancies that no government appears worried about fulfilling with any degree of urgency. Now from the date of hiring of Traci kitchen 2014 through 2015 and 2016, she enjoyed a sterling reputation. In fact, in 2016, Miss kitsch was named the women networks, Canada's most powerful women top 100 Award winner. Now interestingly today when you click on that press release at the AI Wk nothing comes up. But Never you mind we can check out this prestigious award by going to the WXN website itself. And in the public sectors category, Miss catches contributions as a transformational leader were well recognized her ability to set vision and effectively lead and align the people working under her generated high praise indeed.
So let's see what this performance look like in 2017. Included in the 2017 annual report which is public available, you can hear Miss kitsch and Bob HAMP the board chair at the time talking about some of the key things of importance to the leadership at the UK Health Center. I've highlighted a few of the key themes in this clip. So let's have a listen now. And ability in the influence that the IWA has in Nova Scotia and across the Maritimes is very deeply felt people know automatically that you're talking about a world class facility with world class intentions. So we're very mindful of the trust that the community puts in us.
And the stewardship role of serving the needs of community. We have the potential to be better than we ever thought we could be. And we have that potential because of our staff. I think we're in a position of abundance here not scarcity. So abundance of talent, abundance of people who care that's that's a huge asset. So needless to say, the eye Wk is a highly respected institution and the board and the CEO Just based on that video clip seem well aligned on the challenges ahead.
But let's see how well Miss kitsch actually performed in meeting her own strategic vision. The strategic plan and the evaluation against plan is made publicly available given that this is a publicly accountable enterprise. There have indeed been areas of noted improvement targets were met in terms of training and length of stay of patients visits, improvements were noted but targets were not met in the areas of access, patient satisfaction and safety. However, when it came to delivering surgeries within the clinically accepted range, performance actually worsened. So I actually like the scorecard. It kind of articulates the vision and puts it into measurable targets for us to understand as taxpayers and and stakeholders of this this facility.
However, I was kind of walking away looking at this the scorecard and I correct me if I'm wrong, but Expecting better results from a top 100 Award winner such as Miss kitsch. So I'm not exactly sure and I'm not going to surmise or suggest otherwise. Whether Miss kitchens job performance as CEO factored into the story that I'm about to tell you. Also new in 2017 was a provincial government mandate to have publicly accountable enterprises such as the eye Wk, improve transparency and how the CEOs are spending their discretionary funds in the areas of hospitality and travel expenses. So in addition to the $290,000 that Miss kitsch earned into in 2017, the eye Wk was required by this administrative directive to report the CEO travel and hospitality expenses on the IW case website, making them publicly available for us to take a look at. Here's what you can actually see what's on the IW Ks website.
Miss catches expenses. were fully disclosed. In the current version of that expense report, she reported co expenses of about $31,000. And that's simple four page report, which, interestingly is signed by both the CEO Tracy kitsch, and Bob HAMP, the board chair. Then along came this reporter has one may expect reporters kind of love those Freedom of Information acts that allow them to get access to internal documents. What tipped off this particular reporter Michael Gorman, was that the amount of travel and hospitality expenses reported by Miss kitsch kept changing, something was amiss.
This led to an investigative report, in which Mr. Gorman who works for the CBC published in June of 2017, the following news article, because upon reviewing the credit card statements which he had solicited under the Freedom of Information Act, he noticed that there were way more charges going through the corporate credit card than were reported in her public disclosures. Furthermore, he began noticing charges for things that would not typically be incurred by a CEO for business purposes. Things like $3,219 to the bay or retail department store, or charges to iTunes and Netflix. Something was definitely fishy. So upon followup with the CFO Steven Darcy, he reiterated that the bulk of the expenses were indeed in the normal course of business, or were errors that were subsequently refunded to the hospital, for instance, for the bay and the iTunes charges. In fact, Darcy admitted that there were a number of personal charges on the credit card then that the hospital had already been reimbursed for those charges.
So after publishing this article in June, all went quiet for a couple of months. That is until August 23. On August 23, the new board chair who had just come in in June, an individual by the name of Karen hot who just happens to be a work colleague of the former board chair Bob have issued this Press release, indicating that Miss kitsch had resigned to pursue other opportunities. A simple and clear message that arises from time to time but begs the question about whether that was a true story or not. Whose decision was it that Miss kitsch leave hers or the boards. The local lately lose picked up the press releases but astutely followed up with the board chair Karen has to determine whether there was any connection between the June investigative report done by the CBC and Miss kitsch his departure.
At that point, Miss Hutt had indicated that Miss kitsch had made a partial repayment of the personal expenses incurred on the corporate credit card. But more interestingly, that an independent review was underway. nearly a week later, the Wk board released the results of the independent review and the review found weaknesses and made recommendations that the board immediately adopted, as one would expect. But what was in that report? Now Grant Thornton was the firm that was committed To review the CEO expenses, and to examine conformance to the hospital policies, as well as the efficacy of those policies themselves. The cost of this independent review has yet to be publicly released.
There were three overall findings coming out of this independent review by Grant Thornton. Firstly, Grant Thornton quantified the amount of the potential personal expenses as $47,273 Miss kitchen already reimbursed the Wk for $25,000 leaving approximately $22,000 outstanding. Now part of the challenge in this review is that Miss kitchen not maintain the documentation of our expenses in our receipts and such. And in the absence of evidence to the contrary, any expenses without documentation were assumed by Grant Thornton to be personal. The second finding from Grant Thornton compound to the challenges of the reporting and the accounting for Miss catches expenses and these are Rose because she didn't submit expenses on a timely basis. And this meant there was kind of a ticking time bomb for years that no one ever thought could blow up the way that it has.
Now the third issue raised by Grant Thornton was to be somewhat critical of the review process used by the Board Chair of Miss kitsch is expensive expenses. The board chair Bob HAMP was not provided any backup for her expenses, nor did he request it, so her expenses were processed as submitted. When all was said and done, the personal usage of the corporate credit card broke down as follows as you can see on the screen, over half of the amount related to personal travel, as Miss kitsch maintained her residence in Toronto and use her corporate flight passes to travel back and forth. What was important to note though, and I think really interesting is that Miss kitsch did not attempt to hide these expenses at all. In fact, even before Grant Thornton got involved she had proactively been identifying the personal expenses incurred on corporate credit card for the past two years.
However, the lack of timeliness and supporting documentation of the legitimate expenses from the personal expenses made it doubly difficult to sort out the differences with the Grant Thornton report now public Michael Gorman, the reporter at the CBC had a whole new waft of evidence to report. He reported about the personal travel back and forth to Halifax in Toronto, and he called out the inconsistencies in the findings and the responses he had received two months earlier from management. Miss Hutt, the board chair was now clearly distancing herself from management when she is quoted as saying, What is clearly troubling is that even with the guidance of policies around how things should be happening, it didn't appear as though they were had fell into line behind the independent findings of Grant Thornton. She was later quoted in the article as saying we trust that the CEO and management will carry out those policies, certainly not blind trust, but we trust that those things are going to happen in the way they're intended to.
However, HUD stopped short of alleging any criminal activity at this point and indicated that the police were not involved. The expectation was that kids would repay the balance of the personal expenses owed, and that would presumably be the end of it. If only 11 days later, the tape begins to spread further as the IWC case CFO Steven Darcy, who was also recruited from Toronto about the same time as Tracy kitsch, was asked to step aside and put on administrative leave. The heat of the scandal was now in full force and the board was beginning to drown in challenges to their own credibility, and attempt to quell the public outcry. The board reached out to the provincial Auditor General, the idea being presumably to get yet another independent party involved to assess what went on and what should be done going forward. The scandal widens.
Further still is three days later politicians start taking potshots at each other. Our own provincial premier Stephen McNeil and the Minister of Health, Randy deLory both take public stance behind the board of directors and the actions they have been taking. McNeil chimes in his own thoughts on kitchen's behavior, calling it inappropriate, but not criminally wrong. However, the opposition party says one might expect take the opportunity to criticize the government and the Minister of Health and what they are doing to identify who is responsible is one member of the opposition puts it oh dear Lord, of course somebody should be held accountable. This is taxpayer money. Keep in mind though, we're only talking about $11,000 outstanding at this point.
So the next day, Michael Gorman picks up on that line of thinking and decides to probe the board's role in this scandal. He finds an expert on board governance who believes that the lack of board education is to blame. This expert also cites minimum standards for directors, the requirement, and I quote, the requirement to be a director on board is shockingly minimal. It's over 18 not bankrupt and not insane. Okay, now I'm pretty sure I did a little more research on the current slate of directors than the so called expert. Because as you may have heard earlier, you have a very diverse, very high qualified, very highly educated with several experts in governance on the board of the Wk itself.
But the expert then goes on to cite that larger boards, those with 15 or more members don't often ask the hard questions. Now the eye Wk board was 17 members at the time, or 19 members, if it's fully nominated is too large to ask the right questions and management and demand the right information about the CEO for all board members and not just a select few. Now the expert here Mr. Blah blah may have some valid observations here. But I walked away from reading this article feeling like perhaps Mr. Gorman was stoking the scandal fire a little bit too much. You can be your own judge on that. But we aren't done yet.
Three days later, Mr. Gorman's added again because he finds another smoking gun. I think he's still a little bit miffed by the lies that he was told back in June by management and he uses the Freedom of Information Act to gain access to all the emails inside of the Wk health center. And in these emails, the truth comes out it shows that CFO Steven Darcy was involved in kitchens expenses as early as October 2016. There were emails were Darcy is trying to get more information on kitchens expenses through kitchens executive assistant, to quote one of Darcy's emails, although this doesn't appeal to my inherently laser nature, unquote, doesn't exactly help his case in building credibility that we thought he was kind of really On top of getting kids to deal with her expense issue in the emails it shows the Darcy's own staff repressing for more timely more documented expenses from kitch and replies from kitchen assistant continued to stall on this front.
Darcy was shown to have written kitchen email outlining his concerns that her expenses were literally disproportional to her counterpart the Nova Scotia Health Authority. Gorman dug the knife into Darcy very deep when he caught Darcy and a Flatow lie when he responded earlier about the amount charged to kitch for the flight expenses, simply stating that it wasn't true. Darcy has been copied on the changing expense amounts the entire way through board chair at the time, Bob HAMP was oblivious to everything that was going on inside management and around this issue of kitchens expenses. It wasn't until Gorman's investigative report in June that the board had any inkling or knowledge of the impropriety. Hamp was quoted in the art As saying I trust the information that's being provided to me had been properly reviewed internally and therefore was accurate. In hindsight, I would say that more information in the reports would have provided better controls.
Meanwhile, the public outrage at this expense scandal is actually beginning to really tarnish the eye Wk and all the good work it actually does. Over at the eye Wk Foundation, which is an entirely separate organization from the UK Health Center. They too are starting to feel the public pressure and find themselves having to write public letters reassuring the public that the foundation is not the Wk and that the foundation has its own board of directors that aren't the same as those at the Health Care Center. The letter goes further to distance the foundation from the health center by explaining that the donations raised by the foundation, do not fund the health care center but instead go to the healthcare capital projects on September 10. 48 the board is still under fire from all directions and Miss HUD issues another press release, summarizing the actions that the board has taken the past month.
To up the ante even further. The Halifax Regional Police have now been called in a criminal investigation is now presumably underway. Nearly a day later. However, the scandal continues to escalate, as the board is now feeling the heat and now needs to push back. further investigations into spending authorized by kitsch uncover another violation of unauthorized spending. This time is for our contract PR consultant.
Miss kitsch had let go the former communication boss who had an annual salary of $124,000, filling it instead with Tracy Chisholm services. Now Tracy is someone who's from Toronto has worked closely with kitsch in the past. This was originally intended to be a transitional service until a new communication person could be hired. Only that never happened. The role was never filled initially. managed to convert an approved $35,000 project into an unapproved $150,000 role over the past couple of years.
Disclosures are made in the press releases around some of the trivial work that Chisholm was performing in her role as a contractor. One possible rationale for disclosing this type of information is to further deflect attention away from the board who was under a considerable amount of heat a few weeks ago, and back to miss kitsch, who had started the whole fiasco in the first place. Now a weekend comes and go and for whatever reason, Miss kitsch fails to repay the remaining $11,000 by the end of September deadline. This provided the board with yet another opportunity to vert attention back to miss kitsch as they threatened legal action to collect the remaining funds. However, two days later, it's announced that the AI Wk has finally received the remaining reimbursement amounts from Miss sketch. And a spokesman from the Wk not miss hot this time and now says that It's all over.
And it's time for us to refocus on the business at hand. Have we heard the last of this scandal? I highly doubt it. But let's tally up the scorecard of what we've learned. First of all, Miss kitchens reputation is now in tatters, particularly in our local city. criminal investigations are underway and likely to go on for months or perhaps even years.
CFO Steven Darcy, his reputation is in tatters simply by his association with Miss kitsch. And some of the damning emails that have subsequently surfaced. The board of directors have certainly lost a lot of credibility with the general public. And including each of those and all of those directors that serve as volunteers on that board of directors. Sadly, the Wk Health Center and the eye Wk Foundation, the charitable foundation, their reputation, too is badly bruised as a result of the scandal that's been going on for the past six weeks, and this scandal is even extended all the way to the provincial government. Both the premier and the health minister are suffering a few body blows along the way to do with this eye Wk expense scandal.
But again, before we move on and conclude, let's just take a look. And let's talk about the financial costs associated with this scandal. A total of $47,000 was proven to be inappropriately charged to a corporate credit card. And as is so often the case, this is a tiny percentage of the resources deployed and spent by the UK organized organization. In fact, in this situation, Miss kitsch has fully acknowledged that she owed back the money to the eye Wk in the first place. However, her careless lack of timely disclosure and poor record keeping made matters only worse.
She should never have used the corporate credit card in the first place for personal expenses, and I'm sure she's going to regret that decision. For the rest of her life, or at least a few years until the Auditor General and the Halifax Police Department conclude their investigations. So no one could possibly have predicted how this simple indiscretion and lapse of personal judgment could have such wide reaching implications. So the moral of the story is to recognize that ethics is about doing what is right, even when no one is looking, or you can get away with it.