Jeff Milner

Yesterday’s Auditor Generals report revealed a situation in Ottawa so serious and shocking as to be without precedence in our country’s history. All other previous scandals (yes, we’ve had lots of them) pale by comparison.

http://www.thestar.ca/NASApp/cs/ContentServer?pagename=thestar/Layout/Article_Type1&c=Article&cid=1076411365455&call_pageid=968332188492&col=968793972154

Feb. 10, 2004. 08:41 PM

‘Shocking‘ misuse of public funds
Martin launches public inquiry

CANADIAN PRESS

OTTAWA (CP) – The quarter-billion-dollar federal sponsorship fiasco was so widespread that even Canada‘s fabled national police force was used to funnel cash to friends of the federal government, Auditor General Sheila Fraser said today.

Fraser delivered a brutally methodical account of how the Public Works Department used Crown corporations and the RCMP to systematically shovel funds from a national-unity program to a select group of businesses.

The indictment claimed its first casualty before it was even made public. Former public works minister Alfonso Gagliano was summarily fired from his job as ambassador to Denmark by Prime Minister Paul Martin.

Gagliano‘s department ran a now-infamous sponsorship and advertising program that saw organizers of Quebec public events paid huge sums to display Canadian flags or federal logos from 1997 to 2003.

But more than $100 million – or 40 per cent of the $250 million fund – ended up in the pockets of middlemen who sometimes did nothing more than just turn over cheques, Fraser charged.

The list of mysterious transactions, enigmatic banking and blatant fraud was detailed in detached but devastating prose in her report.

Crown corporations like VIA Rail, Canada Post, and the Port of Montreal were also fingered in a report that has potentially explosive consequences ahead of an expected spring election.

“This is just such a blatant misuse of public funds. It is shocking. . . . Words escape me,” Fraser told a news conference.

“This wasn‘t just a matter of missing documentation or bending the rules. These methods were apparently designed to pay commissions to communications agencies while hiding the source of the funds.”

Each glance at her own report stirred her to outrage, Fraser said. She called for an independent inquiry into the affair.

The government immediately agreed to hold an investigation.

Justice John Gomery of the Quebec Superior Court will lead the public inquiry. Another jurist, Andre Gauthier, was named special counsel for financial recovery. Gauthier‘s job will be to launch civil suits to recover some of the squandered money.

The government has had several months to prepare its response to what turns out to be a ticking political time bomb tossed into Martin‘s lap by his predecessor, Jean Chrétien.

Fraser‘s report was supposed to be made public last November, but Chrétien prorogued Parliament which delayed the auditor general‘s indictment until he was out of office.

But Martin‘s field generals and his entire cabinet have been seized by the need to dull the sting of a blow that could ground the prime minister‘s lofty public approval ratings.

Several senior members of the government were at a meeting at 8 a.m. today. Aides could be seen lugging bulky briefing material into the Langevin building housing the prime minister‘s office.

One senior government official promised to follow the investigation wherever it might lead – even if it hurts the Liberal party.

“We‘re not interested in a witch hunt and we‘re not interested in anything that could negatively affect the party brand,” said the official.

“But at the end of the day the public interest demands that the answers to these questions be provided.

“We‘re the government. We‘re not just a political party.”

Martin immediately called the report‘s findings “intolerable” and announcing several steps to contain the damage.

“Canadians deserve better and we will deal with the findings of the auditor general‘s report in all of its facets and we will do so immediately and we will do so thoroughly,” Martin said.

He said the government will take four steps:

1. An independent public inquiry to probe the scandal.
2. An immediate review of the auditor‘s report by the House of Commons public accounts committee.
3. Appoint a special counsel to recover public funds which were inappropriately attained.
4. Introduce other measures to ensure the problems never occur again, including whistleblower protection and better management practices.

Opposition critics swiftly pounced at the scent of government blood. Their primary question: Why didn‘t Martin take action when he was finance minister in Chrétien‘s cabinet alongside Gagliano?

“Why did the prime minister stay silent when long ago he could have just said, `Stop it, this isn‘t right,” Grant Hill, the interim Conservative leader, asked in the Commons.

“The prime minister knew about the scandal and yet he said nothing and he did nothing. Why did he choose to be silent instead of speaking up?”

Martin responded that he was unaware of any wrongdoing and approved funding for the sponsorship program on the assumption that rules were being followed.

But several opposition critics predicted that closer examination of the money trail will further embarrass the prime minister and damage the reputation of the governing party.

“This was not a government operation,” NDP MP Bill Blaikie said of the sponsorship program. “This was a Liberal party operation.”

When allegations of mismanagement first surfaced two years ago, the RCMP was called in to launch a criminal investigation that has since resulted in charges against Montreal businessman Paul Coffin.

Calling in the Mounties to investigate this time will be impossible, said Conservative MP John Williams.

“They (the RCMP) have to explain why they have become involved in a money-laundering scheme. This is our national police force,” he said.

“This is a scandal of the greatest magnitude.”

The RCMP‘s 125th anniversary in 1999 turned into an embarrassing waste of taxpayer dollars, Fraser said.

Public Works contributed $3 million to a trio of ad agencies – Lafleur, Media/I.D.A. Vision and Gosselin – who were responsible for transferring the money to the RCMP.

Those three agencies took a combined $1.3 million in fees and commissions and transferred $1.7 million to the RCMP for its anniversary celebration.

Fraser‘s audit concluded that the RCMP‘s Quebec division received its payments through a separate non-government bank account, which violates the federal Financial Administration Act.

The transactions were recorded manually rather than in the RCMP‘s standard accounting system, and some of the supporting documents were subsequently destroyed.

Fraser outlined similar practices in a stamp competition organized by Canada Post; in a Via Rail-sponsored television series on hockey legend Maurice Richard; and in a project to raise $1.5 million for a giant screen TV for the federally run Port of Montreal.

The auditor general expressed two major concerns with the practice.

First, there was obviously no need to go through private middlemen to transfer cheques from a government department to a government agency or crown corporation.

And it was useless to pay federal agencies like the RCMP to display the federal logo at their events. Treasury Board guidelines required them to do it, with or without the sponsorship program, Fraser noted.

The Chrétien government created the now-infamous program as a response to the near-catastrophe of the 1995 Quebec referendum.

Federal funds were used to fund sports and cultural events – almost always in Quebec – while event organizers plastered Canadian flags and federal posters for visitors to see.

But the government used the fund to confer lavish commissions on a small group of ad agencies that acted as middlemen.

Fraser had already denounced the practice in a narrower 2002 probe that focused on $1.6 million transferred to Groupaction Marketing Inc.

She concluded at the time that the federal government broke “just about every rule in the book” in awarding contracts to the Montreal agency.

Groupaction said today it has voluntarily collaborated during each step of the audit.

But the Quebec company said it has been a victim of the situation, which caused the loss of about 100 jobs.

“It‘s important to underline that all of the work received by Groupaction were for contracts duly issued,” the company said in a news release. “That said, the absence, not to mention the apparent disappearance, of government documents has caused and continues to cause irreparable harm to Groupaction.”

Fraser‘s report released today also blasted the government in other areas. Fraser also concluded that:

The Chrétien government ignored federal contracting policies in rushing to spend $101 million on two Bombardier jets for the prime minister and other VIPs.

Indian and Northern Affairs has failed to track spending or resolve disputes linked to native land claims worth more than $1.2 billion.

Her probe into the sponsorship fiasco highlighted a number of other irregularities.

Among them was the story of a communications firm that received a $600 commission from a $5,600 grant to a Quebec college.

All the government received in return was the MP‘s name added to a mural at the college.

She also explained how the Montreal Impact soccer team received almost $150,000 in sponsorship funds during the 1998-99 indoor season.

A similar request by the Edmonton Drillers soccer team was rejected, with the government claiming no funds were available.