More than 90% of City of Nanaimo purchase cardholders have never charged a personal item to their cards, an analysis by KPMG Forensic Services has found.
A copy of the 24-page report, labeled “privileged & confidential,” was leaked on social media Thursday by Robert Fuller, brother of councillor Gord Fuller. It is understood that legal action is being considered over the leak.
Ironically, the report refutes claims by the councillor and his brother that there was widespread personal spending by staff on city cards.
It also has a curious lack of analysis of suspended city manager Tracy Samra’s role in the personal spending scandal at the city. Ms. Samra arranged for the report to be done.
Reviewing a seven-year period from 2010 to the end of October 2017, the report says that on average 91% of the 160 to 190 cardholders “only used their corporate card for its intended purpose.”
KPMG found that most of the few staff members who did have business-related personal expenses on their cards typically had only one per year.
That suggests the personal expenses were incurred inadvertently, such as using the wrong card in error or in unavoidable business-related situations, the report says.
Spike in personal expenses under Samra
The accountants also found that the dollar value of personal transactions by cardholders spiked to record levels in the two years after Ms. Samra was appointed.
More than half of all the personal transactions and 73% of the dollar value in those years were incurred by fired chief financial officer (CFO) Victor Mema, which KPMG identifies only as “Person B” in its report.
The report says “Person B” admitted to 76 personal charges worth a total of $14,600, significantly more than the 64 charges the city previously identified as personal on Mr. Mema’s card statements. Many of these were purely personal rather than related to city business.
The auditors note that they worked from information provided by the city and only counted transactions that were self-disclosed as personal. They did not investigate if claimed business expenses were potentially personal charges.
In addition to Mr. Mema, the authors also focus on an individual called “Person A,” who News Nanaimo has learned is Richard Harding, the city’s director of parks and recreation. It says he disclosed a large number of smaller business-related personal expenses between 2010 and 2015 but now hardly ever uses his card.
KPMG engaged by Samra’s first law firm
The report makes public for the first time that KPMG Forensic Services was engaged through Valkyrie Law, a North Vancouver-based firm Ms. Samra first hired within two weeks of joining the city in 2015.
That means the city was not KPMG’s client and likely has no access to the instructions given to the accountants or to any drafts of the report.
Interestingly, the report indicates that a third individual, identified as “Person C,” may have been of interest but the final version of the report contains no analysis of this individual’s activities.
News Nanaimo understands that Ms. Samra is “Person C.” Elsewhere in the report, Ms. Samra is referred to only as “another person.”
Sources have told News Nanaimo that Ms. Samra wanted the report to help justify her and Mr. Mema’s spending by showing that it wasn’t unusual.
The KPMG report doesn’t explain why the firm was hired to review all cardholders’ transactions over seven years, except to say “concerns” had been raised about “the prevalence” of employees using their corporate cards for personal expenses and failing to repay in a timely manner.
However, at the time the report was commissioned in October 2017, only Mr. Mema and Ms. Samra’s credit card spending was in question.
City moderated ban on personal expenses
According to KPMG, the city’s policies prohibited staff from using their credit cards for personal expenses. However, the report notes that the city has chosen to “moderate the impact” of the strict policy and allow business-related personal expenses in limited circumstances.
KPMG said it found that staff mostly incurred personal charges for one of two reasons:
- paying for a business expense that has a personal component, such as the cost for a spouse to attend a conference or liquor on a business meal bill; or
- using the card in error.
“In general terms, it appears from our analysis that cardholders complied with city policy and practice and that personal expenses, to the limited extent they were incurred, were repaid within a reasonable time,” the report says.
However, KPMG singles out “Person A” (Mr. Harding) and “Person B” (Mr. Mema) as “outliers” who had many self-disclosed personal expenses that weren’t immediately repaid.
According to the report, Mr. Harding had the most personal charges between 2010 to 2015 totalling $5,896 over the five years.
They say his personal expenses included many “relatively small amounts for restaurant and coffee shop expenses” and that he often took more than a month to repay the amounts.
KPMG notes that Mr. Harding told them his previous assistant coded any expense where there wasn’t a full receipt as a personal expense, so he may have reimbursed the city for legitimate business expenses.
It also says that Mr. Harding told them that some of his personal charges were for alcohol on restaurant bills that he reimbursed the city for.
“Person A expressed surprise at the number of days it took to repay certain personal expenses. However, Person A explained that the assistant would often provide a couple of month’s statements together for Person A’s final sign off, at which time Person A would organize for payment to be made for all personal expenses on the statements,” says the report, noting that Mr. Harding now uses the card “very seldomly.”
The report notes that Mr. Harding had only one personal expense in 2016 and none in the ten months ended October 31, 2017.
Mema issue “not properly dealt with”
Mr. Mema, or Person B, had the highest number of personal transactions for 2016 (34 transactions) and for the 10 months ended October 31, 2017 (42 transactions), the report says. Together these totalled $14,600 for the two years.
The report says that Mr. Mema signed the card agreement that expressly bars personal expenses in mid-September 2015. He disclosed his first personal expense in March 2016, which he repaid in May that year.
Up to September 2016, Mr. Mema incurred about $4,300 in new personal expenses “without prompt repayment.” KPMG says the city’s accounting department “sent out various reminders and requests for payment to the individual in September, November and December 2016.”
In late December 2016, Mr. Mema “issued a cheque, post-dated to January 20, 2017, payable to the city for the balance owing as at the end of September 2016.”
During December 2016 and January 2017, he incurred another $4,700 in personal expenses on his card, the report says.
On January 31, 2017, says the report, “the cheque is returned by the bank because of ‘Insufficient Funds’ and the matter is escalated to Human Resources.” At this point, KPMG notes that Mr. Mema owed the city about $8,400.
On Feb 9, 2017, Mr. Mema requested that a recurring $500 per pay period salary deduction be set up until further notice.
KPMG says “it appears that the concern first identified and raised in February 2017 … was not properly dealt with.”
Mr. Mema continued to incur personal expenses on his card until October 2017, when Ms. Samra suspended his card pending full repayment to the city.
As was previously reported by News Nanaimo, this was done after Mr. Mema’s previous employer, the District of Sechelt, filed a lawsuit seeking repayment of almost $10,000 in allegedly personal expenses on one of its credit cards. KPMG does not mention this.
KPMG says an October 11, 2017 letter given to Mr. Mema suggests that he was told at a February meeting to stop using the card for personal expenses, but that this is “inconsistent” with what witnesses and Mr. Mema told them.
Interestingly, the report is silent about the fact that Ms. Samra rewarded Mr. Mema with a “living expenses” agreement worth $7,200 on February 21, 2017, and appointed him her deputy with a 10% salary increase a month later.
The report does note, however, that a copy of the living expenses agreement was among the documents the city provided to KPMG.
According to KPMG, when they interviewed Mr. Mema he claimed to be “unaware that ‘personal purchases’ are not allowed on the card.” He said the card agreement only prohibits personal expenses that are “mischaracterized as business” or if there was no ‘intent’ to repay the amount.
“When asked, the individual declined to explain why a personal credit card, or other personal means were not used to pay for personal expenses,” the report says.
“The individual declined to provide the specific nature of some of the expenses, other than to acknowledge they were not business related.”
In conclusion, the report provides recommendations to the city if it wants “to amend its policy to specifically allow for personal expenses” and to formalize the repayment process, including setting a maximum repayment period.
The city hasn’t yet approved changes to its purchased card policies.