Ralph Neate, the former auditor for Collus, revealed the town could have extracted $7 million from the utility without selling shares or forming a strategic partnership in 2012.
Neate was on the witness stand for the judicial inquiry hearing yesterday (May 15) and explained that by calling in a promissory note and recapitalizing Collus by increasing the debt load, the town could have received $7.2 million in cash without selling a single share.
The first offer from PowerStream, for 50 per cent of Collus, was $7.3 million for the shares. Powerstream later increased the offer to $8 million for the shares. The sale also included the town calling in the promissory note from Collus for $1.7 million, and dividend payments resulting from recapitalization at approximately $5 million, both of which could have been done outside the sale process, according to Neate.
Neate worked for the former Gaviller and Company LLP and was the audit partner responsible for auditing Collingwood Utilities Services Corporation, Collus Power Corp., Collus solutions Corp., and Collus Energy Corp. from September 2008 to May 2012.
In a sworn, written affidavit, Neate included notes he made after a Strategic Partnership Task Force meeting; he was asked to sit in on two of them. The notes are titled “concerns about potential deal,” and included five concerns, three of which are directly related to financial matters.
One of the concerns noted was Neate’s claim the town could extract $7.2 million without doing any deal.
Part of the cash could have been made by the town calling in a $1.7 million promissory note, something the municipality could have done at any point with notice to Collus.
The other $5.5 million could have been extracted, said Neate, by maximizing the Collus debt load and paying the money in dividends to the town as the lone shareholder.
No strategic partner was required for either option.
Ryan Breedon, one of the lawyers representing the town of Collingwood in the inquiry, asked Neate if he raised his concerns with anybody at the town.
He said he did not, but he thought he raised them with Sue Bragg, a fellow Gaviller and Company auditor who was responsible for auditing the town’s books.
Neate’s affidavit also includes notes from Trevor Pinn, a Gaviller employee who did field work for Collus audits, where he states bonuses paid to Collus employees and board members don’t appear to have documented approval.
The auditors noted an increase in payroll for March 22, 2012, and found the increase was related to bonuses paid to Collus President and CEO Ed Houghton ($40,000), Financial Controller Cindy Shuttleworth ($15,000), and Collus board secretary Pamela Hogg ($15,000).
Board members who received bonuses include: Dean Muncaster ($30,000), David McFadden ($15,000), Doug Garbutt ($7,500), and Joan Pajunen ($7,500).
In cross examination by Frederick Chenoweth, the lawyer representing Ed Houghton in the inquiry, Neate confirmed he was concerned, as an auditor, there was a lack of evidence showing the bonuses were approved.
Hogg did present a memo signed by Joan Pajunen, the chair of the human resources committee for the Collus Board, indicating the amounts approved for bonuses.
According to Neate's affidavit, at an April 26, 2012 meeting to present audit findings, he advised the Collus Power and Collus Solutions board of the bonus payments and recalls thinking some of the board members “seemed surprised to learn about the bonus payments.”
In cross-examination by Chenoweth, Neate said he couldn’t recall who was surprised, nor what led him to conclude they looked surprised.
Neate recalled some board members gave their bonuses back.
According to Neate’s testimony, he was told by Houghton in May 2012 that Houghton would not work with Neate anymore, and another Gaviller partner was appointed primary audit partner for Collus, later Collus PowerStream.
Neate concluded his testimony yesterday morning. David McFadden, who was an independent director on the Collus LDC Board of Directors in 2007 and remained part of the board to 2016, took the witness stand for the rest of the day, and returned to the stand for cross-examination this morning.
The Collingwood judicial inquiry was called to investigate the 2012 share sale of 50 per cent of Collus to PowerStream, and the subsequent spending of the proceeds from the sale.
