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Addendum to WRHA Audit Report

Addendum to WRHA Audit Report

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Addendum to WRHA Audit Report
Addendum to WRHA Audit Report

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Published by: tessavanderhart on Mar 23, 2013
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Bethania and Pembina Place - FINAL Audit ReportFebruary 19, 2013 Page 1
ADDENDUM TOWinnipeg Regional Health Authority - Audit ServicesBethania and Pembina Place Mennonite PCHsFINAL Audit Report dated February 19, 2013
The WRHA Management reply which was incorporated into the Final Audit Report necessitatesfurther clarification and response from the Board of both PCHs. The headings used in the FinalAudit Report will be used in this Addendum for purposes of identification. A PCH BoardResponse has been provided for each WRHA Reply to provide necessary clarification.
B: Senior Management Compensation and Other Employee Benefits
 a. CEO Compensation
PCH BOARD REPLY: Conflict of Interest 
The Board has entrusted the CEO to conduct the business of the organization in the manner consistent with the overall ends of the Board and within the limitations set out by the Executive Limitations. As the only employee of the Board, the CEO is expected to provide advice regarding the overall structure of the organization, including options for the structure of the CEO contract. In respect of the CEO contract, the Board is fully aware that the CEO acts in two capacities - on one hand as representative of the organization and on the other as representative of himself. This occurs out of necessity and is inherent in every CEO contract negotiation. The situation here is not unique and an external consultant is often an unnecessary expense. The Executive Committee of the Board determined the new contract terms on behalf of the Board, not the CEO.The new arrangement for provision of CEO services did not award the CEO significantly increased benefits as the WRHA Reply states. In fact, it resulted in a reduction of costs to the PCHs. The CEO is entitled to a pre-retirement allowance only once and only at the time he retires. The April 6, 2012 contract with the CEO capped the pre-retirement allowance payable to the CEO as of July 31, 2012. Despite his continued service as CEO, no additional pre-retirement allowance is or will be accumulated or payable to the current CEO. This represents an annual savings, as long as the CEO remains Bethania Group's CEO, for not only the Bethania Group, but also to Manitoba Health, which provides a portion of the payment for the CEO's services to Bethania Group through Service Purchase Agreements (SPAs) with the PCHs.The CEO is also entitled to a pension under the Healthcare Employees Pension Plan (HEPP).The pension fund constitutes monies held in trust for eligible members of the Plan. Pension trust monies are a part of an employee's compensation paid at some permissible later date in accordance with the relevant Plan. The pension trust fund does not belong to the Bethania 
Bethania and Pembina Place - FINAL Audit ReportFebruary 19, 2013 Page 2
Group, the WRHA or Manitoba Health. The new arrangement for the provision of CEO services did not provide the CEO with any greater pension benefit than that to which he was already entitled. In fact, the April 6, 2012 agreement with the CEO permitted the cessation of employer contributions. This represents a significant annual savings to the Bethania Group, and consequently Manitoba Health. As at July 31, 2012, the expected annual savings for the upcoming year was determined by the Bethania Group to be approximately $14,238. This savings would continue on a yearly basis as long as the CEO remains in Bethania Group's employ. The Board of Bethania has been aware, since the CEO's contract of March 2009, of the CEO's intention to retire under HEPP in or about July 2012. Given the ongoing savings, it made practical business sense to the Board to negotiate the terms of the 2012 contract with the CEO.A directive given under The Regional Health Authorities Act (Act) should only be given in accordance with the direction making authority granted under the Act. It is not clear to the Board whether the WRHA complied with the provisions of Section 29.1 of the Act, and particularly with Section 29.1(5) which requires consultation and accommodation of the position of a health corporation on the matter. Furthermore, a direction given to a health corporation may relate only to certain matters that have a region-wide impact and may not relate to aspects for which the regional health authority does not provide funds.The "wage freeze directive" was provided to the Bethania Group as an attachment to a funding allocation letter addressed to the CEO from the WRHA's CFO. The "wage freeze directive" states that Non-union Executive/Senior Management & Equivalent "are to have their salaries frozen, which means there will be no steps on scale, inflationary adjustments or salary adjustments, unless specifically approved by the WRHA and MH (Manitoba Health). Further MH has instructed the WRHA to use all the mechanisms at its disposal to ensure this directive is followed, including "claw back" of the value of any applied increase to this category of staff." We understand that this "directive" has been in place since April 2009.The Board raises an issue regarding this directive in view of the statement in the WRHA Reply that the CEO was awarded a salary in excess of what is permitted to other PCH senior executives during this time of "salary freeze". We note that the salary freeze is only in regard to executive positions and not in respect of unionized employees, who have continued to receive annual raises since 2009.The Board entered into its March 2009 agreement with the CEO prior to the WRHA wage freeze being imposed in April 2009. The March 2009 agreement provided for minimal annual increases to the CEO. However, the Board has not provided such increases since 2009 because of WRHA's Funding Letters.As a result of the reduction in benefit expenses related to the CEO due to his contract change,the Board provided an increase in pay under the CEO's new 2012 contract equal to 3% or $4,800 per year. This resulted in the compensation given to him, which includes benefits, in actual dollars being less than the amount paid under his 2009 contract. Under the new 2012 CEO contract the amount allocated to WRHA, and consequently Manitoba Health, was approximately $520/month less than that allocated previously; although WRHA auditors indicated that Bethania Group should adjust our current allocation to be the same as it was prior to the contract change. Given there was reduction in total compensation, and no additional amount being paid through public funds (or otherwise), the Board did not consider its 2012 contract to be in violation of WRHA's wage freeze, particularly in view of the limits prescribed by the Act.
Bethania and Pembina Place - FINAL Audit ReportFebruary 19, 2013 Page 3
The CEO did not request a salary increase. The Board determined it would be appropriate to provide additional pay to the CEO in view of reduced benefits being paid under the 2012 contract.
a) CEO Compensation 
 Through the Service Purchase Agreement (SPA), the WRHA purchases services from Bethania Group. The SPA imposes contractual obligations on both parties.In the WRHA Reply, several provisions of the SPA are quoted. It is the Board's position that the PCHs have not breached any of the provisions of the SPA, including those specifically quoted.The WRHA states that "PCH failed to discuss the arrangement for the provision of CEO services with the funder of those services, the WRHA". The SPA does not require the PCH Health Corporation to have discussed the new arrangement with its CEO with WRHA. None of the provisions quoted impose such an obligation. The SPA states clearly that the PCH Health Corporation is an independent and autonomous entity. As such, the Bethania Group entered into an agreement to change certain contract terms with its CEO on April 5, 2012. Furthermore,Section 21.2 of the SPA states that the "PCH Health Corporation retains the sole right to appoint, evaluate, and terminate its ED / CEO and all staff". Bethania Group's current CEO was appointed in 2009 and he continued in that capacity.
(Alleged) Contravention of Bill 6 
 The CEO has done a commendable job since 2009 for Bethania Group and the PCHs. When the CEO started in 2009 the PCHs were running deficits and were in a significant negative equity position. This is no longer the case. Care provided to the PCHs' residents has been exemplary and the faith-based mission of the Bethania Group has been and continues to be achieved.At a meeting of the Executive Committee of the Board on April 5, 2012, the CEO and the three Executives on the Committee, negotiated and concluded the basic terms of the CEO's 2012 employment contract. The By-laws of the PCHs authorize the Executive Committee to transact the business of the Board between board meetings and to report such actions to the Board. The Executive Committee made an agreement in April 2012 with their CEO that they believed was binding. The Executive Committee was of the view that they were authorized to act on behalf of the Board and did so knowing that there would be no issue when they reported it for two reasons: 1. the Board unanimously wished the CEO to continue as CEO; and 2. as a result of the change in the CEO's agreement, the cost to the Bethania Group and its PCHs would be less than it was in prior years.The Board has the authority under the SPA and its By-laws to appoint a CEO. The CEO was appointed in 2009. The change did not involve a new appointment of a CEO and therefore the Executive Committee believed it had authority to bind the Board.The Supreme Court of Canada has held that there is a presumption in law that a statute does not retroactively interfere with vested rights. A vested right exists if it is tangible and if it is constituted at the time of the commencement of the new legislation. The Bethania Group, its 

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