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PRIVILEGED AND CONFIDENTIAL

SUMMARY OF FINDINGS
FROM MNP LLP
TO
PINK LARKIN LLP

IN THE MATTER OF
INDIAN BROOK (SHUBENACADIE) FIRST NATION

APPENDIX #9 - FISHERIES


Pink Larkin LLP Shubenacadie First Nation Privileged and Confidential
Appendix 9 - Fisheries, April 21, 2014
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TABLE OF CONTENTS
1 BACKGROUND ...................................................................................................... 1
2 FOOD FISHERY...................................................................................................... 2
3 COMMERCIAL FISHERY ....................................................................................... 4
4 FISHERIES FINANCIAL REVIEW......................................................................... 12
5 LOBSTER REVENUES ......................................................................................... 14
6 SNOW CRAB REVENUES ................................................................................... 20
7 EXPENSES ........................................................................................................... 27
8 CONCLUSION ...................................................................................................... 32
9 RESTRICTIONS AND LIMITATIONS .................................................................... 34

TABLES
Table 1: Commercial Fish Licences ................................................................................. 4
Table 2: Excerpts from letters provided by J. Hayes ........................................................ 7
Table 3: Schedule of Fisheries Operations .................................................................... 12
Table 4: Lobster Revenue Summary ............................................................................. 14
Table 5: Sources of Lobster Licence Revenue .............................................................. 14
Table 6: Sources of Lobster Catch Revenue ................................................................. 15
Table 7: Comparison of Lobster Revenue and Lobster Wages ...................................... 16
Table 8: Inaccurate Recording of Revenue ................................................................... 18
Table 9: Snow Crab Revenue Summary ...................................................................... 20
Table 10: Sources of Snow Crab Licence Revenue...................................................... 20
Table 11: Sources of Snow Crab Catch Revenue ........................................................ 21
Table 12: Adjusted Snow Crab Catch Revenue ............................................................. 21
Table 13: Actual and Achievable Snow Crab Gross Profit per pound ............................ 25
Table 14: Final Adjusted Snow Crab Revenue .............................................................. 26
Table 15: Payroll and the DFO Catch Weights .............................................................. 26
Table 16: Summary of Fisheries Expenses ................................................................... 27
Table 17: Summary of Salaries and Benefits ................................................................. 27
Table 18: Number of Employees on Payroll .................................................................. 28
Table 19: Crab Landing Fees ........................................................................................ 29
Table 20: General and Administrative Expenses ........................................................... 30



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EXHIBITS
Tab Title
1. Food Fishery Access form and Food Fishery Tag form
2. Shubenacadie Food Fishery Management Plan 2012/2013
3. Council Minutes re: Alex McDonald Sr. $20,000 loan to lease a commercial
licence
4. Agreement between Alexander P. McDonald and SFN re: $20,000 loan to
lease a commercial licence dated November 17, 2009
5. Fisheries Lease Agreement between SFN and Michael Patrick Sack dated
September 14, 2011
6. Email exchange between Jeffrey Hayes and Gary Richard re: lobster licences
dated September 14, 2011
7. Letter from Chief Jerry Sack re: Cheryl Maloney has access to snow crab
quota and lobster licence dated February 23, 2009
8. Chase Fisheries Project Proposal for Crab Fishing Operations, April 22, 2009
9. Letter from Cheryl Maloney to Council re: clarification on snow crab fishing
arrangement dated August 3, 2009
10. Band Council Resolution (BCR) 2010-2011-54 re: sale of snow crab quota to
Mainland Juggage dated March 10, 2011
11. Mainland Juggage loan reconciliation
12. Invoices from licensees setting out catch weight, catch price and crew share
13. Crab revenue for 2010
14. Service Agreement between Shubenacadie First Nation and Nexus Coastal
Resource Management



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1 BACKGROUND
1.1 Shubenacadie First Nation (SFN or the Nation or the Band) manages two
main fisheries; a ceremonial food fishery (Food Fishery) and a communal
commercial fishery (Commercial Fishery). The two fisheries are administered
under agreements with the Department of Fisheries and Oceans (DFO) on
behalf of the Government of Canada. Licences are granted to the Band under
these agreements. During the period of April 1, 2009 to March 31, 2012 (Period
of Review), SFN employed Jerome Paul (J. Paul) as the Fisheries Manager.
The Fisheries Manager controls the issuance of the licences and administration
on behalf of the Council.
1.2 According to the DFO, SFN is required to maintain a record of who the licences
are issued to and then monitor their use in cooperation with the DFO. Part of the
process is to educate the licence holder on the fisheries management plan that
was developed by SFN.
1.3 Concerns were raised with respect to controls over the food fishery licences, the
issuance of commercial licences, and employment of band members as crew on
the commercial fishing boats.
1.4 Amounts have been rounded for reporting purposes.


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2 FOOD FISHERY
2.1 We understand that under various court decisions, each member of SFN has a
right to trap lobster for their own consumption. It is illegal to sell the catch under
this licence. There is a requirement for those members who fish for lobster to
obtain one tag per trap from the Fisheries Manager. According to the Fisheries
Manager, each member is allowed to have a maximum of three tags. The tags
are generated by SFN and are required to be affixed to the fishermans lobster
trap. The tag identifies who is fishing the trap and new tags are issued each
year.
2.2 There is no cost to the Band member to obtain food fishery tags but they are
supposed to read and understand the SFN fisheries management plan. The
issuance of the tags is evidenced by the member signing a Food Fishery Access
form or Food Fishery Tag form where the persons name is matched to the tag
number. Examples of the two forms are attached as Exhibit 1. The forms are
somewhat different but both appear to be representative of a Band member
fishing for lobster for their own or communal purposes; not for commercial use.
Both forms require the applicant to have read, understood and agree to abide by
the Shubenacadie Food Fishery Management Plan, attached as Exhibit 2, and
evidence this by signing the form.
2.3 J. Paul advised that he faxes the completed forms to the DFO. These records
are to be maintained by the Fisheries Manager as part of the normal operating
records of SFN. However, J. Paul advised that he destroyed or discarded
fisheries records at the end of each season. In addition, he did not maintain a
central log of the tags and allocation to band members. Fisheries records prior to
2012 were not found.
Missing Food Fishery Tags
2.4 In a preliminary discussion with J. Paul he advised that he had 1,000 tags during
the 2012 season and that 70 were issued. He said that 80 tags went missing
from Jeffrey Hayes (J. Hayes) office (former Director of Finance) when J. Paul
was on temporary leave. As a result of this, he made the decision to keep the
tags at his home. MNP immediately advised SFN management of the location of
the tags and J. Paul was asked to return them to the SFN offices.



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2.5 In a follow-up interview, J. Paul advised that 30 tags and related paperwork were
missing, he then stated that 108 tags were used with 10 15 registration forms
missing. The Director of Operations advised that J. Paul returned the remaining
tags and what paperwork he had. We reviewed the paperwork provided and note
the following:
The highest tag number listed is 110, therefore it appears that at least 110
tags were issued;
A total of 81 tags are listed as issued;
Documentation is missing for 29 tags;
A total of 27 individuals are listed as obtaining tags; and,
The tags were issued between June 17, 2012 and August 2, 2012 with the
majority dated June 27 and July 5.
2.6 We were advised that each tag gives the holder a right to catch 20 pounds of
lobster per day. Therefore, the missing tags represent a potential for 580 pounds
(20 pounds x 29 tags) of lobster to be caught per day. If sold at a shore price
between $3.00 to $3.50 (approximate price in 2012) the value of the unaccounted
for lobster would range from $1,740 to $2,030 per day. There is a potential for
unaccounted for lobster tags to affect the commercial fishery by competing with it
plus there is a reputation risk to SFN.
2.7 Due to the loss of control over the Food Fishery Tags, the Council issued a
request to DFO, asking them to cancel all existing Food Fishery Tags effective
April 6, 2013.


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3 COMMERCIAL FISHERY
3.1 The Commercial Fishery is represented by licences assigned by the DFO to SFN.
They are managed by SFN with the oversight of the DFO. These licences can be
used by Band members or leased to third parties. We understand that there is a
requirement for the individual holding the lease to be a licensed boat captain.
3.2 Through various interviews and review of the Council Minutes, we understand
that the Council directs how the licences will be issued and the lease amount per
licence. The Fisheries Manager is then responsible for the management of the
licences, including the collection of revenue and managing the first nation crews.
3.3 The licences include lobster, snow crab, swordfish, scallop, herring and
groundfish as follows:
Table 1: Commercial Fish Licences
Species (Number of Licences) Licence Description Area (Note 1)
Lobster (15) LFA 32 (1)
LFA 33 (2)
LFA 34 (9)
LFA 35 (3)
Snow Crab (1) CFA 24
Scallop (1) SFA 28 A-D
SFA 29 A-D
Groundfish (1) NAFO Division - 4VN, 4VS, 4W, 4X,
5Y, 5ZE
Swordfish (1) NAFO Division 3L, 3M, 3N, 3O, 3PS,
4VN, 4VS, 4W, 4X, 5ZE
Note:
1) LFA = Lobster Fishing Area
CFA = Crab Fishing Area
SFA = Scallop Fishing Area
NAFO = Northwest Atlantic Fisheries Organization
3.4 In addition to the licences listed above, SFN was also allocated licences from the
DFO for the following species:
Alewives, 1 licence;
Clams, 4 licences;
Herring / Mackerel, 7 licences;
Sea Urchins, 2 licences; and,
Tuna, 1 licence.


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3.5 Although licences are available for these other species, we are not aware of them
being issued. There could be a number of reasons why the licences were not
issued but without a formal analysis by a subject matter expert it is not known if
there is a lost opportunity for added revenue and employment opportunities for
SFN.
3.6 Traditionally, the crew of the boats fishing the SFN licences are to be made up of
members of SFN. For lobster specifically, we understand that the terms of the
lease require the company or person who fished the licence to submit 24% of the
value of the catch to SFN. There would typically be three crew members,
therefore SFN would in turn issue a third of the 24%, or 8%, to each crew
member. The money SFN received for the crew was meant to be a flow through
with no profit or loss to SFN. We have not been provided with a copy of a
standard lease to verify the terms. However, documentation which accompanies
the remittances to SFN indicates that a percentage of 24% is intended for wages.
This arrangement is discussed further in Section 5 of this Appendix.
3.7 According to J. Paul, lease fees are collected in the summer preceding the fishing
season. When a captain leases a licence, J. Paul calls the DFO to have the
licence issued to the vessel. We understand that the Council discusses and
decides how and to whom the licences will be issued.
Commercial Fishery Issuance of Lobster Licences
3.8 In our review of the Council Minutes there were few references to the issuance of
lobster licences. Key references are noted below.
November 2009 Alex McDonald Sr. LFA 34
3.9 At the November 17, 2009 Council Meeting, Alex McDonald Sr. (A. McDonald)
requested a loan of $20,000 to lease a commercial licence (refer Exhibit 3). A.
McDonald was a councillor at the time and left the room during a discussion of
the request. The minutes reflect a revision to the request as follows:
REVISED: asking for an additional 15K to pay Mike Sack and he will make
payments on the 20K fisheries license as well.
3.10 We note that Michael P. Sack (M. Sack) was a councillor at the time of this
meeting and there are no notes of M. Sack exiting the room while this motion was
discussed and voted on. The motion passed with six votes for and five against.
The minutes do not say who voted.


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3.11 An agreement between A. McDonald and SFN dated November 17, 2009 states
that A. McDonald agreed to pay $20,000 for an LFA 34 licence. The licence is for
the 2009-2010 Lobster season and he was bound to sell all catches to a buyer
designated by SFN. The buyer is then obligated to make payments to SFN for
wages for band members employed by the fisher in an amount no less than
twenty four percent (24%). A copy of the agreement is attached as Exhibit 4.
The designated buyer is not identified in the agreement or in any other
information obtained to date.
3.12 According to SFN accounting records, a cheque was issued to Mainland Juggage
in the amount of $15,000 on November 18, 2009, cheque 23117. The journal
description is Alex Macdonald Sr Loan as per Council alex to repay loan from
landings, Jerome to set up agreement with alex. The amount was recorded to
account 1190 Accounts Receivable Other. There is one deposit of $1,000
recorded as received from A. McDonald on October 27, 2010 that was applied to
the receivable. No other repayments have been identified.
3.13 Additionally, there is uncertainty as to the accounting treatment of the $20,000
loan for the Lobster Licence. No entry in the general ledger has been identified
for either the loan or the licence revenue.



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3.14 J. Hayes provided four letters dating from September 2009 to November 2010, all
of which bear the signature of A. McDonald. It is not known why J. Hayes
continues to hold SFN records. Copies of these letters were not found at the
Band office. The documents state the following:
Table 2: Excerpts from letters provided by J. Hayes
Date Contents MNP Notes
September 14,
2009

Request by Alexander
McDonald for $12,000 to fix
his damaged vessel,
Jevenay Kay.
No record of this loan amount has
been found. This loan request
was increased to $15,000 and this
is the loan that was agreed to in
the November 17, 2009 Council
meeting.
November 1, 2009

Loan agreement between
Alexander McDonald Sr. and
Michael P Sack re loan of
$15,000.

Loan repayments to be
$1,000 a month from
December 15, 2009.
The $15,000 loan was settled by
payment from SFN on November
17, 2009 to Mainland Juggage; a
M. Sack company. As a result, A.
McDonald was then to repay
SFN.

The loan agreement refers to
$20,000 with respect to a lobster
licence with Alexander McDonald.
July 23, 2010

Relates to a $35,000 loan
from Shubenacadie Band.

The 2009/2010 lobster
season was not a success
for A. McDonald and he
could not make money to pay
the Band back.

He agrees to deduct $750
from
each core cheque he gets
as a Band Councillor starting
August 2010.
This loan consists of $15,000
which was paid to M. Sack and
$20,000 with respect to a LFA 34
licence.

We note that Alexander
McDonalds payroll deductions
were $500 bi-monthly
commencing December 8, 2010.
No deductions prior to this were
made.
November 9, 2010

Relates to a $35,000 loan
from Shubenacadie Band
and July 23, 2010 letter
(above).

Alexander McDonald agrees
to a lower deduction of $500
from his salary cheque
starting with the first core
cheque in November 2010.


3.15 A review of the A. McDonalds payroll records notes the following:


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A Loan of $35,000 was recorded in the payroll system on November 9, 2010;
The first deduction from A. McDonalds pay cheque was made on December
8, 2010;
As at August 14, 2013, $27,700 has been withheld from A. McDonalds pay;
and,
The payroll records show a balance due from A. McDonald of $7,300
1
as of
August 2013..
3.16 Although the payroll records report that A. McDonald owes $7,300, a deposit of
$1,000 was received from A. McDonald on October 27, 2010. This deposit
appears to relate to his loan (see Paragraph 3.12). This repayment was received
prior to the full amount of the loan being recorded in the payroll records on
November 9, 2010. Therefore, we consider that as at November 9, 2010, the
loan should have been recorded as $34,000, not $35,000. Consequently as at
August 14, 2013, A. McDonald owes $6,300.
3.17 Finally, we note that in the payroll records available to us, there is no reference to
a boat called Jevenay Kay. A. McDonald advises that this was a poor year for
fisheries and he did not get out on the water. We would therefore not expect
revenue to be recorded from Jevenay Kay.
September 2011 M. Sack all LFA Licences
3.18 In Council Minutes for September 13, 2011, a financial update was provided by J.
Hayes where it was noted that there was no funding for payroll, LSK and Admin
and that the Council would have to worry about welfare within the next week. J.
Paul was summoned to the meeting to discuss what could be done for payroll etc.
A motion was then passed with respect to the fisheries licences where it was
agreed to lease the fisheries licences for $40,000 each and 24% allocation for
labour cost. There is no indication in the minutes of who the licences would be
issued to and no distinction made between the lobster licences and other
licences.


1
Calculated as $35,000 loan less deductions of $27,700.


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3.19 A Fisheries Lease Agreement between SFN and M. Sack dated September 14,
2011 (refer Exhibit 5) was located in the records. The agreement appears to
reflect the Council minutes from September 13, 2011 and is signed by Chief
Sack, seven councillors and J. Hayes. The document does not bear the
signature of M. Sack. The agreement provides for the lease of all licences for
LFA 34 (9 licences) and LFA 35 (3 licences) for the 20112012 Lobster season
for $40,000 each. Therefore, M. Sack was to pay SFN a total of $480,000;
$240,000 was due immediately, $60,000 no later than October 14, 2011 and
$180,000 no later than November 25, 2011.
3.20 An email exchange between J. Hayes and Gary Richard (G. Richard), legal
counsel to SFN, on September 14, 2011, attached as Exhibit 6, confirms that the
agreement relates to lobster licences only. In the last email sent by G. Richard at
3:42 PM he says that J. Paul has advised that all the captains that would have
been licensed, are financed through M. Sack, so whether the band deals with
Mike directly or through Captains, it is essentially the same transaction.
3.21 No additional lobster licence agreements were identified during our review of
documents.
Commercial Fishery Issuance of Snow Crab Licences
3.22 During the Period of Review, crab licences/quotas were leased to either Cheryl
Maloney (C. Maloney) or M. Sack.
Cheryl Maloney Crab Licence 2009-2010
3.23 Chief Jerry F. Sack (Jerry F. Sack or Chief Sack) issued a letter, dated
February 23, 2009, to whom it may concern stating Cheryl Maloney, Indian
Brook Band Member, will receive access from the Indian Brook Band the
following quota and licences: Nova Scotia Snow crab area licence 24 and Nova
Scotia Lobster fishing area 34. The letter is attached as Exhibit 7. Although the
letter refers to a Lobster licence we are not aware of C. Maloney fishing for
lobster.
3.24 C. Maloney submitted a Project Proposal for Crab Fishing Operations under the
name Chase Fisheries to the Council at the April 22, 2009 Council Meeting (refer
Exhibit 8). The project proposal outlined two options for C. Maloney to obtain a
SFN snow crab licence. A motion was made to accept the proposal submitted by
C. Maloney. All members present at the meeting were in favour of the motion
and although it was passed the minutes do not specify if Option 1, a straight
buyout per pound, or Option 2 fixed rate was accepted by Council. Manual notes
on the proposal, Exhibit 8, indicate that Option 2 was preferred for two years at a
time.


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3.25 On August 3, 2009 C. Maloney sent a letter (refer Exhibit 9) to the Council
requesting clarification on the snow crab fishing arrangement. Her main concern,
among others, was regarding instructions she received from the Council to sell
her catch to Mainland Juggage. She felt the situation of selling to a band
councillor has created a conflict of interest It was C. Maloneys belief that if a
fisherman has an arms length relationship with the buyer and if not satisfied with
the service, he/she is able to switch buyers until they are happy with the service.
In the situation of selling to Michael Sack, I am not clear on whether he is acting
as a boss (as councillor), or service provider to me. There is no indication in the
minutes that C. Maloneys concerns were addressed and if so, how.
Cheryl Maloney Crab Licence 2010-2011
3.26 During the Council meeting on April 6, 2010, C. Maloney offered to lower her rate
she receives from the Band to $0.60 per lb from $0.65 per lb and expressed her
concerns about selling to M. Sack, aka Mainland Juggage. Various accounting
documents were presented during the Council meeting by C. Maloney to explain
her concerns; however, they were confusing to the Council and it was agreed that
Shawn Fitzgerald, accounting clerk, would have a more in-depth look at the
numbers and explain them to Council. A motion was made to give C. Maloney
the crab quota at $0.60 per lb with C. Maloney supplying the fuel, bait, gear,
lodging and all other expenses. SFN would then pay the all native crew.
3.27 It is not known if Shawn Fitzgerald completed this task prior to the termination of
his employment in July/August 2010. There is no reference to a Fitzgerald
analysis in the Council Minutes after April 2010.
3.28 After the motion was passed the Council revisited the crab discussion. A request
was made by a Council member for clarification as to why C. Maloney must sell to
Mainland Juggage and that G. Richard send/draft a letter stating the sell price to
Mainland Juggage must be at a competitive rate. It is not known if this letter was
drafted or issued and was not found in our review of G. Richards files for SFN.
M. Sack Crab Licences 2011-2012
3.29 A Band Council Resolution (BCR) 2010-2011-54 titled Crab Quota - Mainland
Juggage was identified in the BCR Register. This is attached as Exhibit 10 and
states Shubenacadie First Nation agrees to sell their 2011 snow crab quota to
Mainland Juggage (in the water) for a total of three hundred and seventy-one
thousand dollars, $371,000.
3.30 During the September 20, 2011 Council Meeting a motion was made to allow the
Band to borrow money from M. Sack with the revenue from snow crab quota
being used as collateral. This motion was defeated.


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3.31 At the November 15, 2011 Council Meeting motion #5 was passed as follows:
Motioned by Councillor Reginald Maloney to lease the Crab Quota with 2012
season. We understand that this refers to M. Sack leasing the crab quota.
Commercial Fishery Revenue
3.32 During the Period of Review, revenues to SFN from fisheries differed depending
on the species.
3.33 With respect to lobster, licences were issued based upon a flat lease amount per
licence. The amount of the lease per licence was determined by the Council.
3.34 Catch revenue for lobster, represents 24% of the value of the catch and this
amount is then paid out to the crew as wages.
3.35 For snow crab, 2010 revenue generally represents the shore price of the catch
less expenditures for the crew, boat, gear and miscellaneous (i.e. fuel, bait).
There is one revenue transaction in 2010
2
which excludes boat expenses, i.e. it is
catch revenue less expenditures for crew, gear and miscellaneous.
3.36 Snow crab revenue in 2011 represents catch revenue less a fee of $0.60 per lb.
This fee is retained by the boat captain for the boat, gear and miscellaneous
items.
3.37 No snow crab revenue is recorded for 2012.
3.38 For scallop, groundfish and swordfish; revenue represents the shore price of the
catch less expenditures for the crew, boat, gear and miscellaneous (i.e. fuel,
bait).


2
This transaction is with C. Maloney.


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4 FISHERIES FINANCIAL REVIEW
4.1 During the Period of Review, the audited financial statements of SFN have
reported a loss in every year. Losses are recorded as a result of the payment of
the Christmas bonus to band members. A summary of Schedule 11, Fisheries
Operations, from the audited financial statements is set out in Table 3 below with
an adjustment for Christmas bonuses:
Table 3: Schedule of Fisheries Operations

2009
(1)
2010
(2)
2011 2012
Total
2010-2012
Revenue
Lobster $ - 360,126 627,841 827,105 $1,815,072
Crab - 233,699 647,469 - 881,168
Other - - 108,279 75,896 184,175
Total Revenue 472,553 593,825 1,383,589 903,001 2,880,415
Expenses 616,821 1,070,753 1,400,261 1,292,451 3,763,465
Surplus/(Deficit) $(144,268) (476,928) (16,672) (389,450) ($883,050)
Add back:
Christmas
bonuses
Not known 568,504 659,157 567,000 1,794,661
Adjusted
Surplus/(Deficit)
Not known 91,576 642,485 177,550 911,611


1) 2009 figures are included for comparative purposes only, as reported on the 2010 financial
statements. The revenue is not reported according to source as done in subsequent years.
2) The 2010 amounts shown are the restated figures from the 2011 financial statements.

4.2 According to Table 3, we note the following:
Revenues ranged from $472,000 in 2009 to $1.3 million in 2011, an increase
of 175%. In 2012, revenues decreased $480,000. We are not aware of any
change in the number of fishing licences managed by SFN which could affect
the amount of revenue;
Expenses ranged from $616,000 in 2009 to $1.4 million in 2011, an increase
of 78%. 2011 reported revenues and expenditures are the highest in the
Period of Review with the least amount of reported loss;
There is no reported revenue from swordfish or scallops in 2009 and 2010.
Swordfish revenues were reported in 2012;


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The sale of a fishing vessel for $55,966 was recorded in 2011. This deposit
matches the net amount received by Reg Maloney (R. Maloney) for the sale
of the LNu SiPuk vessel according to the closing statement dated September
27, 2010 and deposit advice dated April 4, 2011. R. Maloney advised that he
sold the boat and forwarded the proceeds to the Band when he was asked
about the transactions approximately six months later. A deposit of $55,966
was agreed to the general ledger and bank statement; and,
A Christmas bonus of $250 per community member was recorded as a fishery
expense in 2010, 2011 and 2012. It is not known where the expense was
recorded in 2009. The operating results prior to the Christmas bonus were
positive.
4.3 The largest revenues are from lobster and snow crab. Along with the fishing
expenses, these were also the areas of fisheries which were of utmost concern to
members of SFN. We discuss each of these in Section 5 and 6..


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5 LOBSTER REVENUES
5.1 From 2010 to 2012 lobster revenues totalled approximately $1.8 million. The
revenue recorded was categorized as licensing and catch revenue as follows:
Table 4: Lobster Revenue Summary
Revenue
2010 2011 2012 Total
Licence $ 105,000 284,000 480,000 869,000
Catch 255,126 343,841 347,105 946,072
Total $ 360,126 627,841 827,105 1,815,072
Licence Revenue
5.2 Based upon the general ledger, licensing revenue is broken down as follows:
Table 5: Sources of Lobster Licence Revenue
Licensee
2010 2011 2012 Total
Mainland Juggage $ 60,000 200,000 480,000 740,000
Fundy Restaurant 20,000 - - 20,000
Nickerson 20,000 50,000 - 70,000
Newfie Dream 5,000 11,000 - 16,000
Gidney Fisheries Ltd. - 20,000 - 20,000
Unreconciled - 3,000 - 3,000
Total $ 105,000 284,000 480,000 869,000

5.3 We note the following with respect to lobster licence revenue:
The receipt and recording of payments from the licensee were not connected
to a specific licence. Therefore, it was not possible to reconcile payments to
the LFA licences;
We found two written agreements for Lobster licences; one for Alexander
McDonald and one for Mainland Juggage (refer Exhibits 4 & 5). No other
agreements were found. Accordingly, we were not able to confirm if the
recorded licence revenue for all other parties is what was contracted with the
above noted parties;
No accounts receivables were recorded with respect to revenue (including
catch revenue which is discussed below). Instead, revenue was recorded
when bank deposits were made. It is not known how money due from
licensees was tracked, i.e. how the Fisheries Manager ensured all amounts
due were received. We were not provided with any records with respect to


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the tracking of commercial licences and the Fisheries Manager advised that
he destroyed all records once the season was over;
SFN entered into an agreement with Mainland Juggage to lease three LFA 35
licences and nine LFA 34 licences (refer Exhibit 5), for the 2011 2012
lobster season, for a total of $480,000:
$240,000 to be paid on September 15, 2011;
$60,000 no later than October 14, 2011; and,
$180,000 no later than November 25, 2011.
In reviewing how the $480,000 was settled, we identified a payment of
$240,000 received on September 15, 2011. Our review of the records
indicate that $200,000 of the outstanding $240,000 was offset against
amounts that M. Sack claims was owed to his other companies by SFN
(Exhibit 11). We have not identified how the remaining $40,000 was settled;
and,
There was no indication of an increase in the number of LFA licences during
the Period of Review therefore, assuming that revenue was collected from all
parties as contracted, the only reason for the increase in revenue would be an
increase in the licence fee. Assuming that all 15 licence fees were issued
each year, the average amount collected per licence in 2010 was $7,000,
$17,067 in 2011 and $32,000 in 2012. This is an increase of 357%.
Catch Revenue
5.4 Based upon the general ledger, catch revenue is broken down as follows:
Table 6: Sources of Lobster Catch Revenue
Licensee 2010 2011 2012 Total
Mainland Juggage $ 214,472 405,794 347,105 967,371
Fundy Restaurant 12,515 9,191 - 21,706
JM Blinn Lobster Pound 12,098 - - 12,098
Newfie Dream 9,539 3,000 - 12,539
Kaiser Marine - 8,074 - 8,074
Wagmatcook Band 6,502 - - 6,502
Yarmouth Bar Fisheries - 4,578 - 4,578
Auditor Journal Entry
(1)
- (86,796) - (86,796)
Total $ 255,126 343,841 347,105 946,072
1) Auditor entries relate to sundry in respect of unreconciled bank balances, write offs of balance
sheet items and other.
5.5 We note the following with respect to lobster catch revenue:
Lobster catch revenue increased 34% in 2011 and subsequently increased by
1% in 2012; and,


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Total lobster landings reported to the DFO increased 20% in 2011 and 26% in
2012 and the average price of lobster
3
decreased by (1%) in 2011 and
increased by 6% in 2012.
Unaccounted Lobster Catch Revenue
5.6 Concerns were raised with respect to under reporting of lobster revenue.
5.7 The daily catch is recorded in log books kept on the boat by the boat captain. It is
assumed that the crew would also keep track of the amount of lobster caught so
they were compensated fairly. However, there is an element of self reporting that
could allow for improper amounts reported to SFN.
5.8 We understand that the catch revenue represents 24% of the value of the catch
and as noted in Paragraph 3.6 above, this amount is intended to pay the crew. It
therefore follows that wages should approximate revenue earned.
5.9 A summary comparison of the lobster catch revenue to crew wages paid was
performed to identify any significant variances. This comparison identified that
wages were significantly higher than reported revenues during the years ended
2011 and 2012. This is inconsistent with our expectations that wages should
approximate revenue earned:
Table 7: Comparison of Lobster Revenue and Lobster Wages
Description 2010 2011 2012
Lobster catch revenue (Table
6)
$ 255,126 343,841 347,105
Lobster wages (Table 17)
below
(261,797) (536,808) (564,430)
Difference $ (6,671) (192,967) (217,325)

5.10 Based upon this summary comparison, we have attempted to reconcile the
differences between salaries paid and reported revenue in Table 7 above.
Documentation with respect to catch revenue is voluminous, consequently we
have performed testing on a sample basis of the available documentation. The
following were sampled:
Invoices from licensees setting out catch weight, catch price and crew share;
an example of this is attached as Exhibit 12;
SFN payroll records including payroll calculations and cheque payments; and,


3
Per the Prince Edward Island Department of Fisheries, Aquaculture and Rural Development
Weekly Fish Price Report for LFAs 32 to 35.


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DFO Lobster Buyer Summaries (DFO Landing Summaries) which set out,
by vessel, the weight and value of lobsters landed.
5.11 Our review of the above documents noted that payroll records were not always
complete, for instance some did not detail the catch weight, and others did not
have invoices from licensees attached to the records. We would expect this
information to be attached to the payroll records as catch revenue forms the basis
for the calculation of amounts payable to the crew.
5.12 In order to reconcile the differences in Table 7 above, we considered calculating
expected revenue based on amounts paid for payroll, i.e. assuming wages are
correctly calculated, then revenue should approximate wages paid. However,
there is uncertainty as to whether the records, which form the basis of payroll and
which are provided to SFN by the licensee, report accurate landing weights.
5.13 To confirm the accuracy of reports from the licensees, we compared catch
weights in the DFO Landing Summaries to those found in the payroll records.
We compared the records for October 2010, December 2010 and January 2011.
The comparison showed that the DFO records had much higher landed weights
than those reported to SFN. However in a number of cases, the licensee
reported landed weights to SFN which do not appear in the DFO records.
Absent further information, it appears that not all licensees are reporting catch
weights to the DFO and not all licensees are reporting the correct catch weight to
SFN. Additionally, one sample indicates that revenue due from the licensee was
higher than 24% of the catch. It is not known why this occurred
4
.
5.14 Due to the variations in the reported catch weights it is not possible to test for
unaccounted revenue based on SFN payroll, or based on the DFO records. We
note that the disparity between reported lobster revenue and wages could include
the following:
Monies not received from licensees;
Wages not being properly calculated resulting in overpayment of wages; or,
A mixture of both.


4
We also noted that the price per pound listed in the payroll records did not always reflect that
reported by the DFO. Despite this, we assume that the prices used for payroll purposes are
based on an agreed price between licensees and SFN.


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5.15 In each of the above circumstances, SFN suffers a loss where wages are
significantly higher than revenue. This imbalance is reported in the financial
statements for the years ended March 31, 2011 and 2012. Due to incomplete
payroll documentation and uncertainty as to the accuracy of catch weights
reported by the licensees to SFN, we are unable to quantify the losses due to this
imbalance.
Other
5.16 In our review of the invoices from licensees we note that periodically, advances
have been paid directly to the crew by licensees. These advances are then
withheld by the licensee when catch revenue is paid to SFN. On receipt of the
deposit from the licensees, SFN records the net deposit as revenue rather than
the full catch revenue. In instances where licensees withhold amounts advanced
to the crew, revenue should be recorded as the deposit plus the amount withheld.
5.17 The difference between net deposit and catch revenue forms part of the
difference between reported revenue and salaries. However, as advances are
made periodically, we assume this to be a minor part of the difference. An
example of where revenue has been inaccurately recorded is as follows:
Table 8: Inaccurate Recording of Revenue
Description
November 21 to 25,
2009
Catch revenue due to SFN $ 2,635.00
Amount due to licensee for advances to the crew (2,445.92)
Total SFN received from licensee and recorded as
revenue
189.08
Revenue which should have been recorded (above) 2,635.00
Difference under recorded revenue $ 2,445.92




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5.18 Finally, although this Section discusses revenue, as noted in Paragraph 3.6
above, it is ultimately paid out as wages to the crew. We note the following
based on our review of the documents listed in Table 8:
When wages are paid to the crew, advances to the crew withheld by
licensees are not always withheld by SFN. Therefore the advance is
effectively transferred to SFN to collect and based upon the transactions
reviewed, the crew member does not repay the advance;
4% vacation pay is added to wage payments at SFN. This cost is borne by
SFN, i.e. it is in addition to amounts paid by the licensee to SFN;
Canadian Pension Plan and Employment Insurance taxes are applied to
salary payments. Similar to vacation pay, this cost is also borne by SFN; and,
In one instance, wages were calculated using a lower price per pound than
reported by the buyer. Therefore the crew members received less than would
be expected.
5.19 Based on the above, total wages would not be expected to equal total revenue.
This is because SFN bears the cost of vacation pay, payroll taxes and in some
cases advances to the crew. Crew wages are therefore expected to equal
revenue plus 4% for vacation pay, plus associated payroll taxes.


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6 SNOW CRAB REVENUES
6.1 During the Period of Review, snow crab revenues totalled approximately
$881,000. Revenue was recorded and categorized as licensing and catch
revenue as follows:
Table 9: Snow Crab Revenue Summary
Revenue 2010 2011 2012 Total
Licence $ 7,500 371,000 - 378,500
Catch 226,199 276,469 - 502,668
Total $ 233,699 647,469 - 881,168

Licence Revenue
6.2 Based upon the general ledger, licensing revenue is broken down as follows:
Table 10: Sources of Snow Crab Licence Revenue
Licensee 2010 2011 2012 Total
Miss Mona Fancy $ 7,500 - - 7,500
Mainland Juggage - 371,000 - 371,000
Total $ 7,500 371,000 - 378,500

6.3 The extent of snow crab licences is currently unknown. We have identified one
cash deposit for snow crab licence from Miss Mona Fancy. This amount, totalling
$7,500 was received during the year ended March 31, 2010. The cheque memo
states fishing licence, but the general ledger states crab licence. We assume
that the payment is for crab licence as stated on the general ledger, however we
have not identified any written agreement for this. We note that no further
payments were received from Miss Mona Fancy for crab licence or for crab catch
revenue. With the exception of Mainland Juggage (which is discussed below),
we note no other references to snow crab licence and therefore question whether
this transaction is as described.


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6.4 The remaining amount recognised as snow crab licence revenue relates to
$371,000 received in March 2011. BCR 2010-2011-54 dated March 10, 2011
states ...Shubenacadie First Nation agrees to sell 2011 snow crab quota to
Mainland Juggage (in the water) for a total price of three hundred and seventy
one thousand dollars. $371,000. Given that the BCR is dated 2011, and the
BCR refers to the 2011 quota, we assume this relates to the 2011 snow crab
season which took place between May and September 2011. Therefore, this
agreement represents revenue earned in the year ended March 2012, not the
year ended March 2011 as shown in Table 10 above. In addition, we assume
that this revenue does not relate to licence revenue, rather it relates to catch
revenue.
6.5 Based on the above review, we consider it unlikely that snow crab licences were
issued by SFN and instead, all revenue relating to snow crab is from catch
revenue. We discuss this type of revenue below.
Catch Revenue
6.6 Catch revenue in the general ledger is broken down as follows:
Table 11: Sources of Snow Crab Catch Revenue
Licensee 2010 2011 2012 Total
Cheryl Maloney $ 140,328 - - 140,328
Mainland Juggage 85,871 276,469 - 362,340
Total $ 226,199 276,469 - 502,668

6.7 However, based on our review of snow crab licence revenue reported in 2011,
refer Paragraph 6.4 above, we consider snow crab catch revenue should be
reported as follows:
Table 12: Adjusted Snow Crab Catch Revenue
Licensee 2010 2011 2012 Total
Cheryl Maloney $140,328 - - 140,328
Mainland Juggage 85,871 276,469 371,000 733,340
Total $226,199 276,469 371,000 873,668

6.8 We discuss revenue for each year in turn below. For each year, as well as a
review of the general ledger and other listed documentation, our analysis also
relies on the following documents:
Catch weights reported to SFN which are used to calculate reported revenue
and/or crew wages;


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Snow Crab DFO Landing Summary this document is essentially the same
as the lobster DFO Landing Summaries described in Paragraph 5.10 above;
and,
Nova Scotia snow crab prices as reported by the Prince Edward Island
Department of Fisheries, Aquaculture and Rural Development Weekly Fish
Price Report (the PEI Fish Report). This document sets out prices ...paid to
inshore fishers at dockside on a per pound basis... Prices are compiled based
upon surveying a representative number of buyers and may not reflect all
prices paid to fishers or aquaculturists.
Year ended March 31, 2010
6.9 As noted in Paragraph 3.35 above, revenue for the year ended March 2010
represents the shore price of the catch less expenditures for the crew, boat, gear
and miscellaneous other expenses.
6.10 Revenue has been earned in three phases as documented by C. Maloney; the
buyer in Phase 1 and Phase 3 is listed as Mainland Juggage and the buyer in
Phase 2 is listed as Premium Seafoods Limited (refer Exhibit 13). We note that:
Gross revenue from the buyer, i.e. gross revenue before deduction of
expenses above, is $1.25 per lb;
Catches sold to Premium Seafoods Limited are sold at between $0.05 and
$0.07 less than the average reported by the PEI Fish Report; and,
Catches reported as sold to Mainland Juggage
5
are sold at between $0.07
and $0.25 per lb less than the PEI Fish Report.
6.11 The records provided do not set out how sales prices are agreed to, or whether
such a variance in sales price compared with the PEI Fish Report is to be
expected.
6.12 Additionally, we note there are differences between catch weights reported to
DFO and those reported in the payroll records. According to the payroll records,
296,437 lbs was caught, but the Snow Crab DFO Landing Summary states
205,997 lbs; a difference of 90,440 lbs. The difference arises on catches
reported by Mainland Juggage. We require full access to the Mainland Juggage
catch records to investigate the differences.


5
Although reported to SFN as sold to Mainland Juggage, we note that according to the Snow
Crab DFO Landing Summary, all sales which are not to Premium Seafood Limited were in fact
made to J K Marine Services. It is not known why catches were sold to Mainland Juggage if the
ultimate buyer was J K Marine Services.


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6.13 Finally, there are four transactions in the general ledger that relate to revenue.
Three of the transactions can be reconciled to documents provided to us and
these correspond to Phases 1 to 3. The fourth transaction, totalling $102,727,
does not immediately reconcile to the documents provided to us. We note that
this amount appears to represent a repayment of amounts paid to C. Maloney a
few days earlier. The payments to C. Maloney are recorded in Crab Landing
Expenses and we consider that these transactions offset this transaction. We
discuss this matter further in Paragraph 7.7 below. We therefore consider that
snow crab revenue for the year ended 2010 should be recorded as $123,472
6
not
the $226,199 in the financial statements.
Year ended 2011
6.14 Revenue for the year ended 2011 consists of the following:
362,142.36 lbs of snow crab at $0.85 per lb, totaling $307,821;
An unknown deposit of $8,650 dated August 17, 2010 from Mainland
Juggage. The transaction description states 2010 CRAB, however we have
not identified any supporting documents for this transaction; and,
A payment of $40,000 dated February 18, 2011 to Mainland Juggage. The
transaction description states Snow Crab Quota, however we have not
identified any supporting documents for this transaction. The records do not
demonstrate why the payment was recorded in revenue, rather than expense
therefore, we cannot conclude if this payment has been accurately recorded.
Based on our understanding of snow crab revenue, we would not expect a
payment to be made to Mainland Juggage and therefore consider this
payment to be questionable.
6.15 Documentation with respect to the snow crab catch does not provide support to
determine how revenue of $0.85 per lb is calculated. We assume that this
amount includes a deduction of approximately $0.60 for the boat owner, therefore
the price per lb is approximately $1.45. We note that the PEI Fish Report prices
range from $1.45 to $1.75. Consequently, there is a potential $0.30 per lb
shortfall on some of the catch weights. As noted in paragraph 6.11,
documentation in support of the agreed sales prices were not found and it is
outside our expertise to determine if such a variance in sales price compared with
the PEI Fish Report is to be expected.


6
Calculated as $226,199 (Table 12) less $102,727.


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6.16 Finally, consistent with catches during the year ended 2010, we note that the
SFN documents show higher catch amounts than those reported on the Snow
Crab DFO Landing Summary. SFN records report 362,142 lbs caught whereas
the Snow Crab DFO Landing Summary reports 259,577 lbs, a difference of
102,565 lbs. The reason for the difference in the available documentation is not
apparent, nor is it known whether this difference is indicative of errors in the
calculation of revenue.
6.17 We also note that although the payroll records indicate that the buyer was
Mainland Juggage, the Snow Crab DFO Landing Summary states the buyer to be
Three Ports Fisheries Limited. The records indicate that Mainland Juggage was
acting as the middle man with the ultimate buyer being Three Ports Fisheries
Limited. It is not known why SFN did not deal directly with the buyer. Attempts
were made to speak with Anthony Hendriksen of Three Ports Fisheries Limited,
but arrangements to meet or speak with him were frustrated.
Year ended 2012
6.18 Snow crab revenue during the year ended March 2012 was not based on the
year ended March 2011 formula of shore price less boat owner costs (the 2011
revenue formula). Instead, Council agreed to sell the entire snow crab quota to
Mainland Juggage for $371,000. On entering into the agreement, $371,000 was
received prior to the commencement of the snow crab fishing season. In 2010
and 2011, revenue was received once catches were landed.
6.19 The accounting records indicate that $371,000 was paid into the Tobacco Shop
bank account (RBC account 131-124-0) on March 15, 2011. The total deposited
was $459,315.28
7
. On the same day, $474,639.86 was paid to Atlantic
Wholesale to settle debts owed with respect to tobacco purchases. It is unusual
that fisheries revenue was paid into the Tobacco Account or why other funds
were not used to settle amounts owed to Loblaw. We have been advised that
there is a BCR to explain the need for the $371,000. We have not found that
BCR therefore it is not known what circumstances led to the agreement to sell the
quota in advance rather than continue with the 2011 revenue formula.


7
Although the accounting records indicate that $371,000 is included within the deposit, we have
been unable to review the deposit slip or other similar documentation to confirm the amount.
Based upon the total deposit it is plausible that the deposit includes the snow crab quota
payment.


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6.20 Based on catch weights reported to SFN by Mainland Juggage, the sale of the
entire snow crab quota represents a price of approximately $1.10 per lb
8
.
Consistent with the year ended 2011, crew wages of $0.28 per lb were paid out of
this sales price, leaving SFN with a gross profit from snow crab of $0.82 per lb.
This gross profit compares favourably with the amounts achieved in the years
ended 2010 and 2011 (respectively $0.21 per lb and $0.57 per lb).
6.21 However, we have considered the impact of entering into this agreement
compared with a continuation of the 2011 revenue formula. We calculate that as
a result of entering into the agreement, there is a potential difference between
actual and achievable gross profit as follows:
Table 13: Actual and Achievable Snow Crab Gross Profit per pound
Description 2012
Snow Crab price per PEI Fish Report $3.25
Less: $0.60 per lb for boat owner (0.60)
Less: $0.28 per lb for crew wages (0.28)
Achievable gross profit 2.37
Actual gross profit (paragraph 6.20) (0.82)
Potential difference in gross profit $1.55
Catch weight reported to SFN (lbs) 336,776.88
Potential additional profit $522,004.00

6.22 Although the circumstances leading to the agreement with Mainland Juggage are
not known, based on Table 13 above, should SFN have retained the 2011
revenue formula, it would have achieved a further $522,004 of gross profit
8
. It is
not known whether the potential difference of $1.55 per lb was retained by
Mainland Juggage.
6.23 Finally, we have compared total catch weights reported to SFN by Mainland
Juggage with those listed on the Snow Crab DFO Landing Summary of
374,143.41lbs. Mainland Juggage reports a total catch weight of 37,366.53lbs
less than the Snow Crab recorded on the DFO Landing Summary.
6.24 Consistent with our comments in Paragraph 6.17 above, although the payroll
records indicate that the buyer was Mainland Juggage, the Snow Crab DFO
Landing Summary states the buyer is Three Ports Fisheries Limited. The reason
for selling the 2011 quota to Mainland Juggage if the ultimate buyer was Three
Ports Fisheries Limited is not explained in the records of SFN.


8
Based on a total catch weight reported to SFN of 336,776.88 lbs by Mainland Juggage.


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Summary
6.25 Based on our review, snow crab revenue for the years ended March 2010 to
2012 should be recorded as follows:
Table 14: Final Adjusted Snow Crab Revenue
Licensee 2010 2011 2012 Total
C. Maloney $ 37,600 - - 37,600
Mainland Juggage 85,871 276,469 371,000 733,340
Total $ 123,471 276,469 371,000 770,940
6.26 Additionally, we note that in 2010 and 2011, total snow crab catch weight in
SFNs records exceed that recorded by DFO. In 2012, catch weights in SFNs
records are lower than the Snow Crab DFO Landing Summary. Based upon the
available records at SFN, we do not know the reasons for these differences and
are unable to determine whether these differences are indicative of unaccounted
for revenue. These differences are summarised below:
Table 15: Payroll and the DFO Catch Weights
Description 2010 2011 2012 Total
Catch weights per payroll 296,437.00 362,142.36 336,776.88 995,356.24
Catch weights per DFO 205,996.84 259,577.36 374,143.41 839,717.61
Total 90,440.16 102,565.00 (37,366.53) 155,638.63

6.27 Finally, although it is outside the Period of Review, we undertook a brief review of
Snow Crab revenue during the year ended March 2013. Revenue appears to be
calculated consistently with the 2011 revenue formula, however we note that
there may be some unaccounted revenue as total snow crab catch weight in
SFNs records is lower than that reported in the DFO Snow Crab Landing
Summary. For purposes of this report, we have not prepared a calculation of the
extent of any shortfall in revenue, if any.


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7 EXPENSES
7.1 During the Period of Review expenses totalled approximately $2 million. The
expenses recorded were categorized as follows:
Table 16: Summary of Fisheries Expenses
9

Expense 2010 2011 2012 Total
Salaries and benefits $ 289,824 656,376 672,382 1,618,582
Crab landing expenses 164,248 868 1,055 166,171
General and admin 48,177 83,860 52,014 184,051
Total $ 502,249 741,104 725,451 1,968,804
Salaries and Benefits
7.2 Salaries and benefits mostly represent wages paid to band members for the
value of catch weight. In 2011 salaries and benefits increased 126% and 2% in
2012 as summarized in Table 17:
Table 17: Summary of Salaries and Benefits
Expense 2010 2011 2012 Total
Payroll Lobster $ 261,797 536,808 564,430 1,363,035
Payroll Snow Crab - 114,835 105,088 212.923
Payroll Swordfish - 3,012 - 3,012
Consulting Fees 24,401 - - 24,401
Unreconciled differences
(1)
3,626 1,721 2,865 8,212
Total $ 289,824 656,376 672,383 1,618,583
1) Unreconciled differences represent insignificant differences between the payroll records and
the general ledger. These differences are not considered significant and have not been
investigated.
Payroll
7.3 Payroll represents wages, allowances (i.e. travel), vacation pay and payroll taxes
(i.e. Canada pension plan, employment insurance) paid during the fiscal year.
The number of employees during the Period of Review is summarized in Table
18:


9
This table excludes Bonuses to Community Members (i.e. Christmas Bonus). These are
reported in fishing expenditures in the Financial Statements. We exclude these from this table as
they do not relate directly to fisheries.


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Table 18: Number of Employees on Payroll
Expense 2010 2011 2012
Payroll Lobster 33 39 30
Payroll Snow Crab - 4 4
Payroll Swordfish - 1 -
Total 33 44 34
7.4 We have compared Lobster payroll to our understanding of the Lobster payroll
process at SFN. As noted in Paragraph 3.6 above, Lobster crew are paid 24% of
the catch value. Consistent with Paragraph 5.19, payroll costs would therefore
be expected to be a small amount higher than revenue as a result of associated
employer contributions and other costs. However, wages for the years ended
2011 and 2012 are significantly higher than revenue for the same year (refer
Table 7 above). Unfortunately, there is uncertainty as to the accuracy of reported
catch weights and documentation with respect to payroll appears incomplete.
Without further records from the licensee we are not in position to reconcile the
differences between revenue and payroll.
7.5 Consistent with our understanding of the snow crab wages process, snow crab
payroll approximates $0.28 cents of the total reported catch weight plus
associated payroll taxes and other costs.
Consulting Fees
7.6 Consulting fees of $24,401 were paid to Nexus Coastal Resource Management
(Nexus), per a Service Agreement (refer Exhibit 14), for Nexuss assistance in
the development and implementation of fisheries and natural resource polices,
assisting in the development of fisheries and resource development and
management plans and assisting in the preparation of project proposals for the
development and governance of the SFNs resources. According to the Nexus
website, Chris Milley is a principal of the company. We are not aware of the
deliverables provided to SFN by Nexus and if any plans were implemented.
Crab Landing Expenses
7.7 Crab landing expenses in 2010 consist of $164,249 paid to C. Maloney. These
payments represent 70% of the crab catch revenue recorded by SFN. However,
as noted in Paragraph 6.13 above, there is uncertainty as to whether this amount
relates entirely to crab landing expenses. Crab Landing expenses consist of the
following:


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Table 19: Crab Landing Fees
Item QuickBooks Account Date Description Amount
1. 7370 Fishing Admin - Wages July 29, 2009 No description $27,500
2. 7370 Fishing Admin - Wages August 27, 2009 No description 30,250
3. 7350 Fishing Admin -
Miscellaneous
October 9, 2009 Crab Landing
Partial Pymt.
50,000
4. 7350 Fishing Admin
Miscellaneous
October 13, 2009 Bal. Crab 52,728
5. 7370 Fishing Admin - Wages November 13,
2009
1110-2209
Crab Pymt.
3,771
Total $164,249
7.8 We note from our review of the transactions in Table 19 that items 4 and 5 were
paid to C. Maloney by way of certified cheque. These cheques cleared on
October 13, 2009. We have not seen copies of these cheques. Separately, we
note a deposit received from C. Maloney and recorded in revenue dated October
15, 2009 totalling $102,728. This deposit matches the total of the items 4 and 5.
7.9 No documentation for the deposit of $102,728 has been identified (although we
note it is the same amount as the payment made to C. Maloney from the buyer of
100,083 lbs of snow crab) and it does not correspond to any expected revenue.
We also note that the net effect of all three transactions listed in Paragraph 7.8
above is $nil. We therefore assume that these transactions should have been
offset.
7.10 Consequently, the effect of offsetting revenue of $102,728 against costs in Crab
Landing Expenses leaves a balance of $61,521 in 2010 crab landing expenses.
We note that this approximates $0.55 per lb
10
of snow crab landed in Phase 1.
Phase 1 is the only Phase where boat expenses were not deducted from gross
snow crab revenue prior to payment of catch revenue to SFN. We therefore
assume that this balance of $61,521 represents boat costs paid by SFN to C.
Maloney for Phase 1.
7.11 For the purpose of this Report, a detailed review of 2011 and 2012 expenses
totalling $1,923 was not pursued. The 2011 expense is recorded as Crab
Expenses pd by MJ May July 2010. We assume MJ to be Mainland
Juggage. In 2012, the majority of the expense relates to a payment to Nova
Scotia Swordfishermens Association.


10
Calculated as $61,521 divided by 111,354lbs landed in Phase 1.


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Appendix 9 - Fisheries, April 21, 2014
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General and Administrative
7.12 General and administrative expenses are summarized as follows:
Table 20: General and Administrative Expenses
Expense 2010 2011 2012 Total
Consulting fees $ 11,988 - - 11,988
Miscellaneous 16,184 62,941 23,223 102,348
Office 3,197 3,153 21,373 27,723
Professional fees 3,601 1,503 2,402 7,506
Travel 13,207 16,263 5,016 34,486
Total $ 48,177 83,860 52,014 184,051

Consulting fees - $11,988
7.13 In 2010 consulting fees include two payments dated October 6, 2009 totalling
$11,988 to Amcrest Management Inc. for fisheries work and a rink proposal.
These payments are addressed in the insurance claim.
Miscellaneous - $102,348
7.14 During the years ended 2010 to 2012, miscellaneous expenses included
payments ranging from $6,366 to $9,919 annually to Nova Scotia Power. These
payments are for a property at 61 Boundary Street, Clarks Harbour, Nova Scotia
(the Clarks Harbour Property). In addition, miscellaneous expenses included
payments (ranging from $2,333 to $7,531 annually) to Town of Clarks Harbour
for property taxes related to the Clarks Harbour Property. We requested further
details on the ownership and usage of the property; however, to date we have
received limited information. The property has not been identified in the fixed
assets of the Band, however we understand that the Band entered into an
agreement with a realtor to sell the property. We assume that the realtor
undertook a title search of the Clarks Harbour Property to confirm ownership by
SFN.
7.15 During the years ended 2010 to 2012, miscellaneous expenses included
payments (ranging from $844 to $1,562 annually) to Seaway Fabrications Ltd. for
boat storage.
7.16 During the year ended 2011, miscellaneous expenses also included $41,129
consisting of the following expenses paid to:
$6,300 -Wayne Howe for Wharf Monitor;
$3,300 - Ian Knockwood for Wharf Monitor;
$1,200 - J. Hayes for Clearwater Certificates;


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$18,125 - Mainland Juggage for a snow crab; and,
$12,204 - Mona Fancy Fisheries for snow crab.
7.17 There is no job description for the wharf monitor, reports or reference to their
activities in the Council Minutes. No documentation has been identified in
relation to the payment to Mainland Juggage or Mona Fancy Fisheries for snow
crab. We would not expect a payment to Mainland Juggage as a snow crab
licensee. It is expected that snow crab licensees pay money to SFN, rather than
receive money from SFN. We therefore consider the amount of $18,125 to be
questionable.
7.18 Finally, included in the year ended 2012 is $4,000 paid to Brandon A. Maloney for
an interest refund. Due to its relatively small amount, the purpose of this
payment has not been investigated at this time.
Office - $27,723
7.19 During the years ended 2010 to 2012, office expenses consisted of cell phone
reimbursements and office supplies.
7.20 The increase in office expenses during 2012 relates to $17,250 of Christmas
bonuses. The descriptions for the transactions indicate that they are bonuses for
periods between 2006 and 2011. It is not known why these were not paid in
previous periods, or why they have been recorded in this account.
Professional fees - $7,506
7.21 Professional fees for the years ended 2010 to 2012 consist of legal fees paid to
Burchell MacDougall.
Travel - $34,486
7.22 During the years ended 2010 to 2012, travel expenses consist of expenses paid
to various crew members and fisheries staff for travel, food and hotel.


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Appendix 9 - Fisheries, April 21, 2014
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8 CONCLUSION
8.1 Due to a lack of complete documentation, the destruction of other documentation
by the former Fisheries Manager and uncertainty as to the accuracy of available
documentation, the scope of our review has been limited. However, as set out
below, a number of matters have been identified.
8.2 The records indicate that Mainland Juggage was the main organization which
contracted with SFN during the years ended 2011 and 2012 with respect to the
purchase of the commercial quota for lobster and snow crab. Yet, the ultimate
buyers were third parties as listed on the DFO records. It is not known why the
Fisheries Manager or Council would not have investigated dealing directly with
the third parties or through a tendering process to ensure that the revenue from
the commercial quotas was maximized.
Lobster
8.3 As of August 2013 A. McDonald owes a balance of $6,300 from the $35,000 loan
in 2009 for a lobster licence and advance to Mainland Juggage. We note
deductions continue to be made from his salary payments.
8.4 Lobster catch revenue does not approximate lobster payroll and therefore there is
an indication that either i) revenue has not been correctly recorded/received or ii)
wages have been paid in excess of revenues received. Due to a lack of
supporting documents and invoices, we are currently not able to reconcile the
differences between lobster catch revenue and lobster payroll and therefore
cannot conclude whether there is unaccounted revenue. The Band should
request all invoices and catch data from Mainland Juggage and other third parties
to reconcile weights per invoice with weights reported by vessels. Any
differences should be investigated.
8.5 Lobster wages exceed revenue due to the addition of 4% vacation pay and
employer portion of withholdings from crews wages. Consequently, SFN must
use revenue from other activities to pay for these additional costs.
Snow crab
8.6 Snow crab licences do not appear to have been issued as reported for Financial
Statements purposes. Instead, licence revenue recorded in the year ended 2011
relates to the year ended 2010. All snow crab revenue is therefore from catch
revenue as opposed to licence revenue.


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Appendix 9 - Fisheries, April 21, 2014
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8.7 There is some discrepancy between catch weights recorded by DFO and those
reported by Mainland Juggage. In order to reconcile theses amounts, all invoices
and catch data should be obtained from Mainland Juggage and other third parties
to reconcile weights per invoice with weights reported by vessels. Any
differences should be investigated.
8.8 We consider payments of $40,000 and $18,125 to Mainland Juggage, for snow
crab to be questionable. This is because we would not expect payments to be
made to a snow crab licensee when it is expected that money will be received by
SFN from the licensee.
Other
8.9 SFN fisheries operations, excluding bonuses to community members, were
profitable although the market data indicates that the profits would have been
higher by approximately $522,004 in 2012 if SFN had maintained the 2011
revenue formula for snow crab. The decision to change the revenue formula in
2012 is an anomaly when compared to the prior and subsequent years.



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Appendix 9 - Fisheries, April 21, 2014
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9 RESTRICTIONS AND LIMITATIONS
9.1 This Appendix to MNP Report is not intended for general circulation or
publication, nor is it intended to be used for any purpose other than to advise Pink
Larkin, or as outlined in the Terms of Reference noted at Section 1 of the Report.
We will not assume any responsibility or liability for losses suffered by any party
as a result of circulation, distribution, publication, duplication, reproduction, or any
use of this report contrary to the provisions of this Paragraph.
9.2 We reserve the right, but will be under no obligation, to review all calculations and
comments included in or referred to in this report and, if we consider it necessary,
to revise our comments in light of any information existing at the date of this
report that subsequently becomes known to us.
9.3 Our Report must be considered in its entirety by the reader. Selecting and relying
on specific portion of the analyses or factors considered by us in isolation may be
misleading. The procedures performed do not constitute an audit and an audit
has not been performed on the financial information.