Professional Documents
Culture Documents
USB 02 10. App M Sack Companies April 21 2014
USB 02 10. App M Sack Companies April 21 2014
SUMMARY OF FINDINGS
TO
IN THE MATTER OF
1 BACKGROUND ......................................................................................................1
4 LOANS ....................................................................................................................6
6 SNOWPLOWING .................................................................................................. 13
8 FISHERIES ........................................................................................................... 24
13 CONCLUSION ...................................................................................................... 54
TABLES
Table 1: Amounts Paid to M. Sack and Related Companies............................................ 5
Table 2: Short-Term Loans and Repayments to Mainland Juggage and Sack’s
Contracting ......................................................................................................................6
Table 3: Payments to Sack’s Excavating ......................................................................... 9
Table 4: Cranberry Bog Cost to March 31, 2012 ........................................................... 12
Table 5: Snowplow Bids ................................................................................................ 14
Table 6: Payments re: Wallace Hills .............................................................................. 22
Table 7: Wallace Hills Questionable Amounts ............................................................... 23
Table 8: Sources of Lobster Revenue ........................................................................... 27
Table 9: Comparison of Lobster Catch Revenue and Lobster Wages ........................... 28
Table 10: Actual and Achievable Snow Crab Gross Profit per pound ............................ 32
Table 11: Housing Project Construction Timeline .......................................................... 34
Table 12: Summary of Capitalized Housing Construction Costs .................................... 38
Table 13: Summary of Schedule 4 expenses related to M. Sack Companies ................ 50
SCHEDULES
Tab Title
1. Housing Capital Costs – Sack’s Excavating re Account 5870 – 10 Unit Project
EXHIBITS
Tab Title
1. MRJJ Management Inc. Certificate of Incorporation, January 13, 2010
3. James Moore & Associates update re: Cranberries, dated September 22,
2009
5. Memo re: Council requests for tenders to be issued for snow removal, salting,
th
sanding roads/parking lots/driveways in reference to December 9 Council
Meeting
7. Letter from McLellan, Richards & Bégin dated February 17, 2014
8. Sack’s Plowing cheque requisitions and cheque stubs for year ended March
31, 2010
10. Sack’s Excavating Ltd. (Sack’s Excavating”) Invoice 20120104 in the amount
$60,000, for blueprint drawings regarding Wallace Hills Entertainment Centre,
dated January 4, 2012
12. Sale of Pockwock Road Property by Susan Wenning Cameron, Joan Wenning
McMillan and Andrew S Wenning to Ramar Developments Limited
14. Sale of Pockwock Road Property from Michael Patrick Sack to Shubenacadie
First Nation (“SFN”)
15. Cheque #21321 in the amount $65,000 dated September 11, 2009 to
Carruthers & MacDonnell for “Wallace Hills” from SFN CIBC – Administration
Account
16. Payment to Halifax Regional Municipality in the amount $229.26 for delinquent
property taxes
18. Michael Patrick Sack Development and Management Agreement dated June
2011
20. Agreement between Alexander P. McDonald and SFN re: $20,000 loan to
lease a commercial licence, dated November 17, 2009
21. Fisheries Lease Agreement between SFN and Michael Patrick Sack dated
September 14, 2011
22. Email exchange between Jeffrey Hayes and Gary Richard re: lobster licences,
dated September 14, 2011
24. Letter from Chief Jerry Sack re: Cheryl Maloney has access to snow crab
quota and lobster licence, dated February 23, 2009
25. Chase Fisheries Project Proposal for Crab Fishing Operations, April 22, 2009
26. Band Council Resolution (“BCR”) 2010-2011-54 re: sale of snow crab quota to
Mainland Juggage dated March 10, 2011
27. Letter from Canadian Mortgage and Housing Corporation (“CMHC”) re:
2007/2008 Project 13 Units, dated April 8, 2009
29. Bid Call Notification #RFP-09-01 with a closing date May 29, 2009 and Bid
Proposal Form with a total bid of $60,220
30. Wekatesk quote for upgrades for heating to the 13 Unit Project, dated
September 9, 2009
31. BCR 2009-2010-016 re: request an Accountable Advance for 75% funding of
the capital costs of two housing units, dated December 16, 2009
33. BCR 2009-2010-028 re: request to administer the 2009/2010 housing program
including funding for a CMHC capital loan in the amount $362,420, dated
March 17, 2010
34. BCR 2009-2010-040 re: re: request to administer the 2009/2010 housing
program including funding for a CMHC capital loan in the amount $180,200,
dated July 6, 2010
35. BCR 2009-2010-041 re: request to administer the 2009/2010 housing program
including funding for a CMHC capital loan in the amount $362,420, dated July
6, 2010
36. BCR 2009-2010-042 re: request to administer the 2010/2011 housing program
including funding for a CMHC capital loan in the amount $189,190, dated July
28, 2010
40. Sack’s Contracting Invoice 12032012brflfinal in the amount $130,000 for two
Energuide homes dated March 12, 2012
43. Indian and Northern Affairs Canada Band Council History Report dated March
4, 2013
44. Sack’s Contracting Invoice 100159 in the amount $19,400, dated July 7, 2011
45. Sack’s Contracting Invoice 100174 in the amount $170.54, dated June 17,
2011
46. Sack’s Contracting Invoice 100189 in the amount $98.58, dated July 26, 2011
47. Sack’s Contracting Invoice 05052011ib17 in the amount $25.00 for house visit
when nobody was home, dated May 5, 2011
49. Sack’s Excavating Invoice 20110071 in the amount $13,463.04, dated August
18, 2011, example showing lack of detail in invoice
50. CJS Excavating Invoice 2009-74 in the amount $29,839, dated June 1, 2009
1.2 The Sack family of companies (“M. Sack Companies”) offer a number of service
lines to SFN. The companies in the family are wholly or partially owned by M.
Sack who is currently a Councillor at SFN. This is M. Sack’s fourth time as a
Councillor for SFN. Prior to the current term he served on Council as follows:
1.3 We understand that SFN was doing business with M. Sack and some of the
related companies while he was a Councillor. This presents a potential for a
conflict of interest depending on how the relationships and transactions were
presented to Council.
1.4 Concerns have been raised with respect to the lack of contracts with the Sack
companies, amounts paid and documentation related to invoicing. In addition, we
understand that M. Sack loaned money to SFN where cash flow was an issue.
Concerns have been raised with respect to how the loans were initiated and the
amount of interest paid.
1.5 Unless otherwise noted the period of review is April 1, 2009 to March 31, 2012
(“Period of Review”). Amounts have been rounded for reporting purposes.
2.2 To date, we have identified five companies directly associated with M. Sack.
They are as follows:
Sack’s Contracting
2.3 Sack’s Contracting is a Nova Scotia Limited company. M. Sack is the director,
president and recognized agent. The civic address is 582 Church St. Indian
Brook, Nova Scotia, and it was incorporated in January 2010. This company
replaced Sack’s Contracting and Management which was a partnership
registered in October 2009.
Sack’s Excavating
2.4 Sack’s Excavating is a Nova Scotia Limited company. The director and president
of this company is M. Sack. The civic address for this company is 582 Church St.
Indian Brook, Nova Scotia. The recognized agent is Greg Mullen of Burchell
MacDougall Lawyers (“Burchell MacDougall”). The company was incorporated in
August 2010. This company replaced Sack’s Excavating which was a
partnership registered in April 2006. Sack’s Excavating (2002) was registered to
Lyn Sack which was registered in July 2002 but revoked in September 2005 for
non-payment. Prior to this, Sack’s Excavating was registered in 1988 by Carl
Joseph Sack – the father of M. Sack. This company was revoked in 1998 for
non-payment.
2.5 CJS Excavating was a partnership registered in Nova Scotia on April 12, 2006
and changed names to Sack’s Excavating in 2009. It was formally dissolved on
August 3, 2010. M. Sack is listed as the partner and the registered office was
located at 582 Church St, Indian Brook, Nova Scotia.
Castone
2.6 Castone is a Nova Scotia Limited company. The directors are Michael P. Sack
and Dean R. Shea. The civic address is 528 Windmill Road, Unit 1, Dartmouth,
Nova Scotia and M. Sack is listed as vice president and treasurer. The
recognized agent is Denny Pickup of Burchell MacDougall LLP. The company
was registered on November 10, 2005. The company was previously registered
as a partnership in October 2005 by Ron Lovett of 330-1096 Queen St. Halifax
Nova Scotia, but dissolved in November 2005.
Mainland Juggage
2.7 Mainland Juggage is a partnership registered in Nova Scotia. The sole partner of
the company is M. Sack. The civic address for this company is 582 Church St.
Indian Brook, Nova Scotia, and was registered on October 18, 2007. This
company was previously known as Mainland Juggage Seafood Buyers. This
company changed names as of October 28, 2009.
2.9 Gloade Electric is a partnership in Nova Scotia. Stephen Ling (“S. Ling”) is the
recognized agent for the company which has been revoked for non-payment. S.
Ling is also the recognized agent for Gloade Construction Ltd. S. Ling is a
partner in the Dartmouth law firm Landry McGillivray. This company was
registered in May 2002 and revoked in July 2010 for non-payment.
2.11 MRJJ Management Inc. (“MRJJ”) was incorporated on January 13, 2010 by
Burchell MacDougall Lawyers (“Burchell MacDougall”), a law firm in Truro, Nova
Scotia (refer Exhibit 1). The company’s recognised agent is Gary Richard (“G.
Richard”), a partner at Burchell MacDougall and the Band’s former solicitor. The
sole director is listed as Jeffrey Hayes (“J. Hayes”). The shareholders of MRJJ
were Michael Sack, Ronald Augustine (“R. Augustine”), Jerry (F.) Sack (“Jerry F.
Sack” or “Chief Sack”) and J. Hayes. We are not aware of a change in the
shareholding of MRJJ.
2.13 The Wallace Hills Development is also referred to as the Hammonds Plains
Development; they are the same development. The focus of the development
was a casino and related businesses which would produce revenue for the SFN.
The Council Minutes on July 9, 2009 indicate that Wallace Hills Development
Committee (the “Wallace Hills Committee”) is made up of Chief Jerry F. Sack, M.
Sack, Ryan Julian (“R. Julian”), R. Augustine and J. Hayes. We note that a
number of these individuals are also shareholders of MRJJ, however, the Wallace
Hills Committee is not referred to as being the same as MRJJ.
Sack’s Plowing
3.2 The $50,000 listed as “Other” payments in the table above relate to interest
charged on a $200,000 advance. M. Sack advanced $200,000 to SFN on
February 15, 2012 for a lobster licence. This interest was not paid to him and
instead was used to offset amounts he owed to SFN.
4.2 In preparing Table 2 above, we have relied on descriptions in the general ledger
and discussions with accounting staff. No loan agreements between M. Sack’s
companies and SFN have been identified and we were advised that no such
agreements exist. It is assumed that the amount to be repaid would have been
directed verbally but it is not known by whom.
4.3 We have also reviewed Council Minutes for the periods April 7, 2009 to
December 15, 2009; January 5, 2010 to April 27, 2010 and November 23, 2010
to February 28, 2012 and were unable to identify any motions from Council
approving SFN taking loans from M. Sack.
• After a loan has been made, the first payment identified as a loan payment,
to any of M. Sack’s companies is allocated to the loan. Where necessary,
we apply the next payment and so on, until repayment exceeds capital
loaned;
• Loans #5 and #6 ($500,000 and $70,000), both of which were received on
December 14, 2010, were repaid as follows:
o $600,000 on January 12, 2012; and,
o $87,500 on February 1, 2012. This repayment was made along with
repayment of loan #7 ($180,000) made on January 25, 2012.
• We assume a loan is repaid on the date the funds clear the bank, not the
date on which the cheque was issued.
4.5 In addition, although we note that loan #8 ($200,000) was received on February
15, 2012, we understand that repayment of this amount was not by cash.
Instead, repayment of the loan amount plus interest was made by way of an
offset against amounts owed by Mainland Juggage for lobster and snow crab.
The reconciliation showing the offset of the $250,000 loan including interest is
attached at Exhibit 2. There is no date on the reconciliation, however the
general ledger records this offset transaction took place on June 1, 2012. We
therefore assume that the $200,000 was repaid on that date.
4.6 Based on our analysis in Table 2 it appears M. Sack did not charge interest on
loans #2, #3, and #4. However, for all other loans, interest was charged at an
implied rate of 20% or 25%. Although we refer to an implied rate, this does not
reflect the Annualised Interest of the loan, i.e. the interest rate that would be
charged if the loan had been held for one year 1. M. Sack provided short term
loans ranging from 6 days to 107 days, we calculate the Annualised Interest for
each of the loans to be in excess of 85%. In the case of three of the loans, the
Annualised Interest rate is in excess of 200%. Such a high interest rate is
demonstrated on loan #7 of $180,000 on January 25, 2012. The money was
loaned for seven days, yet the interest charge was $45,000.
1
For the purposes of this Report, we have calculated interest on a simple interest basis, rather
than using a compound interest basis.
Conclusion
4.8 Although we do not know the specific circumstances and/or relationship that SFN
had with its bankers/institutional lenders at that time, we note that RBC charged
an overdraft interest of Royal Bank Prime +5% and an overdraft handling fee of
$5.00 on RBC account 131-124-0 (Tobacco). Additionally, during the 2011
calendar year the Royal Bank Prime rate was 3%. It is not clear whether SFN
would have been able to obtain additional credit from their bankers and
consequently avoid entering into arrangements with M. Sack for loans at such a
high interest rate.
4.9 As noted in Paragraph 4.6 above, no interest was charged on three of the loans.
It is not known why this is the case. We have reviewed the general ledger for
payments to M. Sack’s companies around the time of the capital repayments and
note no payments which approximate 20% or 25% of the loan, or which indicate
that they relate to a loan. However, we note that on February 18, 2011, around
the time that the loan of February 9, 2011 was repaid, a payment of $40,000 was
made to Mainland Juggage for “Snow Crab Quota”. Based on our knowledge of
snow crab, we would not expect a payment to be made to Mainland Juggage for
the quota. We note that $40,000 is consistent with the 20% implied charge for a
loan of the same amount which was made on December 16, 2010. We have
found no supporting documentation for this transaction and are therefore unable
to confirm if this payment relates to snow crab.
5.2 The financial projections in the business plan were prepared by Blake Johnston
and correlated by an accounting firm in Truro, Nova Scotia. Based upon the
financial plan, the clearing of the first five acres was to have cost a total of
$90,000.
5.4 We have located copies of the cancelled cheques related to the remaining
invoices totalling $389,911 and have confirmed that they were issued to Sack’s
Excavating. Copies of those cheques are attached as Exhibit 4. The three
cheques were all issued on the same day and bear the signatures of Chief Jerry
Sack and J. Hayes. Upon review, the signature of Chief Jerry Sack is virtually
identical on each cheque indicating that a signature stamp could have been used
versus Chief Sack personally signing the cheques. In addition, Chief Jerry Sack
typically signs using his middle initial “F”. Invoices supporting these payments
have not been found.
5.5 In an interview with M. Sack, he discussed the work his company performed on
the cranberry bog as follows:
MCCORMACK: The, when you did the bog, like you said so your guys only did the cut
and fill part, right or the cut, no sorry you didn’t do any of the cuts, you
guys just took out all the grubs and all the other stuff.
SACK: (Talk over) Yeah. Yeah we didn’t actually cut the trees, no.
MCCORMACK: How big or how much land did you have to do? Do you remember?
SACK: I think the first section was like five acres or something. Right?
MCCORMACK: (Talk over) Yeah, yeah. Now in terms of the work that you’ve done have
you, did you finish what you were supposed to do on that, on the bog?
SACK: I...
SACK: (Talk over) . . . I think we got to the sand point I think and that's where it
stopped.
5.6 Based upon our discussion with Blake Johnston (“B. Johnston”), we were advised
that he was asked to work with M. Sack and Bedford Excavating although he did
not see either when on site. B. Johnston indicated that he started to have
problems getting his work paid and was advised by M. Sack during the
construction process, to provide him with the invoices, that M. Sack would
increase the costs by $10 per hour and then get them paid. We assume that M.
Sack would then invoice SFN for the work. B. Johnston advised that he did not
follow M. Sack’s suggestion. He advised that:
MCCORMACK: Right.
JOHNSTON: But I know, again, you know, the big part of the project is to generate
work.
MCCORMACK: Mm hm.
5.7 B. Johnston advised that, through his companies, he invoiced SFN a total of
$120,528 for which he has not been paid. Of that total, he billed $46,058 from
July 9, 2011 to July 30, 2011 for excavation, land clearing and supervision.
5.9 B. Johnston advised that when he was last at the property in late 2011
approximately five acres had been cleared at that time. However, the property
needed additional work to be ready for planting and growing cranberries on the
cleared area.
MCCORMACK: At what percentage of completion do you think they’re at now? I know
you said that the land, from what you can tell, the land has been cleared.
JOHNSTON: For the first five acre bed, maybe fifty percent.
And
JOHNSTON: I’d have a hard time nailing down right now, you know, what it would take
to get it into production only because I haven’t been there since they’ve, I
haven’t walked the site or done a level survey since these other
contractors got off. But after we left, John from Bedford Backhoe
Services and Mike Sack and his guys continued moving dirt around there
with no direction. So, you know, they had a general idea of what needed
to be done, but I, you know, stopped providing information because really
that was the only hammer that I had in terms of trying to get paid.
5.10 Although $745,565 has been effectively incurred, the bog is not operational. It
appears that much more work is required to fulfill the plan of having 25 acres in
production. The cost of the additional work and timeline to do so is unknown.
Conclusion
5.11 Due to the lack of supporting documentation and the indication that work
performed by Sack’s Excavating was essentially performed by B. Johnston, the
$434,768 paid to Sack’s Excavating is considered questionable.
6.2 Prior to 2009 we understand that the snowplowing on the reserve was done by
two employees of Operations and Maintenance (“O&M”) with a Bobcat equipped
and a three ton truck both equipped with a plow. Both were owned by SFN and
used on an as needed basis. When the employees were not doing the
snowplowing they were employed doing other operations such as garbage
removal. When the Manager of O&M left the community for approximately one
year, and returned in late 2010, he discovered that the snowplow equipment had
been sold or given away. In addition, snowplowing had come under the control of
Housing. The Manager of O&M was under the impression that there was a 10
year contract for the snowplowing and did not question it. As he was not
responsible for the budget he did not monitor the expenses.
6.3 Documents related to the tendering of a snowplowing contract were found in the
records of Burchell MacDougall. In 2008, a memo was released which
referenced a Council Meeting on December 9, where the Council requested
“invitations for tenders be issued for snow removal, salting, sanding roads/parking
lots/driveways.” The bid process stipulates that the contract is from “December
16th, 2008 until March 31st, 2009 for all main roads and subdivisions and lanes,
community parking lots/driveways, emergency responder’s driveways and
seniors, disabled, driveways”. The memo does not indicate how much snow
must fall before snow removal is to take place. A copy of the memo is attached
as Exhibit 5.
6.5 We understand that the tendering process failed and no bid was accepted.
Burchell MacDougall was asked to provide an opinion on the process. The
January 14, 2009 opinion found that the process was “fatally flawed” and that the
bids were largely not comparable. The recommendation was to reject all
proposals and contact the four bidders who submitted their documents on time to
offer them the ability to re-submit bids. We are not aware if this was done.
Invoices and payment for snowplowing services prior to March 31, 2009 have not
been examined as they are outside of our Period of Review.
6.6 In addition to the Burchell MacDougall comments, we also note that the bids
attributed to M. Sack and CJ Sack are identical in formatting and the handwriting
appears to be the same, however the cost is different. According to corporate
searches, M. Sack was the owner of CJS Excavating at the time.
6.7 The next reference to snowplowing was found in the Council Minutes dated
November 18, 2009. They refer to “Gary Richards to complete a contract for snow
removal”. Based upon the date of the meeting we assume that the contract would,
at a minimum, be for the winter of 2009/2010.
6.8 MNP was provided a Service Agreement between SFN and H. Sack dated
December 15, 2009 by Pink Larkin LLP. Pink Larkin LLP also provided a letter
from Alain Begin, the legal counsel of H. Sack in regard to the termination of the
snow contract. A copy of these documents is attached at Exhibits 6 and 7
respectively.
2
We believe that the reference to 107 and 208 refer to the number of homes or driveways to be
plowed.
i) “the Band will pay Mr. Sack upon acceptance of invoices for services
provided. The value of the monthly invoices submitted shall not
exceed forty thousand dollars ($40,000).’”
ii) “Total amount of remuneration to be paid to Mr. Sack by the Band shall
not exceed ($158,000) one hundred and fifty-eight dollars per annum.”
iv) “The Contractor and the Band may, by mutual agreement, terminate
this Agreement upon ninety (90) days written notice delivered to the
other party.”
6.10 The letter from Mr. Bégin of McLellan, Richards and Bégin Barristers and
Solicitors indicates that H. Sack did 85% of the work himself and that he leased
the equipment from Sack’s Excavating. Although there is reference to a
termination of the contract the financial records reflect payments to Sack’s
Plowing in fiscal 2010 which were primarily signed by M. Sack. In addition, the
financial records indicate that Sack’s Excavating, a business associated to M.
Sack, has billed SFN for snowplowing services for the years ended 2011 through
2012.
6.11 Based upon a review of the general ledger and available supporting
documentation we note the following with respect to snowplowing:
• The billing for the year ended March 31, 2010 consisted of five progress bills;
four for $30,000 and the last one for $38,000. Available invoices from Sack’s
Plowing, cheque requisitions and cheque stubs are attached as Exhibit 8.
• No invoices or cheque requisitions were found for the year ended March 31,
2011;
• As noted in the 2010 financial statements, the amount reported is based
upon the payables recorded in the general ledger. In the case of fiscal 2011,
the last draw from 2010 in the amount of $38,000 was added to the first four
draws recorded for 2011; and,
• Looking at the transactions on a cash basis, the general ledger indicates that
two cheques were issued totaling $158,000 as follows:
o December 17, 2010, cheque #38221 for $30,0000 to Sack’s Plowing;
and,
o March 31, 2011, cheque #40674 for $128,000 to Sack’s Contracting.
• One invoice was located with respect to snowplowing for fiscal 2012. Invoice
16042012snow, dated April 16, 2012 in the amount of $133,000 is attached
as Exhibit 9;
• The invoice refers to the “snow plowing and salting services contract, Winter
2011/2012”. The amount of this invoice is net of a payment of $25,000
Conclusion
6.12 Based on the above, the total cost of snowplowing for the three year period was
$474,000.
6.13 We believe that Mike Sack has an interest in Sack’s Plowing and owns Sack’s
Excavating. This belief is based on the following:
i) The initial invoices under the Sack’s Plowing letterhead were signed by
Henry Sack and then only by M. Sack after February 2010.
ii) M. Sack invoiced the Band using Sack’s Excavating letterhead in 2011
and 2012. These invoices were not in relation to snowplowing;;
6.14 It does not make sense that the snowplowing contract would be reviewed and
authorized by the Housing department. Operations and maintenance historically
was responsible for this area and would have the expertise to determine the
condition of the roads, the responsiveness of the snowplowing contractor and the
effectiveness in the community. We were not advised of the rationale for the
change of responsibility to Housing. We note that D. Gloade, the Housing
Manager at the time was also an employee of M. Sack. This is a serious risk to the
organization and potential conflict of interest for D. Gloade.
6.15 The contract was signed by H. Sack but M. Sack did the majority of the invoicing
and received most of the payments for the snowplowing. M. Sack is not
referenced in the contract and appears to have circumvented the bid process he
engaged in the year previously. M. Sack was a member of Council and did not
declare his conflict of interest in regard to this contract.
7.2 M. Sack was a member of the Wallace Hills Development Committee (the
“Wallace Hills Committee”) created by Council and noted in the minutes of July 9,
2009.
7.3 In an interview with J. Hayes he was asked about the incorporation of MRJJ, he
indicated that it was a condition of Aboriginal Affairs Northern Development
Canada (“AANDC”) that a corporation be formed to handle all the economic
development related to Wallace Hills. He further indicated that the funds
generated from the tobacco rebate program with Loblaw Companies Limited
(“Loblaw”) were to be used for the Wallace Hills Development.
7.4 The Council Minutes on April 12, 2011 indicate that there was a “meeting about
[the] layout of land architect for Wallace Hills”. At this same meeting, there was a
motion to remove M. Sack from the Wallace Hills Committee however, the motion
was defeated. We were advised that the motion was presented because of M.
Sack’s involvement with MRJJ and the proposal for Wallace Hills at the time.
7.5 The Council Minutes on June 7, 2011 indicate that M. Sack approached the Band
in regard to constructing a building on the Wallace Hills property. His plan was
called the “Wallace Hills Entertainment Centre”. A motion to accept the proposal
and work on an agreement at the same time was initiated by Councillor R.
Augustine and seconded by Councillor Ian Knockwood.
7.6 The Council Minutes on August 5, 2011 indicate that SFN passed a Band Council
Resolution (“BCR”) that stated “any band developments involving gaming matters
will be with 100 per cent ownership of the band unless otherwise with full
community support through a community referendum”.
7.7 The following are transactions and documents detailing the involvement of M.
Sack with the development of Wallace Hills.
7.8 Invoice 20120104 dated January 4, 2012, from Sack’s Excavating (refer Exhibit
10) is for “blueprint drawing regarding the Wallace Hills Entertainment Centre
from Harvery Mackenzie Architects as approved by Council” in the amount of
$60,000 was identified in July 2013 through inquiries by the auditors. We
reviewed the Council Minutes from July 28, 2011 until February 28, 2012 and
found no instance of Council discussion or approval of this invoice. We further
contacted the third party managers of SFN who advised that Council was not
aware of Harvery Mackenzie Architects or having requested M. Sack to conduct
this or any blueprints received. We understand that this invoice has not been
paid or recorded as a payable.
7.9 MNP conducted Internet research and identified Harvey and Mackenzie
Architects conducting business at 5531 Cunard in Halifax Nova Scotia which we
believe to be the company indicated above.
7.10 MNP was advised that SFN had purchased an acre section of land, Property
Identification (“PID”) #00423335 (“Pockwock Road Property”) from M. Sack in
November 2009 and that he had bought it only four months prior to the sale to
SFN. The lot is now considered part of or close to the Wallace Hills reserve
lands.
7.11 In an email from G. Richard to Thea Langille, from the Planning Department of
the Halifax Regional Municipality (“HRM”), dated May 14, 2012, G. Richard
indicated that he had attached a survey plan of the Wallace Hill Reserve.
“Reserve 14A consists of Lots 325, 327, 328 and 330. The survey plan and legal
description notes that all watercourses remain under provincial jurisdiction. As
you can see, Reserve 14A straddles the Hammond’s Plain Road, has access to
Pockwock Road via a non-Reserve property purchased in fee simple by the Band
contemporaneous with the addition to Reserve in March 2011.” This property is
assumed to include the Pockwock Road Property.
7.12 MNP reviewed the Nova Scotia online land registry and noted that the Pockwock
Road Property abuts the reserve land to the northeast and appears to be a
strategic location which could provide access to the MicMac Rd residential area.
Image 1 below is a map of the area obtained from the land registry. The black
outlined property just above the words “Hammond” is the area identified as the
Pockwock Road Property.
7.13 The assessment value of the Pockwock Road Property as per Nova Scotia
Online was $40,500 in 2012 and $42,800 in 2013 (refer Exhibit 11).
7.14 Exhibits 12 to 14 contain land registry information for the Pockwock Road
Property which shows the historical ownership as follows:
• January 1999 - the property was sold by Susan Wenning Cameron, Joan
Wenning McMillan and Andrew S Wenning to Ramar Developments (refer
Exhibit 12);
• July 23, 2009 - Ramar Developments sold the property to M. Sack (refer
Exhibit 13); and,
• October 7, 2009 - M. Sack sold the property to SFN, however, the
transaction was not registered until November 27, 2009 (refer Exhibit 14).
7.15 MNP contacted Ramar Developments’ Chris Marchand, who advised that the
land was sold to M. Sack for $40,000 in July 2009. A review of the general ledger
showed that a $65,000 cheque was drawn on the CIBC Administration account
on September 11, 2009. Cheque number 21321 was paid to Carruthers and
MacDonnell and the memo field refers to “Wallace Hills”. Carruthers MacDonnell
and Robson is a law firm situated in Shubenacadie Nova Scotia. The cheque
requisition describes the payment as for “Wallace Hills – Land” and is approved
for payment by J. Hayes. The cheque advice, requisition, and letter confirming
the payment from Carruthers and MacDonnell are attached as Exhibit 15.
7.17 MNP reviewed the Council Minutes from April 2009 until January 2010 and there
is no notation of a BCR or discussion in regard to the purchase of this land from
M. Sack. There is also no discussion about the necessity to purchase this acre of
land. M. Sack was a councillor with SFN commencing in June 2009 and was
present for a number of Council Meetings when the discussions were occurring
with respect to the Wallace Hills Development and was also a member of the
Wallace Hills Development Committee.
7.18 Based upon the available documents, it appears that M. Sack realised a profit of
approximately $25,000 ($65,000 - $40,000) in the sale of the Pockwock Road
Property while he was a Councillor and member of the Wallace Hills
Development Committee. We did not find any disclosure to Council or the
Community of this transaction and the parties involved. It is not known if the
amount paid by SFN was fair market value as there is no indication that the
property was appraised by a third party.
7.19 Absent further information we consider the profit and payment of the delinquent
property taxes totalling $25,229 questionable.
7.20 We are aware of two submissions by M. Sack for the development of Wallace
Hills. They are as follows:
7.21 The Memorandum of Understanding was not dated and was based upon a ten
year management agreement where M. Sack would construct the building but the
Band would own the building. In the agreement M. Sack would receive “20% of
the gross revenue from all operations at the business over the term of the
agreement”. This agreement was not executed.
7.22 The Development and Management Agreement is dated June 2011 and the
terms included the following:
7.23 There are sections in the contract that appear to give a great financial advantage
to M. Sack, including:
• Section 3.7 - “provided that it fulfills its obligation to pay the Monthly License
Fee to the Band, the Parties hereby agree that the Developer shall be entitled
to all of the net revenue derived from the Business during the course of the
term”; and,
• Section 3.8 - “notwithstanding any other provision of this Agreement,
including section 2.4 hereof [refers to ownership of facility] for the purposes of
permitting the Developer the better assurance of its rights under this
agreement, the Band shall, on the written request of the Developer, provide
the Developer with a certificate of possession, or other similar instrument or
declaration, in respect of the Subject Land for the Term”.
7.24 This agreement was never signed as we understand that the Community raised
concerns over the ability of M. Sack to obtain a Certificate of Possession on the
land and the revenue sharing he was proposing.
7.25 Amounts recorded to account 5331, prior to adjustment for financial statement
purposes were as follows:
Table 6: Payments re: Wallace Hills
Payments 2010 2011 2012 Total
MRJJ $ 38,682 130,755 - 169,437
Land 65,000 - - 65,000
Legal 16,825 20,487 22,617 59,929
Sack’s Contracting / 7,765 - 28,524 36,289
Excavating
Marketing 12,657 - - 12,657
Audit - - 2,200 2,200
Amcrest 845 900 - 1,745
Other 10,548 5,090 4,079 19,717
Total $ 152,322 157,232 57,420 366,974
Conclusion
7.27 Based upon our review of the transactions related to Wallace Hills, M. Sack and
the M. Sack Companies we consider the following amounts to be questionable:
Table 7: Wallace Hills Questionable Amounts
Description Amount
Pockwock Road $ 25,229
Sack’s Contracting – unsupported payment 7,765
Sack’s Excavating invoice #20110074wall 28,524
Total $61,518
8.2 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.
8.3 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.
The licences include lobster, snow crab, swordfish, scallop, herring and
groundfish.
8.4 The crew of the boats fishing the SFN licences are to be made up of members of
SFN. We understand that the terms of the lease for lobster licences 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.
8.5 M. Sack operates Mainland Juggage and we were advised that Mainland
Juggage purchases catch from the snow crab and lobster fisherman and acts as
a middleman for Wedgeport Lobsters Ltd. (“Wedgeport Lobsters”). Wedgeport
Lobsters is owned by Reginald Leblanc (“R. Leblanc) and sells the lobsters at
market.
8.7 According to the news article M. Sack acted as the broker in the deal to sell the
lobster to Wedgeport. It further states that M. Sack may have received a
handling fee with LeBlanc’s lawyer suggesting that the sales were used for Band
purposes. We are not aware of any funds flowing to the Band from M. Sack or
Mainland Juggage for fisheries outside of the payment for the commercial
licences and payroll.
8.8 R. Leblanc was fined $15,000 and M. Sack was fined $5,000 after they entered
guilty pleas of buying, selling, trading or bartering lobster without a licence.
8.9 MNP contacted Terry Zinck (“T. Zinck”) who operates Xsealent Seafood
Company (“Xsealant Seafood”). T. Zinck advised that his company has been
leasing lobster licences from SFN, via M. Sack (or Mainland Juggage), for a
number of years. He advised that:
• They have leased four (4) licences in the past but in the past couple of years
have only leased one (1);
• Xsealent Seafood leases the licences directly from M. Sack who approached
them. They paid $30,000 for the lease. T. Zinck indicated that his company
provides 6% of the catch revenue to M. Sack for each crew member;
• Xsealent Seafood also pays M. Sack $0.40 per pound for the landed catch
as a commission;
• Xsealent Seafood sells the lobster to its vendors. T. Zinck stated that M.
Sack does not buy seafood;
• Xsealent Seafood does a direct deposit to an account (it is assumed this is
the account of M. Sack) for the crew percentage and the commission; and,
• T. Zinck does not know M. Sack personally and has only dealt with him once
or twice.
3
http://www.thevanguard.ca/News/Regional/2012-06-18/article-3011241/$20,000-in-fines-in-
lobster-case/1
8.11 We are aware that SFN has a Fisheries Manager and completes all payroll for the
crew members assigned to the fishing vessels. Therefore, it is not known why
the Fisheries Manager did not or could not have set up a direct relationship with
Xsealant Seafood for the Band.
• Amounts owing by Alex McDonald Sr. (“A. McDonald”) from his loan from
SFN;
• Lobster licences; revenues and issues; and,
• Snow crab licences; revenues and issues.
A. McDonald - Loan
8.13 At the November 17, 2009 Council Meeting, A. McDonald requested a loan of
$20,000 to lease a commercial licence (refer Exhibit 20). 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.”
8.14 We note that 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 was passed with six votes for and five votes opposed. The
minutes do not indicate if M. Sack voted or not, however according to the
minutes, there were 12 Councillors at the meeting and only 11 voted, therefore it
is plausible that M. Sack did not vote.
8.15 The $15,000 amount to pay M. Sack was paid from SFN funds directly to M. Sack
and the repayment has been discussed in the Fisheries Appendix, Appendix 9.
8.16 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 4 and Admin
and that the Council would have to “worry” about welfare within the next week.
Jerome Paul (“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
a 24% allocation of catch revenue to SFN to pay for labour costs. There is no
indication in the minutes of who the licences would be issued to and there is no
distinction made between the lobster licences and other licences.
8.17 A Fisheries Lease Agreement between SFN and M. Sack dated September 14,
2011 (refer Exhibit 21) 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 2011–2012 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.
8.18 An email exchange between J. Hayes and G. Richard, legal counsel to SFN, on
September 14, 2011, attached as Exhibit 22, 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”.
Lobster revenue
8.19 Based upon the general ledger, catch revenue in relation to Mainland Juggage is
broken down as follows:
Table 8: Sources of Lobster Revenue
Licensee 2010 2011 2012 Total
Mainland Juggage $ 214,472 405,794 347,105 $ 967,371
4
LSK is the L’nu Si’puk Kina’muokuom.
• SFN entered into an agreement with Mainland Juggage to lease three LFA
35 licences and nine LFA 34 licences (refer Exhibit 21), for the 2011 – 2012
lobster season, for a total of $480,000:
o $240,000 to be paid on September 15, 2011;
o $60,000 no later than October 14, 2011; and,
o $180,000 no later than November 25, 2011.
• In reviewing how the $480,000 was settled, we identified a payment of
$240,000 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 (refer Exhibit 23).
We have not identified how the remaining $40,000 was settled;
• Lobster wages should approximate lobster catch revenue. A comparison
between catch revenue and wages 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 9: Comparison of Lobster Catch Revenue and Lobster Wages
Description 2010 2011 2012
(1)
Lobster catch revenue $ 255,126 343,841 347,105
Lobster wages (261,797) (536,808) (564,430)
Difference $ (6,671) (192,967) (217,325)
(1) This amount includes an audit adjustment in respect of unreconciled bank balances, writes offs
of balance sheet items and other which lowers total revenue by $83,796. This is why this
balance is lower than revenue earned from Mainland Juggage in Table 8 above.
8.21 Based upon the summary comparison above, we have attempted to reconcile the
differences between salaries paid and reported revenue in Table 9 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;
• SFN payroll records including payroll calculations and cheque payments;
and,
• DFO Lobster Buyer Summaries (“DFO Landing Summaries”) which set out,
by vessel, the weight and value of lobsters landed.
8.24 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
any 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 5.
8.25 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:
8.26 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.
5
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.
8.28 Based upon the available records, crab licences/quotas were leased to Cheryl
Maloney (“C. Maloney”) for the 2009-2010 and 2010-2011 fishing seasons and
then M. Sack for 2011-2012. Although C. Maloney was granted the
licences/quota the records indicate that she was required to sell to M. Sack. A
summary of the history of the licences for those years follows.
8.29 In February 2009 Chief Sack issued a letter stating that C. Maloney will have
access to snow crab quota and lobster licences (refer Exhibit 24). Following
that, 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
(Exhibit 25). 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 Council Meeting were in favour of the
motion and although it was passed, the Council Minutes do not specify if Option
1, a straight buyout per pound, or Option 2 fixed rate was accepted by Council.
Manual notes on Exhibit 25 indicate that Option 2 was preferred for two years at
a time.
8.30 On August 3, 2009 C. Maloney sent a letter (refer Exhibit 25) 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 due to a perceived conflict of interest. There is no
indication in the minutes that C. Maloney’s concerns were addressed at this time
and if so, how.
8.31 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 and she would supply the fuel, bait, gear, lodging
and all other expenses and the SFN would pay only the all native crew.
8.33 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. Richards 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.
8.34 BCR 2010-2011-54, dated March 2011 and titled “Crab Quota - Mainland
Juggage” was identified in the BCR Register as dated March 2011. This is
attached as Exhibit 26 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.”
8.35 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.
8.36 Snow crab revenue during the year ended March 2012 was based on a flat “in the
water” price. This is inconsistent with the 2011 and prior period which was based
on the shore price less boat owner costs (“the 2011 revenue formula”). Upon
entering into the agreement the $371,000 was received which was prior to the
commencement of the snow crab fishing season. In the prior years, revenue was
received once catches were landed.
8.37 The accounting records indicate that $371,000 was paid into the Tobacco Shop
bank account (RBC account 131-124-0) (“Tobacco Account”) on March 15, 2011.
The total deposited was $459,315 6. On the same day, $474,640 was paid to
Atlantic Wholesale, we assume to settle debts owed with respect to tobacco
purchases. It is not known why fisheries revenue was paid into the Tobacco
Account or why other funds were not used to settle amounts owed to Loblaw. It
is also not known what circumstances led to the agreement to sell the quota in
advance rather than continue with the 2011 revenue formula.
6
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 that this is the
case.
8.39 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 10: 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 (0.82)
Potential difference in gross profit $1.55
8.40 Although the circumstances leading to the agreement with Mainland Juggage are
not known, based on Table 10 above, should SFN have retained the 2011
revenue formula, it would have achieved a further $522,004 of gross profit7. It is
not known whether the potential difference of $1.55 per lb was retained by
Mainland Juggage.
8.41 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.
8.42 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.
7
Based on total catch weight of 336,776.88 lbs reported to SFN by Mainland Juggage.
Other
8.44 As indicated above, Mainland Juggage was the organization which contracted
with SFN for the purchase of commercial lobster licence and snow crab quota 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.
Conclusion
8.45 There are unreconciled differences between lobster catch revenue and lobster
wages. We have been unable to reconcile these differences due to incomplete
records and lack of documentation. We also note that there are discrepancies
between landing weights reported by DFO and those reported to SFN. An
examination of the Mainland Juggage records would be required to determine the
reason for the disparity.
8.46 The Band missed out on revenue of approximately $522,000 when the Council
agreed to sell the 2011-2012 crab quota to Mainland Juggage for a flat fee “in the
water”. The decision to change the revenue formula in 2012 is an anomaly when
compared to the prior and subsequent years.
8.47 Similarly to our findings with respect to lobster catch weights, there are
discrepancies between landed snow crab weights reported by DFO and those
reported to SFN. An examination of the Mainland Juggage records would be
required to determine the reason for the disparity.
8.48 The payments to Mainland Juggage for snow crab of $40,000 and $18,125, a
total of $58,125, are unsupported and therefore considered questionable.
9.2 It is our understanding that during the Period of Review, SFN planned five
housing projects to construct 31 houses, also referred to as units, on Band lands.
The first was a 10 Unit Project and the second a 13 Unit Project. The 10 Unit
Project was started prior to our Period of Review. The 13 Unit Project was
contracted to Wekatesk Planning and Development (“Wekatesk”), a business that
Councillor Thomas Maloney (“T. Maloney”) has an interest in. The remaining
three housing projects were planned for a total of eight units. Construction
related to these units appears to have been done in part by M. Sack companies.
No contracts were found in relation to these homes but the largest amounts paid
to a contracting company were paid to a combination of Sack’s Contracting and
Sack’s Excavating.
9.3 During our review of the records, it was not apparent that budgets and project
files were maintained for these houses. Absent project files, we reviewed the
Council Minutes, BCRs and other documentation to understand the development
of these sites. Table 11 below is a summary of the timeline of events from these
records related to the construction of the housing projects:
Table 11: Housing Project Construction Timeline
Date Event Reference
Apr 8, 2009 Letter from CMHC re: 2007/2008 Project 13 Units. Letter (refer
The letter indicates that the 13 Units had not been Exhibit 27)
started.
May 6, 2009 Invoice 2009-001 from Wekatesk and related Invoice (refer
documents referencing the construction of 13 Exhibit 28)
homes at various locations on the Nation.
May 19, 2009 M. Sack and Pat Gehue ask for some work on the Council Minutes
new housing units; however, they don’t get along
with the contractor, T. Maloney. According to the
minutes “after a lengthy discussion, an altercation
took place between Pat Gehue and Councillor
Thomas Maloney”.
May 26, 2009 Request for proposal to fill, fine grade, driveways Bid Call
and landscaping for the ten new homes Notification for
constructed in SFN. The bid form documents are RFP-09-01 (refer
available for pick up commencing on May 26, Exhibit 29)
2009 with a closing date and time of May 29, 2009
at 11:00 am.
9.5 MNP interviewed T. Maloney who was involved in the construction of the 10 and
13 Unit Projects under review. During the interview he advised of the following
with respect to M. Sack:
• On the original 10 houses, he had “CJS Excavation” dig the basements and
then put in the footings but the work was so shoddy that it had to be redone
at the demand of a CMHC inspector. He indicated that M. Sack charged the
Band $87,000-$90,000 for the work then another contractor had to be called
in to do the work properly. He indicated that he built the 10 houses for
$95,000 per unit; and,
• M. Sack constructed six (6) houses in 2011 after the 13 houses were
finished. T. Maloney indicated that M. Sack’s unit cost was $120,000 to
$150,000.
9.6 M. Sack signed all BCR’s referenced in the Table 10 above. Therefore, he
signed as a Councillor authorizing the expense and while being a vendor
supplying the service which drew on the funding. Records evidencing a proposal
process for awarding the work were not found. With the exception of BCR 2009-
2010-016, there is no mention of the BCR’s in the Council Minutes, therefore, no
mention of M. Sack removing himself from the meetings where the housing
projects were discussed.
9.7 The Housing Department coordinated and facilitated repairs and renovations of
homes on the SFN lands. These are homes owned by SFN with band members
as tenants. The work is performed by SFN employees and external contractors
as required.
9.8 Requests for repairs and renovations were generally documented by a work order
or purchase order. Work orders were used for larger repairs and where time and
materials were involved, whereas purchase orders were used for the purchase of
supplies that were paid for directly by SFN. When the work is completed in-
house, no work order is generated; however, when the work is completed using a
contractor a work order should be completed.
9.9 D. Gloade stated during his interview that work orders were signed at the repair
site and then used to generate an invoice for payment. He stated that he was not
involved with approving all of the work orders because of a potential conflict of
interest due to his employment with M. Sack.
Invoicing
9.11 Supplier invoices were received by either the Housing Coordinator or Ms. Paul for
repair work completed. According to D. Gloade, the invoices were then reviewed
and approved by V. Maloney, who verifies the work has been completed. It is not
clear how he verifies the work completed. We note that without an initial work
order or estimate there is no documentation to show what was originally intended
for repair versus what was invoiced.
9.12 Band and community housing construction costs are capitalized and reported on
the Schedule of Tangible Capital Assets to the Audited Financial Statements. A
summary of those capital costs grouped by general ledger account coding are
summarized in Table 12 below:
Table 12: Summary of Capitalized Housing Construction Costs
Project 2010 2011 2012 Total
10 Unit Project $ 399,022 1,500 - 400,522
13 Unit Project 1,216,596 401,103 - 1,617,699
2009 6 Band Homes 163,911 - - 163,911
4 Units - Brown Flats
(2 Brown Flats / 2
Ross) 43,002 121,495 24,127 188,624
2 Energuide Units -
Browns Flats - - 295,249 295,249
Brown Flats Extension - 407,504 - 407,504
Retrofits and
Renovations 23,704 350,008 - 373,712
Total $1,846,235 1,281,610 319,376 3,447,221
9.14 This project was started prior to the Period of Review, accordingly we have not
reviewed transactions prior to April 1, 2009 and the total of approximately
$400,000 shown in Table 11 does not represent the total cost. With respect to
transactions in fiscal 2010 and 2011, we note that the amounts paid out are
related to individuals and what appears to be finishing of the houses. The most
significant vendors were:
9.15 The total amount charged to Account 5870 in 2010 was $529,022. This amount
was adjusted by $130,000 for what appears to be a prior year accrual.
9.16 The amounts recorded as Sack’s Contracting were six invoices submitted by
Sack’s Excavating. It is unknown why the name in the general ledger does not
reflect the company who invoiced SFN. The six invoices are summarized in
Schedule 1 attached to this Appendix and documentation for the four larger
transactions are attached as Exhibit 37. We note the following with respect to
these invoices:
9.17 The first transaction recorded to Account 5871 for this project in Fiscal 2010 was
a cheque to Wekatesk dated May 7, 2009 and the last transaction was an invoice
from Stewiacke Building Centers on March 2, 2011. Significant vendors on this
project were as follows:
• Wekatesk 1,402,192
• Ezee Enviro Direct 86,234
• Sack’s Contracting (Sacks Excavating) 70,740
• Richibucto Furniture 2000 Ltd. 42,290
• Chester CR Johnson 20,649
• J.D. Henderson Plumbing & Heating 20,035
• The work performed under invoice 2009-131, for $19,115 is not clear.
Although the invoice indicates that the work was requested by Council there
is no mention of the work in the Council Minutes. The invoice appears to be
approved by D. Gloade. Due to the lack of authorization from Council this
invoice is considered questionable;
• Invoice 2009-170 relates to a location that is not listed on the Wekatesk
listing of the 13 homes to be built; and,
• Invoice 2010-01 for $28,512 refers to a New Ross house and therefore it is
allocated to the incorrect account. Homes built on New Ross Road during
this time were recorded to Account 5895.
9.19 The first transaction recorded to Account 5873 for this project in Fiscal 2010 was
an invoice from Central Home Improvements Warehouse dated November 13,
2009 and the last transaction was an invoice from Stewiacke Building Centers
recorded as March 31, 2010. Significant vendors on this project were as follows:
• The work performed under invoice 2009-179 refers to the extension of the
Brown Flats road and was requested by Operations and Maintenance.
Therefore, it appears to be incorrectly recorded to the housing account;
• Invoice 2009-179 in the amount of $15,168, dated December 2, 2009 is for
the “extension on the new sub-division road down Brown Flats”. Other
charges for the extension have been recorded to Account 5881. It is
important that all costs be recorded to the designated account so that a full
reconciliation of the cost of the project can be easily reviewed; and,
• The invoices do not refer to a contract or quote.
9.22 We reviewed the records for the transactions related to Sack’s Contracting and
they are summarized in Schedule 4. We note the following with respect to these
transactions:
• With the exception of Invoice 12032012 brflfinal for $130,000 (refer Exhibit
40), invoices supporting the remaining transactions totaling $150,227.08
were not found therefore, they are considered questionable;
• Invoice 12032012 brflfinal bears a manual notation that identifies the 2
Energuide homes as 146 and 150 Brown Flats Rd. These two addresses
are referred to in CMHC’s list of projects as project 19-042-787-009 (“Project
009”); and,
• The payment on September 1, 2011 for $120,000 does not reference to an
invoice. We have necessarily relied on the general ledger memo notation to
9.23 Based upon the records located and payments recorded to March 31, 2012 the 4
Units – Brown Flats and 2 Energuide Homes cost an average of $80,645 8. This
amount appears low. Based solely on the description of the invoice and
payments to Sacks Excavating, this company billed SFN $250,000 for the 2
Energuide homes, therefore $125,000 each. Although there are other costs
recorded to Account 5900 identified as “2 Units Energuide” the addresses in the
memo portion of the entry do not match those shown on the Sacks Excavating
invoice and Project 009.
9.24 Assuming that the cost of the 2 Energuide homes is $250,000 then the remaining
cost would be associated with the 4 Units – Brown Flats. If this were the case
then the cost per unit for this project would be $58,468 as of March 31, 2012.
This amount appears very low. We considered the possibility that expenses
coded to Account 5873 - 2009 6 Band Homes belong in this category, however
that would mean that amounts were expended prior to the BCR’s authorizing the
funding were signed. Based upon the current documentation we cannot conclude
on the cost of these six homes.
9.25 T. Maloney indicated that he was on budget for the completion of the house and
that the documentation he received from J. Hayes supports this. He indicated
that expenses incurred by M. Sack were moved to his budget and then
demonstrated that he was over budget. MNP has not been provided with this
documentation to confirm these contentions.
9.26 The Brown Flats Extension cost of $407,504 is made up of three invoices from
Sack’s Excavating (recorded as Sack’s Contracting). They are summarized in
Schedule 5 and attached as Exhibit 41. We note the following with respect to
these transactions:
8
Calculated as $188,624 (4 Unit – Brown Flats) plus $295,249 (2 Energuide Homes) equals $483,873,
divided by 6 homes.
9.28 Based upon the above analysis, we calculate the total cost of the 1,200 foot
extension to Brown Flats Road to March 31, 2012 to be $536,636 9 therefore, a
cost of approximately $447.00 per foot. It is outside of our expertise to comment
on the reasonableness of this cost.
9
Total cost is comprised of Account 5881 ($407,504) plus cheque 44126 ($113,964) and invoice 2009-179
from Paragraph 9.20 ($15,168).
10.2 Stewiacke Building Centre advised that no purchases for SFN had been delivered
to 22 Kittiwake Ridge.
10.3 We note that many invoices from Sack’s Excavating, Sack’s Contracting and
Castone Construction do not contain details with respect to labour, materials and
the site worked.
10.4 In an interview with J. Hayes we asked how his home was built and he confirmed
that it was built by M. Sack, however he did not identify the specific company.
With respect to how M. Sack was paid for the construction and the potential that
the cost could have been charged through to SFN. Excerpts from the J. Hayes
interview with respect to this question are provided below:
MCCORMACK: Okay. The, have you ever been concerned that the materials that were
used to build your house were actually charged to the band?
HAYES: Did I have any concerns?
MCCORMACK: Yeah.
HAYES: No geez I hope not. Well are you telling me they were?
MCCORMACK: I don't know that's what I’m asking, I'm wondering, I'm wondering if during
the course . . .
HAYES: (Talk over) They could very well have been because I find out, I have to
jump ahead but I find . . .
MCCORMACK: (Talk over) Yeah absolutely.
HAYES: . . . out later on that he didn’t even, I shouldn’t say he, the contractor
didn’t even set up anything to cover his cost to build that house until he
got my draws kind of, now whether he’s so rich he can do that is, I have
no idea.
MCCORMACK: Sorry when you’re talking about the contractor . . .
HAYES: (Talk over) Mike.
MCCORMACK: . . . you’re talking about Mike Sack?
HAYES: Mike, yeah.
10.5 In a further interview, J. Hayes advised that he had paid Sack’s Contracting
between $130,000 to $140,000 to build the house with money drawn from a
mortgage. Excerpts from the interview addressing this question are as follows:
10.6 The assessed value of the home for 2013 is $420,100 (refer Exhibit 42). In
examining the costs to build the home we have found records which indicate that
J. Hayes drew down approximately $140,000 on the mortgage which is supported
by the sale price of $144,000 on February 16, 2012 when the house and
mortgage were transferred to M. Sack. It is beyond our area of expertise to
estimate if the house could have been built for $140,000, as suggested by the
mortgage draw down. These amounts do not include the purchase of the land
which was approximately $110,000.
10.7 According to J. Hayes, the house was sold to M. Sack for $1 in consideration and
that he could buy the property back when he could afford it. The transfer of this
property occurred shortly after J. Hayes’ employment was terminated by the
Council.
10.8 The RCMP have charged M. Sack and J. Hayes with criminal offences as a result
of this transfer (see Section 12).
Conclusion
10.9 Based upon our discussions with J. Hayes and other third parties we estimate
that the house was built in the summer of 2011 which would mean the costs
borne by SFN, if any, would likely be recorded in Fiscal 2012. Based upon our
examination of the records to date we have not identified any specific payments
or invoices that could be attributed to the construction of J. Hayes’s house.
11.2 A potential conflict of interest was identified during our interview with D. Gloade
when he stated that he had performed electrical work for Housing under his
company Gloade Electrical. He advised that once he committed to SFN as the
Housing Manager, he perceived this as a conflict of interest and sold his trucks
with tools, supplies and customer base to M. Sack. However, he retained his
company. We understand D. Gloade worked part-time for Sack’s Contracting
while working at SFN. D. Gloade stated he spent 50% of his time at each job and
received 50% pay from Housing.
11.3 When asked about the transfer of the Gloade Electrical business to M. Sack, D.
Gloade advised of the following:
MCCORMACK: Okay so Mike takes over that portion of your business. Is that right?
MCCORMACK: Right.
GLOADE: . . . you know, and we were only doing Housing so it wasn’t that big of a
deal.
MCCORMACK: And then what does he use for resource, the, like manpower? Like who
does . . .
MCCORMACK: . . . who does his electrical work then? Did you have . . .
GLOADE: (Talk over) Yeah. He took on a couple, like a journeyman and just a
journeyman really . . .
And he continued;
GLOADE: I get a paycheck. I put in hours, I put in a time slip, he pays me.
GLOADE: Not so much. I, when it comes to res stuff, I more do quality control. You
know what I mean, it’s, because it’s electrical, it’s only wire and houses,
it’s not like I really need to be involved.
GLOADE: So they just write up time material sheets and they go into the office.
Nobody really scrutinizes that. Ladies in Sack’s office take the time
materials, make sure they’re signed and so on so forth and because I’m
in the conflict of interest, Vernon or Shirley or someone’s gotta sign off in
the housing. So . . .
11.4 Another potential conflict was identified regarding M. Sack’s Companies due to
M. Sack’s role as a Councillor during a portion of the Period of Review. M. Sack
was a Councillor for SFN from June 12, 2009 to November 2, 2010 and again
since November 2, 2012 (refer Exhibit 43). During the period M. Sack was a
Councillor, his companies were billing SFN for services where it is not clear if the
services were performed under contract or with the full knowledge of the Council
members.
11.5 During the Period of Review, a total of $1,546,336 in expenses in Housing were
attributed to M. Sack Companies. $983,335 of the total was expensed in Capital
Projects and $563,002 in repairs and renovations. Table 13 is a summary of the
expenses recorded in Schedule 4 from M. Sack’s Companies during the Period of
Review:
Sack’s Contracting
11.6 During the Period of Review, we identified transactions totalling $402,216 that
were expensed. From our review of the Sack’s Contracting invoices we noted the
following:
11.7 The lack of detail and supporting documents found in the records with respect to
Sack’s Contracting is contrary to what would be expected from a non-arms length
vendor. In addition, there appears to be a lack of oversight from the Housing
Manager or other management at SFN with respect to the work completed by
Sack’s Contracting for Housing. In contrast, there is documentation indicating a
review of work performed by Sack’s Contracting under O&M by Stephen
Knockwood.
Castone
11.8 Castone, according to its website “has completed numerous commercial and
residential renovations projects including outdoor/indoor, complete projects,
home building, plumbing and electrical work.” The directors are listed as M. Sack
and Dean R. Shea. A corporate search is attached as Exhibit 48.
11.9 Invoices were found for all amounts totalling $120,242 related to Housing. Based
upon a review of the invoices and related documents we noted the following:
• Quotes were found for Invoice 766 dated March 15, 2010, in the amount of
$29,747.60. Although quotes were found they were not dated, signed off by
anyone at SFN and no indication that quotes were sought from other
contractors;
• Work Orders were found for 12 out of 31 invoices and some invoices
referenced Purchase Order numbers. Work Orders representing $105,477
(77%) of the total invoiced were found and signed for approval of payment by
J. Hayes and who we assume to be D. Gloade; and,
• The invoices provide no detail with respect to hours worked, rates or material
costs.
11.10 From our review of available documents we note that Work Orders were used for
a majority of the work performed by Castone. The Work Orders bear the
signature of J. Hayes and what appears to be the Housing Manager and are
therefore approved for payment. We have not interviewed the individuals listed
on the invoices to verify what work was done.
Sack’s Excavating
CJS Excavating
11.13 During the Period of Review, one CJS Excavating amount of $18,500 was
expensed in Schedule 4. Invoice 2009-72 described as “moving trailers” in the
general ledger was not found.
11.14 Invoice 2009-74 attached as Exhibit 50 is for ‘Preparing three lots for the trailers
that were located by the community centre’. This amount was originally coded to
Account 5832 but was reclassified to paving. The invoice does not contain
information regarding the rates, hours or dates of the services performed. In
addition, there is no work order or approvals to support the invoice.
11.15 As with invoices from the other M. Sack Companies, the invoices from CJS
Excavating provide little detail to support the amounts invoiced.
Conclusion
11.16 Based upon the documentation the M. Sack Companies which invoiced for
services in Capital and Housing benefited or had an advantage over other
vendors in providing services to SFN. There is not enough documentation or
evidence of a transparent tendering process or independent review of amounts
invoiced to conclude that the M. Sack Companies did not benefit from the
relationship that he, as a Councillor, had with SFN. The Housing Manager
confirmed that the M. Sack Companies were not required to follow the same
process as other vendors with respect to the completion of work orders. This
exemption without other mitigating controls indicates that the M. Sack Companies
were treated differently. A detailed examination of work performed in relation to
amounts billed would be required to conclude if the M. Sack Companies
inappropriately benefited.
12.2 We were also advised that M. Sack had been charged on the same date with:
12.3 We understand that M. Sack was charged as a result of the transfer of the
Kittiwake Ridge property from J. Hayes to M. Sack in 2012. These matters are
still before the Courts at the time of this Report.
13.2 M. Sack has provided contracting/construction services to the Nation during the
Period of Review. MNP has noted that there are no requests for proposals,
standing offers or other contractual agreements which would define the
obligations of each party. The lack of these contracts is unusual for organizations
of this size.
13.3 The lack of invoicing, detail of invoicing and pre-approval process is suspect in
the Nation. It is questionable why D. Gloade, who has a business relationship
with M. Sack, would be allowed to approve invoices and grant work without the
consent and approval of Council or some other oversight.
13.4 Council minutes reflect that M. Sack, while a Councillor, did not recuse himself
from discussions or from voting on matters in which he had an interest. This is
the fundamental issue surrounding conflict of interest. The Indian Band Council
Procedure Regulations of the Indian Act section 19 states:
Every member present when a question is put shall vote thereon unless the
council excuses him or unless he is personally interested in the question, in
which case he shall not be obliged to vote.
There are no rules in the Indian Act addressing conflict of interest. However,
there are INAC guidelines and substantial case law on this subject. We
understand that conflict of interest in the Nation communities can be a
challenging issue, because the community is small and people who live in the
community tend to be closely related.
13.6 MNP has reviewed expenses, invoices, BCRs and interviews in regard to the
aforementioned projects and have identified the following issues;
10
Based on total catch weight of 336,776.88 lbs reported to SFN by Mainland Juggage.
13.7 Based upon the above, the following amounts paid to the M. Sack and related
Companies have been identified as questionable:
Table 14: M. Sack – Questionable Amounts
Questionable
Project Entity Amount
Excessive interest on loans from M. Sack Mainland Juggage / $217,486
Sack’s Contracting
Cranberry Bog Sack’s Excavating 434,768
11
Wallace Hills sale of Pockwock Road M. Sack 25,229
Wallace Hills Sack’s Contracting 7,765
Wallace Hills Sack’s Excavating 28,524
Fisheries – Snow Crab Mainland Juggage 58,125
Capital and Housing – 10 Unit Project Sack’s Excavating 30,975
Capital and Housing – 13 Unit Project Sack’s Excavating 19,115
Capital and Housing – 4 Units Brown Flats Sack’s Contracting 150,227
Capital and Housing – Brown Flats Sack’s Excavating 113,964
Extension
Total $1,086,178
11
Includes $229 of property taxes paid on behalf of M. Sack for the time he owned the property.
14.2 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.
14.3 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.