PINEHOUSE: Lack of due diligence - precarious financials

[Oscar]

MEDIA RELEASE: Lack of due process in Pinehouse village administration leads to precarious financials

"That cumulative debt load has grown exponentially in four short years and now exceeds the limit established by Saskatchewan Municipal Board by a factor of more than 6X. Grant Thornton expressed concerns that PBN Limited Partnership in particular could not sustain that debt load by relying on their own internal revenue stream."

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Saskatoon, 20 April 2019 – Earlier today the Office of the Information and Privacy Commissioner (OIPC) for Saskatchewan released its most recent Review Report regarding the Northern Village of Pinehouse (population 1074 in 2016), the 17th such report since 2013.

Concerns about access to information (ATI) prompted an official investigation by Neil Robertson [Appendix B to Vancise report below] (since appointed a judge in Court of Queen’s Bench) in 2019, followed by a forensic audit by Grant Thornton LLP (also 2019), and a full ministerial inquiry by retired Justice William Vancise. Most of the governance issues raised by Robertson and Grant Thornton were minimized in the Vancise inquiry report, released in February 2020.

This most recent review of the Village’s response to an ATI request focuses on the assertion by their lawyer that bylaws did not exist, nor were they necessary, to establish two of its controlled business corporations, Pinehouse Business North Limited Partnership (PBN LP, incorporated 2012) and Pinehouse Housing Corporation (PHC, inc. 2014).

The applicant, D’Arcy Hande of Saskatoon, could not understand how Pinehouse was able to circumvent the legislative requirement to pass these bylaws. “Section 56 of the Northern Municipalities Act (2010) lays out a detailed process for municipalities to establish municipal development corporations, including the administration submitting a bylaw to the Minister of Government Relations before it is passed by village council,” Hande said. “That seems so obvious that I felt I had to challenge the Village’s claim that the bylaws simply do not exist.”

Yet according to OIPC Review Report #346-2019,

Legal counsel for the Village asserted that Pinehouse Business North Limited Partnership was not a corporation but rather a limited partnership.* Therefore, it asserted, the terms of the NMA applicable to a municipal development corporation were inapplicable. . . . With respect to a bylaw that established the Pinehouse Housing Corporation, legal counsel for the Village admitted it was less clear with respect to what the NMA required. It asserted that given the nature of its business, it was a controlled corporation (which did not have specific requirements with respect to incorporation) as opposed to a municipal development corporation. [pp.5-6]

* The only partners in PBN LP are Pinehouse Business North Development Inc. (PBNDI), the municipal development corporation (MDC) established by the Village in 1998, which owns 1% of shares, and Northern Village of Pinehouse, which owns 99% of shares. PBNDI is the parent corporation, but its operations were entirely transferred to PBN LP in 2012, making the former nothing but a shell company. In effect, the only properly constituted MDC owned by the Village is presently non-functional.

The Information and Privacy Commissioner has no jurisdiction over WHY records do or do not exist, but can only consider whether a reasonable search was conducted to establish the fact. Nevertheless, the Village’s rationale is very important to note.

Coincidentally, last week Mr. Hande also received a delayed response from the Village of Pinehouse, providing copies of annual general meeting minutes for both PBN LP and PHC on December 4, 2019. Included in the package is the 2018 audited financial statement for PBN LP (heavily redacted). These documents highlight how problematic the elusive method used in establishing these village-controlled corporations really is.

The Neil Robertson inspection report into Pinehouse municipal affairs (2019) was critical of how PBN LP, PHC and other subsidiary corporations had been established. He stated (p. 49), “The practice of incorporating controlled corporations under another statute is neither required nor desirable. At best there are duplicate provisions and at worst provisions which conflict with the governing municipal statute [Northern Municipalities Act, 2010]. As this Inspection shows, this may result in a diminishment of transparency and public accountability and a tendency to prefer private interest over public interest.” Consequently he recommended that the provincial government tighten up the legislation to close this loophole (p. 52).

Mayor Mike Natomagan is PBN LP’s president and chair of the board (Robertson, pp. 26-29); Deputy Mayor Conrad Misponas is on the PHC board of directors (Robertson, p. 32). Both have handsomely paid positions on those boards, quite apart from their positions on Village Council, placing them in potential conflicts of interest. (See also, Grant Thornton, p. 16.)

Mr. Robertson describes in his report (p. 36) how the lack of proper oversight by Village Council, the Ministry of Government Relations and the Saskatchewan Municipal Board has led to a dangerously high debt level that could very well impact on the financial health of the Village itself. While the Village was operating well within the debt limit established by Saskatchewan Municipal Board at the time, when the debt load of the controlled corporations owned by the Village was factored in, the cumulative debt greatly exceeded the allowed amount.

The Grant Thornton forensic audit of the Village compared the allowed debt load of the Village in 2018 ($708,545) to what the full cumulative debt actually was ($4,512,715) (see p. 37). That cumulative debt load has grown exponentially in four short years and now exceeds the limit established by Saskatchewan Municipal Board by a factor of more than 6X. Grant Thornton expressed concerns that PBN LP in particular could not sustain that debt load by relying on their own internal revenue stream (p. 41). Financial assistance might be required from the Village or higher levels of government for PBN LP to remain solvent.

The situation is exacerbated by the fact that both PBN LP and PBNDI have been incurring losses for several years. Total loss for PBN LP in 2017 and 2018 amounted to $7,250,874, while in 2018 PBNDI (although non-operational) had a balance of equity and retained earnings loss of $47,183.

Mr. Hande says, “The lack of transparency and public accountability in Northern Village of Pinehouse has now also crept into management of the village’s controlled corporations. I am not sure that the people there are aware of the extreme precarity of their municipal finances. The downturn in the wider economy is likely to make the situation even worse, perhaps even leading to bankruptcy.”

For further information contact :

D'Arcy Hande,
Box 32040, Erindale P.O.
Saskatoon, SK S7S 1N8
306-220-0321