On January 28, the Toronto Port Authority (TPA) issued a press release announcing that its board of directors tightened up policies handling hospitality spending.  The TPA is facing its second five-year review and Colin D. Watson, Chairman of the Audit Committee, stated that the policy change is in preparation for the review.  While the press release indicates that former policies may suggest some questionable hospitality spending in the past, the five-year review audit itself is of far more interest. 

Section 41 of the Canada Marine Act (CMA) requires an audit every five years by a qualified firm to show that the TPA’s assets are safeguarded and controlled, that transactions are in accordance with the CMA, the letters patent and the TPA by-laws and that financial, human and physical resources are managed economically and efficiently and that the operations are carried out effectively. 

The accounting firm, Deloitte & Touche LLP (D&L), which also audits the TPA’s annual financial statements, conducted the previous five-year review audit.   D&L consulted the TPA in determining the criteria for the audit and TPA board’s audit committee approved the plan on April 19, 2004.  On June 1, 2004, D&L signed off on the review audit stating, “In our opinion, with respect to the criteria established there is reasonable assurance that there were no significant deficiencies in the system and practices examined.”

D & L’s conclusion seems curious.  For each of the years covered by the audit, the TPA ran a deficit contrary to the self-sustainability provision of the Canada Marine Act.  That fact was not addressed by the audit and it is unclear if the reason was one of omission or commission.  Did the TPA audit committee overlook the CMA’s self-sustainability provision or did the audit committee choose to ignore it?  And if D & L was conversant with the Canada Marine Act and the audit criteria were set on a consultative basis, why did the accounting firm miss the self-sustainability provision in carrying out the audit?

As the board’s audit committee tightens up the hospitality spending guidelines in anticipation of the collaborative process that sets the upcoming five-year audit, committee members may want to consider some other potential embarrassments.

First, there is the appointment of directors as mandated by the CMA.  The Act states that in addition to the one city, one or two provincial and one federal appointee, the TPA nominates the rest in consultation with the port users.  According to the board’s current composition, three of the nine sitting members qualify as political appointments.  The remainder, six of the current members, should sit as a result of consultations with port users. 

Port users as defined in the Toronto Port Authority Letters Patent fall under four categories: Port Related Activities/Operators; Airport; Commercial Users; Recreational Business.

Currently, other than Colin D. Watson, a business associate of Porter Airlines CEO Robert Deluce who is clearly an airport user, there doesn’t appear to be anyone else on the board whose listed qualifications describe him unequivocally as a nominee of any of the three remaining user groups*.  In addition to the dearth of other user group representatives on the board, the process set out in the Letters Patent, that includes public notices of vacancies and a vetting of candidates, seems to have been ignored.

Will the audit committee and Deloitte & Touche LLP ignore the shortfall in user group representation for the upcoming five-year review?

Secondly, there is the question of the board’s expenditures over the last five years.  Did the TPA get value for money in building the terminal for the Toronto-Rochester fast ferry operation that folded in 2005 after two seasons?  According to the TPA’s website, the building, the International Ferry Terminal, is still up for rent for office space or for a possible film location.

Along with the question of value for money for the International Ferry Terminal are queries about the operation of the new ferry that started service in October 2006.  Based on operational considerations - strong currents and high winds - across the Western Gap, is the ferry’s design suited for its purpose?  Does the replacement ferry that is in the works represent an additional expenditure to make good on a mistake with the first ferry?

Will the upcoming audit measure the $10 million plus capital outlay of these two assets against the measure of economical, efficient and effective management and operations?

The Liberal government of the day accepted the first five-year audit in 2004.  What else was it going to do with a port authority that shouldn’t have been according to consultants Nesbitt Burns who stated that Toronto’s port could not be self sustaining?  The TPA has proved it by losing money every year since its inception in 1999? 

The present Conservative government has not choice but to look for a sterling review.  After Stephen Harper stated that local matters should be handled locally and gave hope to TPA opponents who foolishly thought they had a chance to see an end to this Ottawa outpost, his bureaucrats at Transport Canada straightened him out.  Mr. Harper, Mr. Baird and his Transport Canada crew need to know that “…there are no significant deficiencies in the systems and practices examined”. 

Will Deloitte & Touche LLP oblige?

• It could be argued that Craig Rix belongs to the airport user group since as a lawyer, he represented Ornge management in an arbitration hearing last February that set per diem meal rates for employees.  Ornge, the Ontario transport medicine program’s emergency helicopters use the airport.

Bob Kotyk