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CATCH News – March 23, 2006

Chapman says auditor examined wrong election statement

In her presentation to city council on March 6, Joanna Chapman raised major objections to the compliance audit of Mayor Larry Di Ianni’s campaign finances, even suggesting that the city wasted their money. Chapman told councillors that auditor Ken Froese examined the wrong financial statement from the mayor’s 2003 election campaign and consequently missed numerous apparent violations of the Municipal Elections Act.

Chapman’s request for an audit was based on the first financial statement filed by Di Ianni on March 31, 2004, but she says Froese actually audited the mayor’s third statement issued nearly a year later on March 1, 2005.

“I cannot believe that the Municipal Elections Act can be interpreted to say, that an elector can ask for a compliance audit based on one financial statement, but have the audit performed on a completely different one, with no consideration at all of the document that the court found showed an audit was necessary,” she told councillors. “This appears to render the whole process completely meaningless.”

She pointed to Justice Timothy Culver’s court ruling which specifically cites the 2004 statement. During the court proceedings, her lawyer attempted to put the 2005 statement before the judge but was blocked by Di Ianni’s lawyer, so the 2005 statement was not examined by the court.

Both of the statements are sworn declarations by the candidate, but the 2005 one is cumulative, including the donations first reported on the 2004 filing. The later filing corrects more than 50 errors, mostly changes from the 2004 statement.

The changes mainly involve re-assigning to corporations many donations previously attributed to individuals. Correcting these errors forced the campaign to issue refunds to 15 companies, but none of these are identified in Froese’s reports as apparent contraventions of the elections law.

Under current election rules, business owners can legally make personal donations as well as ones from their business as long as it’s incorporated. But what appears to have happened in the Di Ianni records, is that numerous corporate cheques were listed initially as individual donations, often alongside additional corporate donations.

Other corrections made in the 2005 statement changed the amounts of several donations and reported donations that had somehow been left off the 2004 statement. In nine cases, different addresses were reported for donor cheques on the 2005 statement than had been shown on the 2004 statement.

“These changes cannot be reasonably ascribed to clerical errors,” Chapman declared. “I do not see how monies can be split between two entities, or records changed inadvertently.” She characterized being audited on corrected statements as “akin to being caught speeding and then reducing your speed to the limit for the next 100 miles or so and claiming you did nothing wrong.”

Only one of these changes appears to have been caught in the initial Froese audit report released last October: “Pasquale Smith and Pasquale Paletta were incorrectly captured on the original financial statements and were correctly recorded as Paletta International Corporation and Tender Choice Foods in the final statements. They were associated companies and were refunded their over-contribution prior to the filing of the final financial statement.”

This appears in a list of companies identified as “eligible to contribute to the Di Ianni campaign and [which] thus do not represent apparent contraventions of the Act or the over contributions were refunded prior to the filing of Di Ianni’s final financial statement.”

Froese’s first audit report states that it covers the 2005 statement “although our process also addresses the process to reach the final financial statement and events subsequent to the filing of that financial statement”. The only direct mention of the 2004 statement is that quoted above in relation to Paletta. But the auditor does refer to the Taylor Leibow review commissioned by Di Ianni in the summer of 2004 after Chapman asked for an audit. Froese described the findings of that review in his report – 24 over-contributions by corporations, and two by individuals, which Froese says “were refunded to the contributors prior to Di Ianni filing his final financial statement on March 1, 2005.”

In his concluding remarks to his initial audit report, Froese says: “We identified five apparent contraventions of the Act in relation to contributions and one apparent reporting contravention.” This seems to suggest he may not have considered the problems found in the Taylor Leibow report to be contraventions, since they had been repaid by the time Di Ianni filed his 2005 financial statements.

An addendum filed by Froese in February of this year notes “There were 20 entries in the final financial statements that were changed from the original financial statements as a result of ‘clerical errors’ and 37 entries that were changed to reflect information contained on corporate cheques.” He goes on to explain that Di Ianni’s special project coordinator, Lorraine Carroll, was asked to review the campaign contributions and create the final list attached to the March 2005 statements.

Froese says she told him that “the first financial statements were created during the campaign and compiled by various volunteers,” and that “she could not comment on why the information was not captured correctly on the first financial statements.”

Froese says “this explanation is consistent with our review of the financial records, our review of the changes made between the initial and final financial statements, and other procedures in relation to contributors.”

The election campaign ended on November 10, 2003. The first financial statements were submitted nearly five months later on March 31, 2004. Chapman argues that Di Ianni’s campaign “seems to have been run by paid professionals with previous campaign experience. This does not appear to be a campaign driven by volunteers.”

Chapman’s objections to Froese’s report appear to have been lost in the media attention on the laying of charges against Di Ianni and two other candidates. It’s unclear whether they had any impact on the councillors who met in camera afterwards for over two hours and offered no public comments when they approved the charges.

The issue of what statements were audited came up briefly at the February 15 meeting of city council when Bob Bratina asked Froese directly: “did you examine the March 31st, 2004 statement…?” Froese responded that "we had that available to us. But our audit focused on the final report."

Bratina pressed on: “So you did not review the March 31st, 2004 report?” and Froese clarified that “We reviewed it. There were a number of refunds after the fact, over the summer of 2004 and later on. And, we looked at the final report."

Later in the same meeting, Brian McHattie asked about the apparent contraventions identified in the Taylor Leibow review. Froese responded: “Our compliance audit dealt with the final financial statement that was filed. So, prior to the Taylor Leibow Report - and the refunds flowing from the Taylor Leibow Report, the over contributions, would have been apparent contraventions."

McHattie then asked if that meant council would need to consider the Taylor Leibow review “to get a sense of the over-all contraventions”, to which Froese replied “if you're looking at the first financial statement filed, yes, you would."

The implications of which statements were examined may be significant – both in terms of the number of contraventions of the law and in determining whether Di Ianni returned excess donations as soon as possible as required by the legislation.

For example, the refunds issued as a result of changing individual donations to corporate ones are not mentioned by Froese as apparent contraventions. And in this case, the refunds appear to have been issued more than one year after the over-donations were received.

Chapman’s presentation to council can be viewed at http://www.hamiltoncatch.org/cow/cow_060306.htm. The two audit reports by Ken Froese are on the CATCH website at http://hamiltoncatch.org/pdfs/FroeseReport-DiIanni.pdf and http://www.hamiltoncatch.org/pdfs/Addendum-Larry-DiIanni.pdf. The discussion at the February 15 council meeting is from the CATCH transcription available at http://www.hamiltoncatch.org/council/council_060215b.htm.

CATCH (Citizens at City Hall) updates use transcripts and/or public documents to highlight information about Hamilton civic affairs that is not generally available in the mass media. Detailed reports of City Hall meetings can be reviewed at www.hamiltoncatch.org. You can receive all CATCH free updates by sending an email to CATCH@cogeco.ca.
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