First the good news.
A Vancouver Coastal Health internal audit published March 20 said PHS Community Services Society is "achieving service objectives in providing specialized services to a unique population.”
But the Feb. 26 report also said Downtown Eastside’s biggest housing and health charity is in weak financial condition because it is poorly managed and inadequately governed.
The report was released a day after co-founder Mark Townsend announced that he was quitting at the end of the month, along with wife and co-executive director Liz Evans, policy director Dan Small and human resources director Kerstin Steurzbecher. The nine-member board, under chair Jack Bibby, will be replaced by VCH chief medical health officer Dr. Patty Daly, B.C. Housing vice-president Craig Crawford and six others.
Townsend and company jumped instead of being pushed after Housing Minister Rich Coleman had threatened receivership. The 1993-founded agency houses 1,200 people across 16 sites, and runs a community bank, dental clinic and the Insite supervised drug injection clinic.
“Due to the accounting practices followed, it is not clear how much VCH funds are spent on administrative expenses,” concluded the VCH audit. “The lack of supporting documentation, particularly on credit card expenses, and the nature of expenditures incurred by PHS are of concern. PHS could not provide evidence of criminal record checks for four employees selected for testing which is non-compliant with VCH contract requirements.”
Grants from B.C. Housing ($8.7 million) and VCH ($8.3 million) were the biggest revenue sources for the year ended March 31, 2013. PHS would have lost $2.07 million in 2013, but it claimed a $3.9 million surplus after the $6-million sale of the Stanley/New Fountain property to a company whose sole director is developer Ian Gillespie.
A July 18, 2013 forensic audit by KPMG, which was also published March 20, showed charges from the 2009-2010 to 2011-2012 fiscal years for restaurant bills ($69,000), limousines ($12,028) and spas ($8,395). Townsend, Evans, Small and Steurzbecher spent $300,000 on flight, hotel and conference expenses.
The audit included correspondence explaining the business reasons for much of the spending. KPMG said it was impossible to properly assess the expenses, because PHS denied access to Royal Bank Visa receipts. PHS claimed a majority of expenses were unrelated to B.C. Housing-funded projects.
Overall, KPMG said the executive quartet racked up $875,833 of the $1.1 million in PHS Visa charges during the three fiscal years. Townsend had the biggest tab at $476,279 alone. "He said that the card in his name is frequently used to pay for the costs incurred by other PHS employees," KPMG said.
PHS collected 911,823 RBC Rewards points, but auditors found they were transferred to Townsend because PHS said it was “simpler to manage and track.” Townsend, the audit said, could not recall specifics but the points were likely used for travel unrelated to B.C. Housing.
Auditors also discovered the average senior management gross income of $154,000 reported on T4 slips exceeded the $117,000 average under the board-approved executive employment agreements.
Both audits described a complex web of companies owned by PHS staff members involved in janitorial supplies and services, pest control, security and maintenance and development consulting. KPMG indicated B.C. Housing was aware of these affiliated companies and "after some discussion, Ms. Steurzbecher seemed to agree that many of the affiliates are, in reality, controlled by PHS.”
KPMG said as of 2012, PHS employee Andy Bond owned Our Community Security and Mop Squad, while another employee, Phong Lam owned DTES Maintenance, DTES Janitorial and Bugs Be Gone. Bond received payments of $726,184 and Lam, whose sister is PHS accountant Theresa Lam, received $34,553 from the companies over three years. The report said $535,000 for Bond was reimbursements for DTES Janitorial supplies.
Townsend said the report focused too much on PHS’s 9 per cent of administrative spending instead of the 91 per cent spent on programs. He wondered why the KPMG audit wasn’t released sooner.
“If it's such a crisis, then why wasn't it a crisis eight months ago?” Townsend told the Courier. “I’m not saying we don't make mistakes. Of course we do, of course we can do better.”
He conceded “paperwork isn’t our forte” and that PHS runs on a tight budget with employees that don’t receive the same benefit packages that are offered at other agencies.
“It's always tight,” he said “We didn't have any creditors, all of our bills are paid and we're more than able to manage the debt.”
This is not the first time a Downtown Eastside charity went awry under Coleman’s watch. Downtown Eastside Residents Association was shut down after a June 2010 out-of-court settlement with the province. DERA owed $500,000 in taxes and rent at three provincial housing projects it managed and was accused of subsidizing rent for DERA directors and staff.
Bibby did not respond to an interview request. A request to interview Coleman was not fulfilled. IntegrityBC executive director Dermod Travis said Coleman, who is also B.C.’s deputy premier, has a duty to ensure taxpayer-funded entities are accountable and transparent.
“If a government sees that there may be administrative challenges in an organization that it is funding, it should not wait to the point where it has to do an audit to get the answers,” Travis said. “It should actually be proactive and make sure the people who are in charge receive adequate training in administration and governance.”
Links to reports:
B.C. Housing financial review by KPMG
http://www.bchousing.org/resources/Media_Centre/PHS/PHS_Financial_Review.pdf
Vancouver Coastal Health internal audit
www.vch.ca/about_us/accountability/audit-reports/audit-reports
