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HomeMy WebLinkAboutCLD-026-09,~ ~~1~~~0~1 ~~~~~~ t~~ ~~~ STAFF REPORT !F2 REPORT CLERK'S DEPARTMENT Meeting: COUNCIL R.QSO~c~-h0f'1# Date: November 23, 2009 C- (p~/o ~ G9 Report #: CLD-026-09 File #: By-law #: Subject: COMPLIANCE AUDIT -JOHN MUTTON RECOMMENDATIONS: It is respectfully recommended: 1. THAT Report CLD-026-09 be received; 2. THAT Council provide direction with respect to the compliance audit report; and 3. THAT John Mutton, Don and Cynthia Prout, George Van Dyk and Sean Keane be advised of Council's decision. Submitted by: PLB'AG ~~ Reviewed by: Franklin Wu, Chief Administrative Officer CORPORATION OF THE MUNICIPALITY OF CLARINGTON 40 TEMPERANCE STREET, BOWMANVILLE, ONTARIO L1C 3A6 T 905-623-3379 F 905-623-6506 s~ REPORT NO.:CLD-026-09 Page 2 of 2 1.0 BACKGROUND AND COMMENT At the Council meeting held on October 5, 2009, Council passed a resolution to appoint Bernard G. Nayman, Chartered Accountant and Licensed Public Accountant to perform a second compliance audit on the 2006 John Mutton Mayoral Campaign election finances. The audit report was received by the Municipal Clerk on November 17, 2009; a copy of the complete report is attached hereto as Attachment No. 1. Bernard Nayman will be in attendance at the Council meeting to present his findings. Section 81(10) of the Municipal Elections Act, 1996, states: "The council or local board shall consider the report within 30 days after receiving it and may commence a legal proceeding against the candidate for any apparent contravention of a provision of this Act relating to election campaign finances." .Accordingly, Council's direction with respect to the compliance audit is required. For Council's information, Attachment No. 2 to this report outlines the penalties contained within the Municipal Elections Act, 1996 Attachment No. 1 to Report CLD-026-09 Clarington 2006 Municipal Election Municipal Election Finances Compliance Audit Confidential CANDIDATE JOHN MUTTON COMPLIANCE AUDIT REPORT TO THE CORPORATION OF THE MUNICIPALITY OF CLARINGTON BERNARD NAYMAN, Chartered Accountant and Licensed Public Accountant November 17, 2009 Bernard Nayman, C.A., 1110 Finch Ave. W., Suite 710, Toronto, ON, M3J 2T2 Table of Contents Paces 1.0 Introduction 1 2.0 Summary of Applicant Complaints 2 3.0 Audit 5 PART I -Contributions 5 Legislative References g Findings 6 Associated Contributors 6 Ineligible Contributions 6 Technical Reporting Errors g Contributions from the Candidate -John Mutton g PART II -Expenses 10 Legislative References 10 Findings 11 Signs 11 Voting Day Party /Appreciation Notices 11 Other Matters 12 PART III -Municipality of Clarington 12 Advertising 13 Municipality Communications Infrastructure 14 4.0 Review of Applicant Complaints and Audit Findings 16 5.0 Audit Report 19 Appendix 1 -Revised Statement of Income and Expenses Zp Appendix 2 -Summary of Apparent Contraventions 21 Appendix 3 -List of Mayors Corner Articles 22 Appendix 4 -Note on Form 5 Issue 23 Page ~ 1 1.0 INTRODUCTION On November 13, 2006 a municipal election took place in the Municipality of Clarington where John Mutton (incumbent) ran as a Mayoral candidate. Presented in Table 1 aze the Mayoral election results. The information from Table 1 shows that John Mutton attained 26.46% of ballots cast for the Mayoral election in 2006. Table 1: Mayoral Election Results Mayoral Candidate's Votes Jim Abernethy 11204 49.68 John Mutton 5968 26.46 Jim Schell 4596 20.38 Richazd Wazd 495 2.19 Wayne Chaskavich 291 1.29 22554 100 On June 13"', 2007, the Municipal Clerk, Municipality of Clarington, received a letter requesting a municipal election finances compliance audit of the John Mutton campaign. The applicants for the compliance audit were Luke Prout, Cynthia Prout, John Thompson, Sean Keane and George Van Dyk. The applicafion was made exactly 73 days after the filing date of Mazch 31, 2006 and is therefore in compliance as per section 81(2) of the Municipal Elections Act, S.O, 1996 ("the Act"). A compliance audit was performed, but for a number of reasons was found to be technically flawed. The compliance audit was deemed to not meet the requirements of a compliance audit by the Ontario Institute of Chartered Accountants. On September 3, 2009, Bernard Nayman, C.A. was invited to submit an estimate of services for the performance of a compliance audit on the 2006 John Mutton Mayoral Campaign election finances. An estimate of services was submitted on September 6, 2009. Bernard G. Nayman, Chartered Accountant and Licensed Public Accountant was subsequently awazded the contract for the respective compliance audit work. Page ~ 2 2.0 SUMMARY OF APPLICANT COMPLAINTS 1. Individual contribution limits appear to have been exceeded. Schedule 1, Part II (List of Contributors > $100.00) of FORM 5 (the campaign return) shows 26 donations originating from duplicate addresses. The applicants believe that some of these contributors may be associated. If associated their cumulative contribution amount as a single contributor cannot exceed the limit of $750.00. 2. Possible Campaigu Expense Recognition Issues: A. Inventory from the candidate's past 2003 campaign used in the candidate's 2006 campaign may not have been reported properly as an expense on the candidate's 2006 campaign return (FORM 5). Furniture ($1,177.00) and Sign Stakes ($250.00) were reported, however the applicants show a picture of banners hanging from the candidate's 2006 campaign office that were from 2003 campaign. The applicants also state that "approximately half of all road signs were from the prior election, and in many cases "Elect" was covered by a sticker that said "re-elect"". B. The candidate's campaign return reports that $6,587 was paid for the voting day party (an expense not subject to the limit). The complainants suggest that this number is high and that perhaps some of the expenses were not for the voting day party. C. Determine whether the alleged "Clarington, Leading the Way" banner at the back of the 2006 campaign office was purchased using campaign funds. 3. Use of Municipal Resources and Campaign Expense Recognition. (a) It is alleged that the "Mayor's Corner" (a smaller part of a larger full page advertisement purchased by the municipality) which ran in several local newspapers throughout the campaign period promoted the candidate and should therefore be recognized as a contribution from the municipality. Page ~ 3 (b) It is alleged that the municipality paid for TV advertising during the campaign period which included appearances of the incumbent Mayor and that this promotes the candidate and should be viewed as a contribution to the candidate's campaign. (c) It is alleged that the municipality's website promoted the incumbent Mayoral candidate during the campaign period and that this should be viewed as a contribution to the candidate's campaign. (c) It is alleged that the incumbent Mayoral candidate used municipal communications infrastructure resources such as phone, email, and fax to promote this campaign and that this should be viewed as a contribution to the candidate's campaign. 4. Fate of Campaign Capital Assets Post Campaign. The applicants state that "It doesn't seem fair that computers and the like bought with elections money (from 2003 election) suddenly end up in someone's den and drop off the face of the earth". 3.0 AUDIT As provided for in the Municipal Elections Act, R.S.O, 1996 (the Act), section 81(6) the auditor "shall promptly conduct an audit of the candidate's election campaign finances to determine whether he or she has complied with the provisions of this Act relating to election campaign finances and prepare a report outlining any apparent contravention by the candidate." During the performance of the audit program any further financial information or details that may be discovered which reveal apparent contraventions to the Act relating to campaign finances shall be reported accordingly. Page~4 PART I -CONTRIBUTIONS LEGISLATIVE REFERENCES The following sections of The Municipal Elections Act, R.S.O 1996 (the Act) form the interpretive framework for the audit of contributions as presented in this report. Section 66(1) -Contributions -defined For the purposes of this Act, money, goods and services given to and accepted by or on behalf of a person for his or her election campaign are contributions. Section 69(1) -Candidate's duties (m) A contribution of money made or received in contravention of this Act is returned to the contributor as soon as possible after the candidate becomes aware of the contravention (n) a contribution not returned to the contributor under clause (m) is paid to the clerk with whom the candidate's nomination was filed; (k) financial filings are made in accordance with section 78. Section 70(3) -Who may contribute Only the following may make contributions: 1. An individual who is normally resident in Ontario 2. A corporation that carries on business in Ontario 3. A trade union that holds bargaining rights for employees in Ontario. 4. Subject to subsection (5), the candidate and his or her spouse. Section 71(1) -Contributions -not to exceed $750.00 A contributor shall not make contributions exceeding a total of $750 to any one candidate in an election. Section 71(3) Contributions -limits -exception Subsection (1) and (2) do not apply to contributions made to candidate's own election campaign by the candidate or his or her spouse. Section 72 -Associated corporations - de5ned For the purpose of sections 66 to 82, corporations that are associated with one another under section 256 of the Income Tax Act (Canada) shall be deemed to be a single corporation. Associated corporations For the purpose of the Income Taz Act, one corporation is associated with another in a taxation year if, at any time in the year, (a) one of the corporations controlled, directly or indirectly in any manner whatever, the other; (b) both of the corporations were controlled, directly or indirectly in any manner whatever by the same person or group ofpersons. Section 78 (1) -Financial Statement -auditor's report On or before 5 p.m. on the filing date, a candidate shall file with the clerk with whom the nomination was filed a financial statement and auditor's report, each in the prescribed form, reflecting the candidate's election campaign finances. Page ~ 5 FINDINGS Associated Corporations The corporations noted in Table 1 are associated as indicated by respective grouping pursuant to section 72 of the Act and are deemed to be one corporation. Pursuant to section 71(1) the limit on contributions has been exceeded. This is an apparent contravention of the Act. The contribution amount which has exceeded the individual limit for contributions to the 2006 John Mutton campaign have not been returned to the contributor or paid over to the Municipal Clerk pursuant to section 69(1)(m, n) of the Act. This is an apparent contravention of the Act. Ineligible Contributors Pursuant to Section 70(3) the contributors identified in Table 2 do not appear to meet the definition of an eligible contributor. This is an appazent contravention of the Act. The ineligible contributions received by the 2006 John Mutton campaign have not been returned to the contributor or paid over to the Municipal Clerk pursuant to section 69(1)(m, n) of the Act. This is an apparent contravention of the Act. Note 1: "Marianna Developments" is a division of Veltri & Son Ltd., the contribution should be reported as originating from Veltri & Son Ltd. Note 2: The "PhilBlizabeth Litowitz" contribution appears to be a mistake in reporting of the contribution source. Only one of these two individuals can make a contribution. Page ~ 6 Table 1: Associated Corporations Grou Associated Co orations Total Contributions Exceeded Amount 1 Far Si ht Investments Limited $1,500.00 $750.00 Kin 's Ba Golf and Country Club Inc. 2 Ga Com an Limited $1,500.00 $750.00 H.L. Ga Famil Homes Ltd. 3 Mansouri Grou Inc. $2,250.00 $1,500.00 Mont len Pro erties Inc. Ba son Develo menu Inc. 4 Clarnew Develo ments Inc. $1,500.00 $750.00 Danbury Homes (Newcastle) Ltd. 5 St. Mary's Cement Co oration $1,500.00 $750.00 Hutton Trans ort Ltd. 6 Duffin Farms Ltd $800.00 $50.00 Moco Farms Ltd Mocor Inv. Ltd Towerhill Develo ment (Barrie) Ltd. Melody Homes (Barrie) Ltd. Melod Homes Brooklin) Nordea le Develo menu Ltd. Fairview Estates Towerhill Total $9,050.00 $4,550.00 Table 2: Ineligible Contributors Contributor Total Contributions Panoz Motor S orts $ 750.00 Marianna Develo menu see Note 1) $ 750.00 Durham Re ion Heavy Construction Assoc. $ 300.00 PhilBlizabeth Litowitz (see Note 2) $ 750.00 Total $2,250.00 Page ~ 7 Technical Renortine Errors Table 3: Contributor Name Reporting Errors Incorrect Contributor Name Correct Name BBA Barry+Bryan Assoc. (1991) Ltd. Wilmot Creek Ridge Pine Park Inc. S an Develo ments Syvan Develo ments Ltd. The contributors listed in Table 3 above were reported incorrectly. This is considered a technical error in the listing of contributors' names and not apparent contraventions. Contributions from the Candidate -John Mutton As per John Mutton's filed 2006 campaign financial statement (Form 5) the following contributions were made by John Mutton: 250 sign stakes at a value of $1.00 per stake $ 250.00 Furniture for campaign office $ 1,177.00 Although the calculation for the valuation of furniture used by the campaign employs some ambiguities, there is agreement in that the amount reported does represent the rental value of the furniture at the time and in the market in which the furniture was used. Therefore there is no contravention of the Act. Further contributions were discovered which were not disclosed on the respective filed Form 5: Payment of large signs and magnetic car signs, and decals $ 3,279.78 Two banners brought forward from previous election (Valued at replacement value) $ 580.00 100 Small Signs + 20 Large Signs from previous election inventory $860.00 Page ~ 8 Two hundred large signs, six magnetic car signs, 100 small and 20 large "re-elect decals" were purchased by the candidate for the candidate's campaign. Two banners, from a previous John Mutton campaign, were placed at the front of the campaign office at 54 King Street East in Bowmanville. The estimated current market value for these two banners is $580.00 As noted above, 100 small and 201azge "re-elect" decals were purchased by the candidate for the candidate's campaign. It is assumed that "re-elect" stickers would be purchased with the intent of applying them to older campaign signs which do not bear the words "re-elect". It is assumed that 100 small and 201azge stickers would be purchased for use on approximately 100 small and 20 lazge campaign signs. The 2006 current market value of 100 small signs and 201arge signs is $860.00. A record of the contributions (new signs, magnetic car signs, decals, used banners and signs from an previous campaign) by the candidate to the candidate's campaign was not kept by the candidate. This represents an apparent contravention of section 69(1)(f)(i-iv) of the Act. The submitted campaign financial statements did not report this contribution and therefore failed to reflect the candidate's election campaign finances. This represents an apparent contravention to sections 69(1)(k) and ~s~l> of the Act. Page ~ 9 PART II -EXPENSES LEGISLATIVE REFERENCES The following aze sections of the Municipal Elections Act, R.S.O 1996 ("the Act") which are considered as the interpretive framework for the audit of expenses as presented in this report. Section 67(1) -Expenses -defined For the purposes of this Act, costs incurred for goods or services by or on behalf of a person wholly or partly for use in his or her election campaign are expenses. Section 67(2) -Expenses -rules Without restricting the generality of subsection (1), the following amounts are expenses: 1. The replacement value of goods retained by the person from any previous election and used in the current election. 2. The value of contributions of goods and services. Section 66(3) -Contributions -value of goods and services The value of goods and services provided as a contribution is, (a) if the contributor is in the business of supplying these goods and services, the lowest amount the contributor charges the general public in the same mazket area for similaz goods and services provided at or about the same time; (b) If the contributor is not in the business of supplying these goods and services, the lowest amount a business providing similar goods and services charges the general public for them in the same market azea or about the same time. Section 69(1) -Candidate -duties A candidate shall ensure that: (a) one or more campaign accounts are opened at a financial institution, exclusively for the purpose of the election campaign and in the name of the candidate's election campaign. (c) all payments for expenses except for a nomination filing fee, are made from the campaign account. Section 66(2)(2)(1) -Contributions -rules The following amounts are not contributions: (i) the value of services provided by voluntary unpaid labour. Section 76(5) Expenses -maximum exception Subsection (4) does not apply in respect of expenses described in pazagraphs 3 to 9 of subsection 3 to 9 of subsection 67(2). Page~10 FINDINGS SIERS Table 4 below identifies sign expenses that were not previously reported on the candidate's 2006 campaign financial statement (Form 5). Table 4. Un-reported sign expenses # Ex ense Descri tion Expense Amount 1 The urchase of laz e si ns, ma netic car si ns and re-elect decals. $3,279.78 2 Banners brou ht forwazd from revious election $580.00* 3 100 small si ns and 201ar e si ns from revious election $860.00 *Estimated, based on vendor uotes for similaz roduct. Transaction # 1 noted in Table 4 above is an apparent contravenfion of section 69(1)(c) of the Act since this expense was not paid out of the candidate's bank account. The submitted campaign financial statements did not report the expense transactions noted in Table 4 above and therefore failed to reflect the candidate's election campaign finances. This represents an appazent contravention to sections 69(1)(k) and 78(1) ofthe Act. The candidate did not keep a record of the expenses noted in Table 4 above. This represents an apparent contravention of section 69(1)(g) of the Act. Votin¢ Dav Party / Appreciation Notices Table 5 below lists the expenses which comprise the $6,587.50 expense for Voting Day Party / Appreciation Notices as reported on the candidate's 2006 campaign financial statements (Form 5): Table 5: Form 5 -Summary of Breakdown of Voting Day /Appreciation Notices # Ex ense Descri tion Expense Amount Caterin costs for e-day art $1,087.50 Salary aid to attendant $1,000.00 Rent $2,000.00 Payments to election staff ($500.00 ift cards) $2,500.00 TOTAL $6,587.50 Page~ll After cazeful consideration of these expenses, the following expense allocation changes were made: A. Rent as reported should be $500.00 in this expense category (not subject to the limit). The remaining $1,500.00 in rent expense is to be considered as rent (subject to the limit) for the premises during the campaign period. B. The $2,500.00 payment to election staff should be categorized as salaries (subject to the limit) rather than a voting day party expense (not subject to the limit). On election day (or shortly thereafter) several un-paid volunteer election staff received $500.00 gift cazds redeemable at a consumer electronic retail store. The total amount paid to vazious volunteer staff was $2,500.00. The names of all of the gift card recipients could not be provided by the candidate. Considering the near-cash nature of the gifts, the cost of the cards should be reported as a salary expense (subject to the maximum expense limit) and not as a volunteer gifr (not subject to the maximum expense limit). The changes noted above (item A and B) have the effect of increasing the campaign expenses subject to the limit by $4,000.00. Due to the mis-categorization of expenses, the submitted campaign financial statements failed to reflect the candidate's election campaign finances correctly. This represents an apparent contravention to sections 69(1)(k) and 78(1) ofthe Act. Other Matter An amount of $361.67 was received during the campaign period by the candidate's campaign. This amount represents vendor refunds from the 2003 John Mutton Mayoral Candidate Campaign. This amount was deducted from office expenses. This amount should be reported as "other income" on Form 5 and not deducted from office expenses. This has the effect of reducing campaign expenses subject to the limit. This income does not meet the criteria of a campaign expense. Due to this incorrect income recognition the submitted campaign financial statements failed to reflect the candidate's election campaign finances correctly. This represents an apparent contravention to sections 69(1)(k) and 78(1) of the Act. Page~12 PART III -MUNICIPALITY OF CLARINGTON RESOURCES LEGISLATIVE REFERENCES The following are sections of the Municipal Elections Act, R.S.O 1996 ("the Act") which are considered as the interpretive framework for the audit of expenses as presented in this report. Section 70(4) Contributions -who may not contribute For greater certainty, and without limiting the generality of subsection (3), the following shall not make a contribution: 1. A federal political party ..................................... 2. A provincial political party ....................................... 3. The Crown in right of Canada or Ontario, a municipality or local board. ADVERTISING During the 2006 campaign period the Corporation of the Municipality of Clarington (the Municipality) contracted for full page advertisement placement in each of the following local newspapers publications: the Orono Times and the Canadian Statesman. The full page advertisement was generally employed for the publication of notices and other matters of interest to the community. This page also contained articles by the incumbent candidate, Mayor John Mutton, with his picture and sometimes with his name as well as his picture. Mayor John Mutton would sign off /approve the copy of all "Mayor's Corner' articles published during the campaign period. Fourty five Mayor's Corner articles were published during the campaign period. These articles were examined during this audit. Most of the articles dealt with events and other information of interest to the community. After much consideration the criteria listed below were used to determine if the incumbent candidate's approved "Mayor's Comer" articles supported his campaign. If any of the criteria below were met, the article was deemed to have supported the campaign and be a campaign expense. a. Article topics that were forward looking (in support of future initiatives). (ex., an article presents how the (future) nucleaz build in Clazington is going to bring significant benefits in terms of employment, while in parallel the candidate's paid advertisement promotes the candidate having "solidified Clarington as the preferred site for a new Nuclear Generating Station". Page ~ 13 b. Article topics that were presented as a promotion or defense of the incumbent candidate performance /track record. (ex., an article states that "Clarington's net levy per capita is the l Os' lowest", and the Mayors campaign paid advertisements state "l0a' lowest taxes in Ontario".). c. Article topics which were promoted in parallel on the incumbent candidate's advertisement paid for by the incumbent candidate campaign. (ex., an article identifies the importance of supporting the agricultural sector as being important, while showing "increased agricultural growth" in the candidate's paid campaign advertising). d. Article topics that were presented as important issues by other candidates. (ex., other candidates focus on the municipality's fiscal imbalance as an issue, the Mayor's Corner presents a dialogue regarding the issue several times). It was determined that ten of the fourty five articles dealt with issues of a political nature and wholly or Uart1X promoted the candidate with the candidate's knowledge and consent (see section 67(1) of the Act). These articles are listed in Appendix 3. The cost of advertising for the 10 articles is estimated to be $2,567.00. The submitted campaign financial statements did not report these expenses and therefore failed to reflect the candidate's election campaign finances. This represents an apparent contravention to sections 69(1)(k) and 78(1) of the Act. The Municipality, in contract with CHEX (a local television station), broadcasted four video produced segments during the campaign period. Incumbent candidate Mayor John Mutton appeared in these broadcast videos. Each of these appearances was approximately five minutes in length. After careful review of the content of each video, they were deemed to be devoid of political content and did not promote the candidate during the campaign period. MUNICIPALITY COMMUNICATIONS INFRASTRUCTURE During the 2006 campaign period, incumbent candidate Mayor John Mutton made use of the municipality's communications infrastructure for political purposes in the following ways: 1. Office telephone -The office telephone number was printed on the candidate's literature. Page~14 2. Municipality's fax - A fax was sent out asking for contributions to the candidate's campaign 3. E-mail -this mayor's municipal email address was printed on campaign advertisements / literature. 4. Political legal advice. The estimated cost for the use of these services is $500.00. Political advertising and usage of Municipality's infrastructure would constitute a contribution to the 2006 John Mutton campaign. However section 70(4) of the Act states that a municipality may not contribute to a candidate's campaign. Therefore Mr. Mutton's campaign should report a payable to the municipality in the amount of $3,067.00 ($2,567.00 for Mayor's Corner advertisements + $500.00 for use of communications infrastructure). The submitted campaign financial statements did not report these expenses and therefore failed to reflect the candidate's election campaign finances correctly. This represents an appazent contravention to sections 69(1)(k) and 78(1) of the Act. Page ~ 15 4.0 REVIEW -APPLICANT COMPLAINTS AND AUDIT FINDINGS The applicants suspected that, because contributors reported on Schedule 2, Part 2, of Form 5 shared similar addresses, perhaps associated contributors existed and contribution limits for individual contributors may be been exceeded. The compliance audit has revealed that 19 contributors to the 2006 John Mutton Campaign are associated into 6 corporate groupings. The applicants suspected that inventory from the candidate's 2003 mayoral campaign were used in the 2006 campaign and the expenses for these inventory items were not reported in the 2006 campaign return (Form 5). As a result of the compliance audit, evidence was provided that banners from the candidate's 2003 mayoral campaign were used in the candidate's 2006 campaign and that the cost of these banners were not reported on the 2006 mayoral campaign return (Form 5). The applicants claim that they observed the placement, throughout the community, of older John Mutton campaign signs with "re-elect" stickers applied to them. As a result of the compliance audit, evidence (not previously disclosed) showed that the 2006 John Mutton Campaign purchased 100 small and 20 large re-elect stickers. It was assumed that 100 small signs and 201arge signs from an older John Mutton campaign were used in the 2006 John Mutton campaign. The contribution and cost of the use of these signs were not reported on the 2006 mayoral campaign return (Form 5). The applicants suspected that the $6,587.00 amount reported as Victory Day Party /Appreciation Notices on the candidate's 2006 campaign return was too high and that this amount might include expenses improperly allocated to this category. As a result of the compliance audit, $4,000.00 in expenses were determined as improperly allocated to this expense category. The applicants alleged that the John Mutton 2006 campaign used a Municipal "Clarington, Leading the Way" banner at the back of the 2006 John Mutton campaign office and that costs for this item was not reported on the campaign return. No evidence was provided during the audit which could confirm the use of the alleged banner, so no banner was deemed to have been used. Page ~ 16 The applicants alleged that the "Mayor's Corner" advertisement paid for by the Municipality during the campaign period did promote the candidate and therefore the costs for these advertisements should be reported as campaign expenses of the 2006 John Mutton Campaign. As a result of the compliance audit, 10 "Mayor's Corner" articles were deemed as promoting the candidate and that the costs for these advertisements aze construed as "for use" in the 2006 John Mutton Campaign. The applicants allege that TV advertising paid for by the Municipality which included appearances of the incumbent candidate Mayor John Mutton promoted the candidate and that the costs for these televised broadcasts should be campaign expenses. As a result of the compliance audit the content of the televised video segments were deemed to not be political in nature and should not be considered as campaign expenses of the John Mutton 2006 campaign. The applicants allege that the Municipal website, paid for by the Municipality, promoted the incumbent candidate Mayor John Mutton during the campaign period and that the cost for this should be a campaign expense. As a result of the compliance audit the content of the 2006 municipal website was deemed to not be political in nature and should not be considered as campaign expenses of the John Mutton 2006 campaign. The applicants allege that 2006 incumbent candidate Mayor John Mutton used municipal communications infrastructure resources such as phone, email, fax and legal advice to promote his campaign and that this should be viewed as a contribution to the candidate's campaign. As a result of the compliance audit, evidence was provided which supported the claim. An estimated value for the cost of using these municipal services for the John Mutton 2006 campaign were calculated and recognized as an expense of the campaign. The applicants stated that "It doesn't seem fair that computers and the like bought with elections money" (from 2003 election) suddenly end up in someone's den and drop off the face of the earth". There does not appear to be a provision in the Act which prescribes the allocation of capital assets or inventory after a municipal campaign has come to an end. The following Table 6 summarizes all of the expenses subject to the limits both new and re- allocated of the campaign. Page~17 Table 6. Summary of Additional Campaign Expenses Subject to the limit not Previously Reported. Ex ense Descri tion Ex ense Amount Si ns $ 3,279.78 Banners oldinvento $580.00 Signs (old inventory) $860.00 Mis-cate orization of ex enses $ 4,000.00 Other matter $ 361.67 Munici alit of Clarin ton $ 3,067.00 TOTAL $12,068.45 A revised statement of income and expenses giving effect to these changes is provided in Appendix 1. It is to be noted that the total expenses subject to the limits on the revised statement of income and expenses amounts to $52,067.68. The limit on campaign expenses subject to the limit was set at $47,117.20. Exceeding the campaign spending limit is an apparent contravention to section 76(4) of the Act. Page ~ 18 5.0 AUDIT REPORT This Compliance Audit was performed in accordance with Canadian generally accepted auditing standards which require that I plan and perform the audit to obtain reasonable assurance that the information included in the Compliance Audit is presented fairly in all materials respect and in accordance with applicable law. Owing to the inherent limitations of an audit, error, fraud and other irregularities may not be detected by the application of procedures that comply with these standazds and with the limitations of the law. This now completes my engagement. I wish to extend my appreciation to the staff of the Municipality of Clarington, Municipal Clerk's office for their co-operation and assistance throughout the period of this Compliance Audit. I also wish to extend my appreciation to Election Finances International Inc. for the excellent research and investigative support provided for this compliance audit. Respectfully bmitted, Bernazd G. Nayy anG~ Chartered Accountant and Licensed Public Accountant Page~19 APPENDIX I -REVISED STATEMENT OF INCOME AND EXPENSES BOX E: STATEMENT OF CAMPAIGN PERIOD INCOME AND EXPENSES-REVISED FROM ,JANUARY 3, 2006 TO DECEMBER 31, 2006. FOR CANDIDATE Jahn INCOME Candidate's; Surplus. from immediately preceding election released by the. clerk ........................................................................ Contributions (from. schedule I)............_......._ ................._............. Fund-raising Functions (from schedule 2,.Part III) .......................... Interest income__......_.........__....._ .................._.............__....._.... Other (provide full details) Re-unbwsement of previous expenses ........................................... $ - 5$394.78 361.67 TOTAL CAMPAIGN PERIOD INCOME. A $ 52.756.45 ~~avu ~~ wni~~o ~~waw row :,~eacm scin snnae:m EXPF,NSES Accounting, audit 'J/A 2;000:00 2,000.00 Advertising 12,026.08 - 12,026.08 Bank charges - - Brochures 7,291.20 N/A 7,291.20 Flutd-raising expenses 1\rP. - - Inteiest on loans--: N/A - _ Irnentory con[riliu[ed to Candidate's campaign (from Schedule 3) 2,007.00 NIA 2,007.00 Meetings hosted 4,831.80 NiA 4,831.80 'Nomination filing fee N1A 200.00 200.00 Office expense 13,248.4] - 13,248.41 Recount expenses. N/A - Salaries & benefits 2,500 - ?sp0 Signs 10,193.19 NiA 10,193.19 noting day party! Appreciationnofices N/A. 2,587.50 2,587.50 Other (provide full details) - _ _ Telephone - - _ TOTAL.CAMPAIGN PERIOD EXPENSES 52 097 68 4,787.50 B $ 56,885.18 EXCESS (DEFICIENCl~ OF INCOME OVER.EXPENSES (A-B) C $ (4-128.731 Page~20 APPENDIX 2: SUMMARY OF APPARENT CONTRAVENTIONS Table 7. Summary of Apparent Contraventions # Destriction of A arent Contraventions Applicable Sections of the Act 'CONTRIBUTIONS 1 2 Associated Cor orations See Grou 1, Table 1 not re orted as sin le co oration. 71 1), 72 2 2 Associated Co orations See Grou 2, Table 1) not re orted as sin le co oration. 71(1), 72 3 3 Associated Co orations See Grou 3, Table 1 not re orted as sin le co oration. 71(1 , 72 4 2 Associated Co orations (See Grou 4, Table 1) not re orted as sin le co oration. 71(I ), 72 5 2 Associated Co orations See Grou 5, Table 1 not re orted as sin le co oration. 71 1 , 72 6 8 Associated Co orations (See Grou 6, Table 1 not re orted as sin le co oration. 71(1), 72 7 Contribution Limit Exceeded and not returned (See Grou 1, Table 1). 69(1)(m,n) 8 Contribution Limit Exceeded and not returned See Grou 2, Table 1). 69(1) m,n 9 Contribution Limit Exceeded and not returned See Grou 3, Table 1). 69(1)(m,n 10 Contribution Limit Exceeded and not returned See Grou 4, Table 1 . 69 1 m,n 1 I Contribution Limit Exceeded and not returned See Grou 5, Table 1). 69(1)(m,n) 12 Contribution Limit Exceeded and not returned See Grou 6, Table 1 . 69(1 m,n 13 Invalid Contribution - Panoz Motor S orts, $750.00 70 3), 69(1)(m,n) 14 Invalid Contribution -Marianna Develo ments, $ 750.00 70 3 , 69(1)(m,n) 15 Invalid Contribution -Durham Re ion Heav Construction Assoc., $300.00 70(3), 69 1 m,n) 16 Invalid Contribution - Phil/Elizabeth Litowitz, $ 750.00 70(3), 69 1 m,n) 17 Failure to re ort contribution of nods - si ns, car si s, stickers. $3,279.78 69(1) k , 78(1 18 Failure to kee record of contribution of nods - si s, car si ns, stickers. $3,279.78 69(1)(f) i-iv 19 Failure to re ort contribution of nods -banners from old invento $580.00 69(1)(k), 78 1) 20 Failure to kee record of contribution of oods -banners $580.00 69(1 i-iv) 21 Failure to re ort contribution of oods - si ns old invento $860.00 69(1)(k), 78(1 22 Failure to kee record of contribution of oods - si ns old invento $860.00 69(1 i-iv) EXPENSES 23 Failure to re ort si n ex enses - si ns, car si ns, stickers - $3,279.78 69 1)(k , 78 1 24 Failure to a for si n ex enses from cam ai n account - $ 3,279.78 69(1)(c 25 Failure to kee record of si n ex enses - $3,279.78 69(1)( 26 Failure to re ort si n ex enses use of old si invento - $860.00 69 1 k), 78 1 27 Failure to re ort banner ex enses from old cam ai n invento - $580.00 69(1)(k), 78 1) 28 Im ro er sal ex ense cate orization in Victo Pa cate or - $2,500.00 69 1 k , 78(l 29 Failure to kee record of sal reci Tents $500.00 ift cards). 69(1) 30 Im ro er rent ex ense cate orization in Victo Pa cate o - $1,500.00 69 1 k , 78 1) 31 Im ro er income reco ition - $361.67 from 2003 vendor refunds. 69(1)(k), 78 1 32 Failure to re ort Advertisin Ex enses - Ma ors Corner - $2,567.00 69(1)(k), 78 1) 33 Failure to re ort cost of Munici al services use as ex ense. $500.00 69(1 k , 78(1 34 Cam ai ex enses sub'ect to limit exceeded the limit 76(4) Page~21 APPENDIX 3 -List of Selected Mavor's Corner Articles # Title /Subject Publication Date 1 Hel to our Farmers Februa 8, 2006 2 Clarin on's 2006 Bud et March 22, 2006 3 Home Town of Sommer West Aril 15, 2006 4 Clarin ton's Financial Stability Aril 26, 2006 5 2006 Bud et - As it ertains to rovincial downloaded services May 3, 2006 6 New Nuclear Build Impact on Labour May 17, 2006 7 Bi1143 June 19, 2006 8 Provincial -Munici al Fiscal Imbalance Au ust 9, 2006 9 Hi hwa 401 Interchan es Au ust 23, 2006 10 New Nuclear Build im act on Labour Se tember 13, 2006 Page~22 APPENDIX 4 -Note on Form 5 Issue A Form 5 layout error occurred and is possibly present on all Form 5 reports submitted to the Corporation of the Municipality of Clarington during this past municipal election. The format of Schedule 1, Part 1 in Form 5 is not correct. Illustrated in Figure 1 below is Schedule 1 Part 1 from John Mutton's 2006 Form 5. The way that this schedule was constructed shows that John Mutton has paid or owes the Municipality of Clarington $47,475.00. This of course is not the case as this amount is actually the summation of all contributions received during the campaign period. Figure 1 -From the submitted Form 5 for John Mutton Campaign. SCHEBUt.~ 1 Part t - Cootributiars S From each single contributor totalling more than StQO (unless ni! complete Part 11) ...... ....... .. sr.zn o0 !.ties - Retumat or payable to the contrihtrror ............... .. (-- ) - Pant or -"' ar,ar7 oc pny~abtctatheclerk .................._,......_.... t______.~ ~ From eachsinglccontribatortotallingSlWorless .................... tseoo Less -- Retumat or dyable to the contributor .................. ~_-__. , - Paid or payable ro tfie slerk .......................~. tseso . L.____.._) ~- Tow! contriburions from Fusanymous sourers ... ........................ C _ Anmant of contributions paid ar payabla ra the clerk: A.B+C _ ..............._...,............,.....................,. a7,a75.0o The correct presentation of Schedule 1, Part 1 is illustrated in Figure 2 below. In this case there is a summary entry for total contributions to the campaign of $47,475.00, and no money paid to or owed to the Municipality of Clarington. This correct version of the schedule is in conformity with the provincial returns that are filed pursuant to the Election Finances Act, S.O. It is assumed that candidate John Mutton has filed Form 5 as provided by the Corporation of the Municipality of Clarington. Page ~ 23 Figure 2 -Correct version of Schedule 1, Part 1. scr~muLe t -roNrxleuTlavs Part t - Caatrkbtttiass I S From each siagtr coatributor totalling mare than S 1 tMD (an{css nil camplctc Part Il) ......,..... s,n7 Qa Less-Rewmedorpaysbletothteantnbtttar ................. ( _____~y - Paid or payable ro the ckr&-.- -- • . _ . _ .......... _ .... A (~-_ ) d~.zrt.m From each single caatribator totalling 5100 ur less ..................... t sam Less - Rctamed or paya#tlt; to the coaaibutoi .................. ( } - Paid or payable to the clerk .............................. ~ L_- _. ~ t9am Totat contributions ..... . ...... ...... .~.... , ............................... _. ¢7 ns.ao Total contributions from ananymous sources ........................ ... C Atrnaunt of conttilsttrians paid or payable ro the Clark: A+B+C ........... ..........,.. ,..,.................,............. Page~24 Report CLD-026-09 Attachment No. 2 to Report CLD-026-09 Excerpts from the Municipal Elections Act, 1996 SO• (1) A candidate is subject to the penalties listed in subsection (2), in addition to any other penalty that may be imposed under this Act, if, (a) he or she fails to file a document as required under section 78 by the relevant date; (b) a document filed under section 78 shows on its face a surplus, as described in section 79, and the candidate fails to pay the amount required by section 79 to the clerk by the relevant date; or (c) a document filed under section 78 shows on its face that the candidate has incurred eacpenses exceeding what is permitted under section 76. 1996, c. 32, Sched., s. 80 (1); 2002, a 17, Sched. D, s. 31 (1). Same The following penalties apply: 1. In the case of the defaults described in clauses (1) (b) and (c), i. the candidate forfeits any office to which he or she was elected and the office shall be deemed to be vacant, ii. until the next regular election has taken place, the candidate is ineligible to be elected or appointed to any office to which this Act applies. 2. In the case of the defaults described in clause (1) (a), the candidate is suspended without pay from any office to which he or she was elected until the document is filed and subparagraphs 1 i and ii apply if the candidate has not filed the document within 91 days after the last day the document was required to be filed under section 78. 2002, c. 17, Sched. D, s. 31 (2). -2- 92. (11 A corporation or trade union that contravenes any of sections 70 to 76 is guilty of an offence and, on conviction, is liable to a fine of not more than $25,000. 1996, c. 32, Sched., s. 92 (1). Same, individuals An individual who contravenes section 69 or 70 or any of sections 73 to 79 is guilty of an offence and on conviction is liable to a fine of not more than $5,000. 1996, c. 32, Sched., s. 92 (2). Additional penalty If the expenses incurred by or on behalf of a candidate exceed the amount determined for the office under section 76, the candidate is liable to a fine equal to the excess, in addition to the fine set out in subsection (2). 1996, c. 32, Sched., s. 92 (3). Limitation No prosecution for a contravention of any of sections 69 to 79 shall be commenced more than one year after the facts on which it is based first came to the informant's knowledge. 1996, c. 32, Sched., s. 92 (4). Offences by candidate A candidate is guilty of an offence and, on conviction, in addition to any other penalty that may be imposed under this Act, is subject to the penalties described in paragraph 1 of subsection 80 (2), if he or she, (a) files a document under section 78 that is incorrect or otherwise does not comply with that section; or (b) incurs expenses that exceed what is permitted under section 76. 1996, c. 32, Sched., s. 92 (5); 2002, a 17, Sched. D, s. 35 (1). Exception However, if the presiding judge finds that the candidate, acting in good faith, committed the offence inadvertently or because of an error in judgment, the penalties described in paragraph 1 of subsection 80 (2) do not apply. 1996, c: 32, Sched., s. 92 (6); 2002, a 17, Sched. D, s. 35 (2).