A massive fraud by a single employee is at the heart of a financial crisis that nearly drove a historic Nova Scotia town to dissolution, a forensic audit shows.
The community of Bridgetown, a former shipbuilding centre in the Annapolis Valley that has suffered decades of decline, made national headlines in the summer when the entire council resigned due to overwhelming financial problems.
The province took over the money-losing town and called in auditors to probe Bridgetown’s books. In a report released Wednesday, the auditors alleged that shoddy and deceptive bookkeeping allowed an employee to divert $113,000 over a number of years.
RCMP lead investigator Constable David Fairfax said they received the auditor’s report a few weeks ago and are treating it as one part of a broader probe.
“Probably by Christmas, we should have our investigation completed,” he said from Bridgetown. “Depending on the totality of the investigation, we could be looking at any number of charges.”
These are woes piled on a town which was suffering already. The tax base has long been dwindling – the seniors’ home is the biggest employer and the population of under 1,000 is roughly the same as at incorporation 114 years ago. Last year’s budget was only $1.7-million.
“How this was overlooked by council for so long is hard to understand,” said local entrepreneur Kris Humphreys, owner of Off The Fossil Energy. “The most unfortunate are the town residents that have had ongoing errors in their accounts. This frustration within a community erodes confidence in the town's administration.”
The auditor’s report offers no discussion of motive and does not name the employee alleged to be responsible, citing the ongoing investigation, but states that the person admitted to fraud.
“The misappropriation at the Town of Bridgetown started as early as 2006, possibly earlier, and continued to May 2011,” the auditors allege.
That would mean the alleged fraud continued through the departures of the town’s finance manager and chief administrative officer, both of whom left in 2010, ending only when council members threw up their hands and quit early this summer.
At the time, the town was abuzz with rumours, shocked that the financial situation had become so precarious. The scale of the problems was jarring and there was talk of the community being swallowed up by a nearby municipality.
“Every time we go down through [the books] something else comes up as a problem,” lawyer John Cameron, who had signing authority for the town during the immediate aftermath of the council resignations, said in an interview at the time. “If the money that’s not there should’ve been there, where is it? We don’t know.”
The report released Wednesday offers some answers to that question, uncovering a bookkeeping mess in the small town, which lost nearly a quarter million dollars over the past five years.
The auditors said that an employee took advantage of existing loopholes and benefitted from a conversion to a new accounting software system.
“The decision was made to forgo formal staff training [on the new software] and rely on on-the-job training, which in hindsight was inadequate,” the auditors found. “With the resignations of the finance minister and the CAO, the employee responsible for the misappropriation seems to have been the most knowledgeable about the system and was frequently the ‘go to’ person.”
Red flags finally went up in May of this year, when a local bank branch notified the mayor of irregularities. An external consultant found “multiple cash and cheque payments” in the town’s books that had not been deposited in the bank. The investigation snowballed and the council eventually resigned, arguing this would force the province to pay for a forensic audit the town could not afford.
The provincial government noted Wednesday that Bridgetown had submitted an insurance claim to try to recoup lost monies and had crafted a five-year plan to pay off their deficit.
“When we arrived in Bridgetown five months ago, there was an understandable sense of confusion and frustration,” Bob Fowler, appointed mayor by the province, said in a statement. “With the release of the forensic audit, we can now focus on the future.”