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Former justice of the Supreme Court of Canada Thomas Cromwell is invested as a Companion of the Order of Canada during a ceremony at Rideau Hall in Ottawa on March 14, 2019.Justin Tang/The Canadian Press

A governance review commissioned by Hockey Canada has found its handling of the National Equity Fund was flawed, the organization didn’t properly disclose the fund to parents, players or its membership, and it didn’t have sufficient procedures in place to govern how the money was used.

The review by retired Supreme Court justice Thomas Cromwell found that while having a fund to cover uninsured liabilities was not in itself an issue, the way Hockey Canada administered and deployed the National Equity Fund (NEF) – with minimal disclosure and control over the money – was wrong.

In a 108-page interim report released publicly on Thursday, Mr. Cromwell said Hockey Canada was not transparent and did not exercise proper oversight of the reserve, which was built using registration fees from parents and players across Canada and used to settle sexual-assault claims.

“Participants, whose registration fees are the primary source of funding for the NEF, have not been adequately informed,” the report said.

The governance review confirms the details of a Globe and Mail investigation in July that revealed the lack of transparency surrounding Hockey Canada’s use of registration fees for sexual-assault claims, including the settlement of a $3.55-million sexual-assault lawsuit this year, which Hockey Canada had not disclosed.

“Hockey Canada has no written policy governing the NEF,” Mr. Cromwell said in the review. “Questions arise regarding what role the fund actually plays.”

The review called for the problem to be fixed: “Hockey Canada should establish such a policy, with a particular focus on where funds are collected, how they are and can be used, what types of approvals are needed to use the funds, and how Hockey Canada must report to the board, members, participants, and the public when it uses the NEF.”

Amid calls for Hockey Canada leaders to resign, Mr. Cromwell sent a letter to the board Monday saying urgent action was needed, and it was unrealistic to think that criticism from MPs in Ottawa, major sponsors and the public “are just a passing media frenzy.”

“To ensure effective and continuous governance, these calls must be answered,” Mr. Cromwell told Hockey Canada. The next day, chief executive Scott Smith departed and the members of the board announced their resignation.

Mr. Cromwell said Hockey Canada did not share sufficient information on the intent of the National Equity Fund, or about claims it was used to settle, with Hockey Canada’s provincial members. Some of those members appear to have been taken aback by its use for recent sexual-assault claims, and questioned whether that was acceptable.

“Some members noted that they knew the NEF served to respond to historic claims,” such as sexual-abuse settlements related to disgraced coach Graham James in the 1990s. But those members told Mr. Cromwell they did not think it would be used for “protecting predators going forward, as they put it.”

The Globe and Mail first reported in July that Hockey Canada used the National Equity Fund, which is made up of player registration fees, to settle a $3.55-million lawsuit from a young woman who alleged she was sexually assaulted by several players, including members of the 2018 national junior team.

Hockey parents and players across the country were upset to learn their fees had gone toward the sexual-assault settlement without being told how their money was being used. MPs on a parliamentary committee investigating Hockey Canada’s handling of the alleged sexual assault have accused the organization of using the fund to help cover up the incident.

Though Hockey Canada was quick to reassure major sponsors and the government in June that no corporate or federal money went toward settling the claim, it did not tell parents and players that registration fees were ultimately used for that purpose. The lawsuit was settled for an undisclosed sum.

The Globe and Mail investigation found the organization did not disclose details of how the National Equity Fund was used, either in its financial statements or in the annual report, and very little transparency existed about its operations.

A subsequent Globe and Mail investigation last week revealed Hockey Canada created a second multimillion-dollar fund, also fed by registration fees, to shield its various branches from sexual-assault claims, without telling parents and players. The second fund, known as the Participants Legacy Trust Fund, was created “for matters including but not limited to sexual abuse,” according to Hockey Canada documents.

The investigation found the Legacy Trust Fund, which was set up to fund uninsured claims prior to 1995, before Hockey Canada began buying insurance for sexual assault, was not governed by formal policies protecting how it was used.

The Globe reported that the trust had not been used to settle any claims to date, but existed as a reserve for sexual-assault claims. Hockey Canada and its membership went to court in Alberta in 2019 to have it extended until 2039, saying that future claims are expected.

Hockey Canada has maintained that the funds were merely part of its risk-management strategy, but Mr. Cromwell’s report indicates the way it operated those reserves was not acceptable for an organization practising good governance.

“Merely carving out and labelling a portion of an organization’s net asset balance a ‘reserve’ does not constitute a best practice reserve,” Mr. Cromwell wrote. “Instead, an organization’s reserve fund should be a distinct pool of net assets that an organization manages to achieve a specified set of objectives.”

Mr. Cromwell also raised concerns about how the second fund was operated. “Hockey Canada has no formal policy governing the Legacy Trust,” the report said.

The review noted an “absence of policies or procedures governing the purposes or functions” of both the National Equity Fund and the Participants Legacy Trust Fund.

“This is problematic because members have no written documentation or source informing them” how the funds are operated, he said. “In other words, there is no set standard, such as a published policy, and therefore members have little information available to them to assess the appropriateness” of how Hockey Canada’s board handles sexual-assault claims, the report said.

After the Globe investigation, Hockey Canada officials revealed during testimony in July that the organization had paid $8.9-million to settle 21 cases of alleged sexual assault since 1989. Of those, nine settlements totalling $7.6-million were paid out of the National Equity Fund.

Mr. Cromwell’s review found at least six instances where Hockey Canada failed to disclose to its members settlements from the fund that exceeded $500,000, which its internal rules required it to do.

Last week, Minister of Sport Pascale St-Onge criticized Hockey Canada for treating sexual-assault as an insurance problem rather than a systemic issue that should be confronted. The fallout from the controversy has shaken the sport’s governing body. Hockey Canada interim board chair Andrea Skinner stepped down on Saturday. On Tuesday, the board of directors announced they would resign and that Mr. Smith had departed the organization.

Mr. Cromwell’s letter had noted the problems and told them the deepening crisis needed immediate attention.

“In my view, urgent and decisive action is necessary,” Mr. Cromwell said in a memo released by Hockey Canada along with the interim review.

“There can be no serious debate that the level of confidence in Hockey Canada on the part of government, sponsors, some members, and the broader public has sunk to dangerously low levels,” Mr. Cromwell told the board.

“The leadership of the organization has lost the confidence of important stakeholders. Elected officials, including the Prime Minister, the Minister of Sport and some parliamentarians, along with some members, sponsors and many other parties, have called for wholesale change of leadership,” he wrote.

Mr. Cromwell made several recommendations, including that the current directors resign but remain in their posts until a new board can be elected at the next annual meeting on Dec. 17.

The new board should be considered a transition board, he suggested, and only serve one year. It should work to implement governance changes Mr. Cromwell said he will outline in a forthcoming final report later this month. The transition board should also set its mind to mending relationships with stakeholders and sponsors, who pulled their support amid the controversy, he said.

Mr. Cromwell also called for changes to the board structure to improve oversight and diversity of viewpoints, including increasing the number of directors to 13, from nine, and ensuring that no more than 60 per cent of directors are of the same gender. He recommended Hockey Canada hire a top recruiting firm to find new directors with a revised set of skills, and that this be done openly.

“As a first step towards rebuilding confidence in Hockey Canada, it will be critical for the transition board to conduct the recruitment process for new directors in a transparent and independent manner,” he said.

Hockey Canada said in a statement that the recommendations provide important guidance as the organization looks to reshape itself.

“Hockey Canada has heard from many Canadians, including members, players, parents, and corporate partners, that change is necessary to make hockey a safer environment for all participants,” the statement said.

“We remain fully committed to making the changes necessary to regain the trust of Canadians and address systemic issues in and around Canada’s game.”