Full audit of Ford's campaign expenses ordered

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City council's compliance audit committee unanimously voted Friday to order a full audit of Rob Ford's campaign expenses, marking the first time a sitting City of Toronto mayor has had to undergo this kind of scrutiny.

The decision came in response to allegations that provincial elections laws were breached, made earlier this month by Toronto residents Max Reed and Adam Chaleff-Freudenthaler in a 17-page filing. None of the allegations have been proven. In their requests for a compliance audit, they alleged that Mr. Ford may have exceeded his statutory spending limits and relied on unorthodox financing arrangements – the Ford family's holding company paid over $77,000 in early campaign expenses.

Three requests for an audit were filed in response to a Globe and Mail investigation into the mayor's campaign filings. One was withdrawn and the committee deemed the other to be moot.

Mr. Chaleff-Freudenthaler, who ran unsuccessfully in last year's election as a school trustee, said there could be "very serious consequences" if the audit concludes the mayor ignored the rules. "I think the entire gamut of consequences should be considered," he told reporters after the morning-long session.

Adrienne Batra, Mr. Ford's spokeswoman, said the mayor has said previously that his campaign acted in accordance with the rules and welcomes the scrutiny.

Other members of council preferred to duck questions about their response to the news. "I have no other reaction than 'wow,'" said Josh Matlow (St. Paul's).

Mr. Ford's lawyers now have 15 days to apply for a judicial review of the committee's decision. "It is an option that has been exercised in a number of these cases," Thomas Barlow said. Ms. Batra said the mayor hadn't yet been briefed on the committee's decision and couldn't say whether he'd fight the audit in the courts.

The city will pick up the tab for the audit, but Mr. Ford, and not his campaign organization, must hire lawyers and accountants out of his own pocket.

The two-hour meeting frequently had the feel of a judicial proceeding as lawyers for both the mayor and the applicants debated fine points of election and procedural law, and submitted to grilling by the three-person committee.

After Mr. Barlow failed to have the audit requests pushed off for several months, the committee members focused intensively on the role played by Doug Ford Holdings Inc., the federally incorporated holding company that owns the family-owned printing company Deco Labels and Tags.

DFH, whose four shareholders include the mayor, his two brothers Randy and Doug, and their mother, paid for several costly expenses early in the race, including Mr. Ford's kick-off event at the Toronto Congress Centre.

According to documents prepared by Mr. Barlow, the campaign repaid the $77,722.31 owed to the firm on March 25, 2011, which was also the date when the campaign organization reimbursed Mr. Ford himself for the $200 nomination fee.

Mr. Barlow said DFH was simply a campaign vendor and subcontracted other services. Like other suppliers to Mr. Ford's election bid, DFH had to wait to be repaid until the campaign erased its deficit earlier this year, he added.

Stephen Chan, who is Deco's chief financial officer and also served as the campaign's CFO, told the committee that DFH owns and manages a portfolio of real estate and also functions as an investment firm. Both he and Mr. Barlow said the holding company relied on its network of business contacts to help get the campaign going. Mr. Chan also claimed that DFH, because of its size, was able to negotiate better prices on some supplies, including printing expenses.

But while Mr. Chan said he's worked for Deco for 10 years, he acknowledged in response to questions from the panel that he didn't know if DFH had played a similar role in Mr. Ford's three previous campaigns for council.

The committee members questioned the Ford camp's characterization of DFH's role. They wanted to know how the company, if it had been acting as a supplier, would not have applied a mark-up or charged interest on outstanding receivables. "I've never seen a vehicle such as this used," said chair Douglas Colbourne, an accountant and former Ontario Municipal Board member.

Committee member John Hollins, who once ran Elections Ontario, pressed Mr. Barlow to explain whether there was any kind of a formal arrangement between the campaign and DFH. "Where was the decision-making taking place?" he asked, adding that it appeared to him as if DFH was "just a through-put of cash. I could be wrong. Maybe this is very different."

Noting that DFH took "verbal direction" from the campaign organizers, Mr. Barlow also said the companies subcontracted by DFH to provide campaign services were paid by DFH, not directly by Mr. Ford's election team.

According to the Municipal Elections Act, one of the duties of a candidate is to ensure that "all payments for expenses, except for a nomination filing fee, are made from the campaign accounts."

The clerk must now hire an auditor through an open procurement process. Under the MEA, the auditor is entitled to scrutinize all of the campaign's accounts, and has the same legal authority as a public inquiry.

After the external review is complete, the auditor will make a recommendation to the committee about how to proceed. The committee then has the right to commence legal proceedings if warranted. The penalties for breaking municipal elections laws run from fines to being barred from seeking public office.

Special to The Globe and Mail

Backgrounder

Who makes up Toronto's compliance audit committee?

Douglas Colbourne, the chair, is a chartered accountant and arbitrator who held the post in the last council, as well as for the Toronto District School Board. He is also a planner and served for several years as the chair of the Ontario Municipal Board.

John Hollins ran North York's elections office for a decade and then took over with the amalgamated city in 1998. From 2001 to 2008, he served as CEO of Elections Ontario, during which time he helped build a permanent electors registry.

Virginia MacLean, a veteran municipal affairs lawyer who practises in Oakville, has worked in legal services for the provincial government and the City of Mississauga. She also serves on the compliance audit committees of other municipalities, including Oakville, Aurora, East Gwillimbury, Georgina, Richmond Hill, Whitchurch-Stouffville and the Township of King.

Who can request an audit?

Any registered elector can request a compliance audit, which means the process has often served as a second front for simmering political rivalries, so much so that Queen's Park recently changed the rules. The committee, not council, decides whether to commence legal action against a candidate, based on the findings of the external auditor. The committee's decisions can be appealed to a Provincial Court.

Have other GTA politicians undergone compliance audits?

Challenges to mayoral campaigns are not unheard of. In 1996, former City of Toronto mayor Barbara Hall faced calls for a compliance auditor over allegations that her 1994 campaign had received thousands of dollars in undeclared donations from the members of a local trade union. The complaints didn't lead to an audit.

In 2007, the committee rejected a request for an audit of then-mayor David Miller's campaign. Vaughan's former mayor, Michael Di Biase, faced an audit in the wake of a bitter 2006 election fight with Linda Jackson, who was also subject of a probe into her campaign finances.

Perhaps the most high-profile compliance audit case involved former Hamilton mayor Larry Di Ianni, a challenge that ended up in the courts in 2005. In that case, a voter asked for a compliance audit of several candidates in the 2003 election, including the mayor. The allegation focused on "over-donations" by several corporations who contributed more than the $750 allowable amount to Mr. Di Ianni's campaign.

Under the rules that existed at the time, Hamilton Council had to approve a compliance audit request, but refused, prompting the trial judge to later remark that the politicians didn't want to be seen to be standing in judgment of their colleagues.

Council's decision was appealed to an Ontario appeal court, which ultimately ordered the City of Hamilton to conduct the audit. Mr. Di Ianni eventually pleaded guilty to violating the Municipal Elections Act.