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Were the Liberal Party's finances "audited"? (part 1)

Click here for part 2

Currently the Quebec wing of the Federal Liberal party is embroiled in a corruption scandal. According to recent, yet unproven testimony, the Quebec wing systematically laundered money during its abuse of the sponsorship scandal. The Quebec wing has recently said that it cannot account for millions of dollars of illegal kickbacks that supposably were filtered through it. In response, the Liberal party hired two 'independent' public accounting firms to perform an 'analysis' of the their books based on the information that the Liberals allowed the firms to analyze.

On Sunday, April 10, 2005 during CTV's show "Question Period", MP Scott Brison mentioned that “its important to realize that Liberal party has co-operated fully...it was the Liberal party...that actually engaged (accounting firms) PriceWaterhouseCoopers and Deloitte to perform audits internally, those audits are and have been posted on the Liberal party website." Sure enough, buried deep within the Liberal.ca website I found the documentation provided by the two Accounting firms. They are as follows:

http://www.liberal.ca/pdf/report1e.pdf - PriceWaterHouseCoopers (PWC)http://www.liberal.ca/pdf/report2e.pdf - Deloitte

I have analyzed the so called 'audits' that the firms have recently performed on the Liberals books. The Liberals hired public accounting firms PriceWaterHouseCooopers and Deloitte to conduct these engagements. As a result of analyzing these statements what I found is quite interesting. The engagements focused on the Quebec wing of the Liberal Party's finances and also the Federal Liberals finances. Deloitte was in charge of the Quebec wing and PWC conducted the engagement on the federal Liberal party’s finances. In fact, these engagements are not audits but simply an analysis of parts of the Liberals finances that they asked the firm to analyze.

To start off, a financial audit is defined as the result of an independent accountant's review of the statements and footnotes to ensure compliance with generally accepted accounting principles and to render an opinion on the fairness of the financial statements."

The so called 'audits' that the Liberals had conducted on its own books in response to the sponsorship scandal are not technically an audit. They are considered a review whereby in this type of engagement, the public accountant does not perform all the procedures which, in his or her judgment, would be necessary in an audit or review engagement. Instead, he or she applies only those procedures requested by his or her client. Furthermore, in this type of engagement the public accountant does not render an opinion on the fairness of the financial information.

Two important things to consider before you read any further. The CICA accounting body, among other things, states the following guidelines, which in my opinion, are related to the topic at issue:

204.1 Assurance and Specified Auditing Procedures Engagements

A registrant who engages or participates in an engagement:
a) to issue a written communication under the terms of an assurance engagement; or
b) to issue a report on the results of applying specified auditing procedures;

shall be and remain independent such that the registrant and members of the firm shall be and remain free of any influence, interest or relationship which, in respect of the engagement, impairs the professional judgement or objectivity of the registrant or a member of the firm or which, in the view of a reasonable observer, would impair the professional judgement or objectivity of the registrant or a member of the firm.

And...

204.8 Disclosure of Impaired Independence

A registrant engaged in a public accounting practice or in any related business or practice, who provides a service not subject to the requirements of Rules 204.1 to 204.7, shall disclose any activity, interest or relationship which, in respect of the engagement, would be seen by a reasonable observer to impair the registrant’s independence such that the professional judgement or objectivity of the registrant, firm or member of the firm would appear to be impaired, and such disclosure shall be made in the registrant’s written report or other written communication accompanying financial statements or financial or other information and the disclosure shall indicate the nature of the influence


Let’s start with the Deloitte engagement:

Deloitte is a respected public accounting firm that has offices all over the world. The firm consists of individual offices that are linked together via a partnership structure. Therefore, each firm has autonomy in conducting its business while maintaining a relationship with the firm as a whole. In other words, if one individual firm conducts practices that are unethical, the whole firm is liable. According to the publicly released report, the individual Deloitte firm that conducted the Quebec wing audit is Samson Belair/ Deloitte & Touche of Montreal, QC.

According to Elections Canada, the firm Deloitte & Touche has donated a total of $427,233.90 to the Liberal party since 1993. However, of that amount, the regional office that conducted this ‘audit’ of the Liberals finances, Samson Belair/Deloitte, has donated $108,970.20 to the Liberal party since 1993. This same individual office did not donate any money to the Reform-Alliance party during the same time period and only 10,082.33 to the former Progressive Conservative party.

With regards to the specified auditing procedures performed on the Liberal Quebec wing financing, in my opinion, in accordance with the independence requirements for Chartered Accountants, this accounting firm has failed to remain independent such that the registrant and members of the firm shall be and remain free of any influence, interest or relationship which, in respect of the engagement, impairs the professional judgment or objectivity of the registrant or a member of the firm.

Furthermore, the firm did not disclose its donations on the written report that it produced for the Liberal party of Canada. As previously stated above, according to the CICA such disclosure shall be made in the registrant’s written report or other written communication accompanying financial statements or financial or other information and the disclosure shall indicate the nature of the influence, interest or relationship which, in respect of the engagement, impairs the professional judgment or objectivity of the registrant or a member of the firm or which, in the view of a reasonable observer, would impair the professional judgement or objectivity of the registrant or a member of the firm.”

In my opinion it is reasonable to assume that an individual firm with a past history of material (large) donations to the Liberals, and none to the opposition, may have had its professional judgment impaired. By failing to disclose this information on the report provided to the Liberal party, and available to Canadians via the party website, the credibility of this report is severely impaired. Although this report was initially private, and therefore this disclosure may not be required, the firm should have revised the documents to include this information at the point of time it was made public.

The nature of this engagement is so the Liberal party of Canada can tell Canadians that it has had its books ‘audited’ by an external auditor. The recent sponsorship scandal has been linked to the Liberal party and its finances. However, in this engagement report, Deloitte writes that the report only analyses encashed contributions from - and disbursements made to advertising and communications agencies. More specifically, this engagement is only analyzing the parts of the Liberals finances that the Liberals asked them to analyze at the discretion of the party, and nothing more. By using the accounting data provided by the Liberals, Deloitte only compared the payments made and received in the books to the amounts deposited and removed from the bank accounts that they were given access to by the Liberal party. Likewise, the report only analyzes the information of four bank accounts, at a single bank, which were provided at the discretion of the Quebec wing.

Furthermore, Deloitte relied on financial information from public sources as well as those received from the Liberal Party Quebec wing and also the federal party. The party also provided Deloitte with a file containing a detailed list of receipts issued for contributions encashed by the Quebec wing. Though, it clearly states that the firm solely relied on the [Quebec wing] for the accuracy and completeness of the files. However, can we honestly assume, given the nature of this scandal and the Quebec Liberal wing’s past attempts of covering it up, that the Liberal party honestly and fully provided the accounting firm with every possible bit of information needed? Its past actions and current corruption acusations would lead a reasonable bystander to assume no. The report also states that Deloitte “could not identify contributor names from some supporting documents…and the unidentifiable ones could not be listed (accounted for in the report). This unidentifiable amount was $51,107.

Finally, as stated in the report, the analysis provided by Deloitte analyzes data of only the encashment and disbursements that passed through the [specified] bank account that was provided by the Quebec wing of the liberal party and that were accounted for in the Quebec wings records. Transactions that failed to meet these conditions were not included the report. Furthermore, federal liberal party transactions were not included in this report.

This audit does nothing to exhaustively investigate the Quebec wing of the Liberal party’s finances. Because this was not an audit, the accountant does not have to give an opinion on the fairness of the report, just the fairness of the work done within the scope of the clients’ engagement request. In my opinion, the credibility of this report is severely undermined due to the firm’s failure to disclose its past material financial donations to the client in question.

Furthermore, the individual firm, Samson Belair/ Deloitte that performed this work, has made material donations only to the Liberal party; this possibly impairs the firm’s professional judgment and impartiality. If the Liberals want to be 100% honest then the party should hire accountants that have no prior relationship with the Party and perform a FULL AUDIT whereby the firm can provide an honest opinion, based on all information, no just information provided at the discretion of the party.

For legal reasons, I am in no way implying that the accounting firm Deloitte assisted in intentional misconduct with the Liberal party. Deloitte is one of the largest firms in the world and it has become so because of its honesty and integrity. All I am stating, is in my opinion, the credibility of this report has been jeopardized due to the regional office’s past history with the Liberals and its failure to disclose this history on this publicly released report. My opinion is only that of mine and my view as pertains to ethical guideline information publicly available from accounting bodies. This opinion is not endorsed by the accounting bodies referred to in this post nor is this written by a member of the stated bodies. The writer of this post assumes no liability to opinions stated in this post because it is a matter of opinion, not professional judgement; nor is it represented by any accounting associations, institutes, or bodies thereof.

Part 2 – the PWC ‘audit’ – coming soon.

Written by:

M.K. Braaten

Related CTV Story on Scott Brisons Inverview (click)

Update...it looks like the Lib's are going to try and run on this audit claim (click)

Following are the donations:


Deloitte & Touche
1993
Business
LiberalPartyofCanada
13366.14

Deloitte & Touche
1994
Business
LiberalPartyofCanada
2136.56

Deloitte & Touche
1995
Business
LiberalPartyofCanada
34782.77

Deloitte & Touche
1996
Business
LiberalPartyofCanada
25649.24

Deloitte & Touche
1997
Business
LiberalPartyofCanada
32943.02

Deloitte & Touche
1997
Business
LiberalPartyofCanada
628.48

Deloitte & Touche
2000
Business
LiberalPartyofCanada
42885.02

Deloitte & Touche
2002
Business
LiberalPartyofCanada
20101.29

Deloitte & Touche
2004
Corporation
LiberalPartyofCanada
250

Deloitte & Touche LLP
2001
Business
LiberalPartyofCanada
7612.23

Deloitte & Touche LLP
2003
Business
LiberalPartyofCanada
544

Deloitte & Touche Tohmatsu
2001
Business
LiberalPartyofCanada
24005.2

Deloitte Touche
1998
Business
LiberalPartyofCanada
43657.9

Deloitte Touche Tohmatsu LLP
2003
Business
LiberalPartyofCanada
69701.83

Samson Blair Deloitte & Touche
1993
Business
LiberalPartyofCanada
4431.58

Samson Blair Deloitte & Touche
1994
Business
LiberalPartyofCanada
8485

Samson Blair Deloitte & Touche
1996
Business
LiberalPartyofCanada
8372.36

Samson Blair Deloitte & Touche
1997
Business
LiberalPartyofCanada
10118.26

Samson Blair Deloitte & Touche
2000
Business
LiberalPartyofCanada
39855.38

Samson Blair/Deloitte & Touche
1995
Business
LiberalPartyofCanada
7707.63

Samson Blair/Deloitte & Touche, S.E.N.C.
2003
Business
LiberalPartyofCanada
30000

Total Sum
427233.9
Total Sum From SamsonBlair
108970.2

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4/10/2005 05:55:00 PM

Matt:

How much was Deloitte paid for the Audit? I think that the validity of the audit has more to do with the fact that it is based on select data - not the donations by Deloitte to the Liberals. However, this is very, very interesting.    



4/10/2005 06:51:00 PM

Wow, powerful stuff. Do you think the CBC will cover this? Will pigs fly?    



4/10/2005 11:20:00 PM

I hope you don't work all night on the PWC report. Have you tried to contact anyone at Deloitte or PWC about this? Careers could be destroyed over stuff like this.    



4/10/2005 11:50:00 PM

hahah leaves a threat and doesnt leave a name, sounds like a member of the liberal party stopped by    



4/11/2005 06:40:00 AM

You've got to be kidding me. Now the accounting firms are not to be trusted? This is extreme paranoia.    



4/11/2005 09:08:00 AM

I'm familiar with canadian leadership at one of the firms in questionan and will pass along these concerns and see if the report could be withdrawn.

As for the donations... The firm's individual partners are from across the political spectrum (though many have been convinced of tories are scary meme). In there role of providing a lot of services to government they are vulnerable to pressure to donate, further exacerbated by the highly regulated nature of the industry and a recent bad patch for accountants (enron, sarbanes-oxley).

The reputational risk of providing a partial repirt is serious and will be dealt with. The firm in general has no desire to whitewash for the liberals (big offices out west and a large financial institution practice that creates a dislike of liberals.    



4/11/2005 11:23:00 AM

Regarding the CBC coverage: I've seen the CBC cover such important events as "Cookie Monster cuts back on his favourite food" (http://www.cbc.ca/story/arts/national/2005/04/08/Arts/cookie050408.html)

So perhaps it is conceivable that they might cover evidence of impartiality in Canadian politics.    



4/11/2005 05:04:00 PM

All levity aside it is important to note that the accounting firms seem to have done what they were asked to do: Express an opinion. Prepare a 'report'. They did not conduct an audit.
This lets them off the hook legally and as can be seen quite clearly the Liberals are cynically and deliberately using this as a tool to misconstrue and misinform. What does that tell us about their integrity AND their intentions.    



4/11/2005 05:34:00 PM

This comment has been removed by a blog administrator.    



4/14/2005 10:46:00 AM

To the guy that's worried about people losing their jobs. Maybe they shouldn't have participated in the fraud in the first place, then their jobs wouldn't be in jeopardy. But maybe that's a little hard to comprehend. Hmmmmm???    



10/27/2005 05:12:00 PM

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