Tire recycling agency punctured by audit
System that brings in $70M in eco fees a year poorly controlled, invites ‘manipulation’: report
Ontario’s multimillion-dollar tire recycling system is rife with problems that invite “manipulation” of large sums of money collected from consumer eco fees, an audit has found.
“The current system appears to us, from what we saw so far, to be loose, and too inviting for manipulation,” according to an audit into the adequacy of financial con- trols at the provincially created agency.
“The dollars are too large not to receive priority attention.”
According to the report, the Ontario Tire Stewardship has limited control and oversight of the $70 million in eco fees contributed annually by consumers who pay recycling fees each time a new set of car or truck tires is purchased.
But the organization that oversees the stewardship on behalf of the province says the audit did not go far enough. Waste Diversion Ontario wants a full “forensic” audit of the stewardship.
“Accountability and transparency of consumer money — and these are significant sums of money — is imperative,” said Michael Scott, CEO of Waste Diversion Ontario, which oversees all provincial recycling programs including those for electronic and household hazardous waste.
The eco fees contributed by the public are supposed to be used to properly recycle waste.
The 22-page audit, done by Toronto firm Rosen and Associates, concluded there were financial problems, but the document notes it was not given the time or the access to documents to delve deeply into key issues.
“This is clearly not a forensic audit,” Scott said.
Problems at the tire stewardship were raised publicly in Toronto Star stories in January and February. There were allegations of improper spending on dinners and trips, and an allegation that a former chief financial officer stole $346,565. A second review, this one by PriceWaterhouseCoopers, is probing the stewardship’s spending practices.
The Star obtained a copy of the report, called “Partial Evaluation of Controls.” In the document, auditors said that the short amount of time they were allotted prevented them from answering numerous questions and accessing information related to, among other issues, the alleged fraud. No one from Rosen and Associates responded to the Star’s interview request.
The tire stewardship was set up in 2009 under old Ontario waste management laws, and last year collected 140,000 tonnes of tires. When you buy a set of tires for your car, you pay a $3.55 eco fee for each tire; that money trickles down to the stewardship for recycling programs. A previous Star investigation found the stewardship spent some of that money on expensive dinners, alcohol, luxury board retreats — and $4,200 in donations to the Ontario Liberal party.
After the Star stories, the tire stewardship executive filed a lawsuit against the former CFO, Perminder Kandola, alleging he stole money by creating a bogus stewardship bank account called “Ontario Tire Account.” That led to the audit. Kandola’s lawyer, Scott Hutchison, would not comment.
Auditors said their “prime concern” was the stewardship’s expenditures and they found the financial tracking system lacking.
“Misinterpretations and misconceptions could easily occur because descriptions in (stewardship) financial statements are not complete, or adequate,” it read. “It is not clear exactly what is being measured, and for which purposes.”
It also singled out the stewardship executives’ reaction to ongoing problems with inadequate tracking of tires that are collected.
The report hints at serious issues relating to how tires are collected for recycling, but does not give specific details. At one point auditors note that “the senior people at (the stewardship) have to show leadership.” Immediately after this, the auditors state: “The ‘word’ that an organization permits double payments to financial tricksters can spread quickly to others, who then test the system and cause difficulties.”
Auditors couldn’t examine the alleged 2012 theft because they didn’t have access to documents that “might be relevant.” That meant a “comprehensive analysis of the alleged theft was not completed, so as to render a thoroughly-investigated opinion.”
None of this sits well with Scott and his board of directors at Waste Diversion Ontario. The conflict between the stewardship and its oversight authority appears headed for a showdown.
The tire stewardship is publicly refusing the authority’s demand for a full-scale forensic audit run by its legal team.
Executive director Andrew Horsman told the Star he’s willing to “partner” with Scott’s office on a new audit that focuses on “areas where potential risk of employee fraud exist.”
But employee fraud is too “narrowly focused,” Scott said.
“Given the importance of the program and the importance of maintaining public trust, we’ve now moved to the point where a full independent forensic audit must be undertaken,” Scott said.
His office is now planning to hire auditors — without an agreement from the office they will be investigating.
However, the waste authority doesn’t have the power to force its wishes on the stewardship.
A more powerful enforcement office will be created once Environment and Climate Change Minister Glen Murray’s new Waste Free Ontario Act, which passed yesterday, becomes law. That could happen in the fall or be delayed until 2017.
The new law will — eventually — dissolve Ontario’s recycling programs, which critics have said operate like cartels. But the manufacturers and retailers of recyclable products, like tires, will be allowed to voluntarily continue working together and charge upfront recycling fees to consumers.