An inquiry must include a forensic audit of Nalcor Energy, many argue.
Premier Dwight Ball’s recent announcement that his government will call an inquiry into the controversial Muskrat Falls hydro project is being met with skepticism from critics who say the effort will be ineffective if it is not done right.
For months residents, experts, politicians and pundits have called for an independent inquiry into the embattled megaproject, which is two years behind schedule, double the initially estimated cost, and threatens Indigenous communities’ traditional food source and way of life. Many of those same voices have also argued for a forensic audit of Muskrat Falls proponent Nalcor Energy, and for an independent review of the North Spur.
Dozens in Labrador—mostly Indigenous people—have been charged criminally after trying to halt the project as a last resort means of self defence after successive Progressive Conservative and Liberal governments failed to adequately address environmental and human health concerns.
Neither Nalcor nor the government have provided substantial evidence to prove that completing the project is in the province’s best interest.
Earlier this year Ball changed his tone on an inquiry, eventually agreeing that one is warranted but that it would have to wait until after the project is complete to avoid causing further delays.
Then, at a Sept. 28 $500-a-plate Liberal Party fundraiser, the premier acquiesced, this time announcing to Liberal elites and party supporters that an inquiry will be launched this fall.
While the announcement has appeased some, trust in the provincial government and what many describe as a “rogue” crown corporation has many — particularly those living downstream, whose lives and livelihoods are threatened by the project’s continuation and completion — feeling skeptical of any meaningful change.
In an Oct. 2 post on his widely read Uncle Gnarley blog, political commentator and businessman Des Sullivan argued that four criteria must be met for the inquiry to be effective in addressing the countless concerns surrounding the project.
“The critical part here is not even that we’ve been promised a judicial inquiry, but that we have the right inquiry,” he told The Independent in an interview this week.
First, Sullivan argues, Nalcor cannot have any influence in the drafting of the inquiry’s terms of reference.
“These are the people now under investigation,” he said. “They have been allowed to stay in their roles and to continue operating the project — but they’re under investigation, and they’ve got to step back from the process of an independent inquiry.”
Second, Sullivan said, while it may be an obvious requirement it should not be taken for granted that an effective inquiry should fall under the Public Inquiries Act, which “outlines the power of a commissioner to subpoena witnesses and to cross-examine witnesses under oath.”
Third, the inquiry must have a broad scope in order to investigate the “very large number of issues” around Muskrat Falls, Sullivan told The Independent.
“There’s not a single plank or premise of the Muskrat Falls project that has not been debunked in some fashion,” he added, citing alleged estimate falsifications, erroneous electricity demand estimates, “misrepresentations” of the anticipated revenues from export power, the “nonsense” $2.4 billion figure presented as the interconnected option advantage that was “contrived,” he says, “in the interest of getting sanction,” the water management agreement with Churchill Falls (Labrador) Corporation, and the former promise that Holyrood generating station would be decommissioned, to name a few.
Sullivan says the inquiry should go all the way back to 2006, “when Nalcor and the government employed SNC Lavalin, gave them the front end engineering contract and told them to design the financial strategy to secure development.
“This terms of reference has got to be an all-encompassing thing that allows a judge to look at a wide variety of issues, including the North Spur and methylmercury, and the agreements with Nova Scotia and why this project was allowed to proceed, the [Nova Scotia Utility and Review Board] not having signed off on the deal with Nalcor and Emera, which led to a supplemental agreement and essentially more giveaways.
“The bottom line is that a judge has got an awful lot to assess,” he continued. “He needs to be given the authority to start the [inquiry] soon, he needs to secure the documentation, and he needs a scope large enough so that there is no impediment to him considering any issue he deems important.”
Finally, Sullivan argues, the inquiry must be adequately funded.
“It’s one thing to have a good inquiry given good powers and given a broad scope, but it also needs adequate financial resources. That’s absolutely essential because you have to fund professionals, including a forensic auditor, to evaluate many aspects of what went on prior to sanction and afterwards.”
Sullivan is in the company of a large chorus of observers who say a forensic audit is a crucial part of any effective inquiry.
He said the ability of a judge to audit Nalcor’s books, contracts and finances should be part of the inquiry’s terms of reference, adding it would be “virtually impossible for any inquiry to proceed without a forensic audit first having been done,” and that it’s “hard to imagine that any judge would not want to start there.
“Given the nature and complexity of this project, and given that major questions have been raised with regard to numbers having been falsified, how could you not do a forensic audit?” he said.
Ball has repeatedly downplayed the role of a forensic audit of Nalcor in an inquiry into Muskrat Falls.
During a press scrum following his Sept. 28 announcement the premier said a forensic audit “would actually only give a certain level of detail,” and that his government “really want[s] to get to the root of the issues that are on people’s minds, get some answers — and we feel the best way to do that now is with an inquiry.”
Pressed further on the inclusion of a forensic audit in the inquiry, Ball said “whatever the commission decides, who they bring to testify, provide information — I’ll leave that to the process.
“The thing is, we really want to get to the bottom of this, and whatever is required by the commission, we want to make sure they have access to the resources that they need to get answers for Newfoundlanders and Labradorians.”
Marc Tasse, a Forensic Certified Public Accountant and professor at the University of Ottawa’s Telfer School of Management, says forensic audits often “look at controls, seeing if they were respected, and if not we come up [with] recommendations to say from now on you have to make sure that you have, for example, more approvals, or segregation of duties, and so on.”
Addressing the question as to whether or not a forensic audit with such recommendations would slow an ongoing project, Tasse said it likely would, but that from a forensic accountant’s perspective slowing a flawed process to make improvements would be a good thing.
“What would happen is that as soon as we increase the internal control you need to have more people involved, you need to get counter signatures and stuff like that, and that does delay the process, it’s true — because you need to wait for another person to sign,” Tasse explained, “but usually the goal of internal control is not to delay processes, it’s to make sure that all the regulations and the budget has been respected.”
Depending on its scope, a forensic audit would likely cost the province $25,000 to $250,000, Tasse said.
“Are you just taking a sample or are you doing a full audit?” he explained, adding “you don’t want juniors [doing the audit], you want people with experience in that same type of industry.”
During the Oct. 2 press scrum Ball was asked what Nalcor CEO Stan Marshall thought of the impending inquiry.
“They’ve been anticipating this, getting ready, they’ve been gathering information,” the premier responded. “The [Nalcor] board would be aware of it — they know this is coming, and they’ve known this is coming for quite some time. We made them aware of that.”
Asked if significant advance notice could give parties an opportunity to hide evidence, Tasse said that in “a very perfect world that would not happen, because now a lot of audit trails are done automatically; most documents are electronic, so once they start the internal audit they take a copy of the hard drive and they would require that no document be destroyed.”
He said while evidence could be made to disappear in the lead-up to a forensic audit, “normally it’s not a concern that we have when we have” because “there’s a lot of cross-reference that is done with IT software” that allows forensic accountants to do a “big data analysis” in which it’s difficult for people to destroy evidence, “because there’s always a trace somewhere that was left.”
Following the release last June of a 2013 SNC Lavalin report that revealed the contractor was aware—and allegedly tried to make Nalcor aware—of significant cost overruns during the early stages of project construction, the provincial NDP launched a petition calling for a forensic audit.
Prior to the cost overrun revelation, NDP leader Earle McCurdy said in a statement on May 10 that it had “been evident for a very long while that the original cost estimates were way off and that economic viability is not part of Muskrat Falls,” and that there are “grave questions about the project’s impact on the environment, and the 50-year loan and skyrocketing electrical costs point clearly to Muskrat Falls not being beneficial for the people of the province.
“Dwight Ball must immediately order a forensic audit,” McCurdy said. “Whether it was malfeasance or incompetence, the people of the province deserve to know what happened.”
In a recent op-ed for The Independent, columnist Hans Rollmann argued that the Muskrat Falls inquiry “must be able to ascertain clearly who was responsible for what, and excavate the integrity and robustness of decision-making processes which took place. It must have full, unimpeded access to documents, records and data.”
The inquiry, he argued, “is not just about where money was lost. It’s about how we can regain our self-respect and integrity as a province. It’s about how we turn the page on a mentality which continuously—regardless of the colours of the party in office—gambles our future on reckless and irresponsible schemes, and opens us up to the predatory exploitation of privileged elites.
“It’s a chance to turn the corner on our political infantilism and commit to a new, transparent and accountable approach to how things are done in this province—starting by enumerating all the things that were done wrong in the Muskrat Falls debacle.”
An announcement by the Liberal government on the inquiry’s terms of reference is expected this fall.
With files from Tom Baird.