'Our audit found that the &#39c;orporation; lacked the most basic level of control.'

After reading a devastating report issued by Sheila Fraser, the Auditor General of Canada, Nunavut's economic development minister, David Simailak, asked the RCMP this week to investigate the Nunavut Business Credit Corp.

The auditor general's report, issue Nov. 5, gave the NBCC a failing grade in all areas of its financial affairs.

"Our audit found that the corporation lacked the most basic level of control," Fraser's report says.

For the 2005-06 fiscal year, the credit corporation's accounting books and other records were in such a state of disarray, the auditor general's staff could not obtain enough information to offer an opinion on the accuracy of the organization's financial statements.

"We do not have our usual degree of assurance with regard to completeness of the record of events, nor were we able to conclude whether or not fraudulent acts had taken place," the report says.

Such a "denial of opinion" is an extremely rare judgment for an auditor general to make, reserved only for the worst of the worst.

In response, Simailak, in a minister's statement Nov. 6, announced the following:

• that he's ordered a temporary suspension of the NBCC's lending activities;
• that he's accepted the resignation of three NBCC board members, including the chairperson and vice-chairperson;
• that he's issued a directive to the NBCC ordering the production of monthly financial and management reports;
• that Nunavut's comptroller-general – a high-ranking bureaucrat in the finance department – has referred "matters of financial records and controls" to the RCMP.

MLAs on the legislative assembly's standing committee on government operations will play host to the auditor general at a public hearing scheduled for Nov. 27, where they will start scrutinizing the report.

Meanwhile, MLAs are starting to pepper Simailak with questions about why the GN allowed the NBCC to degenerate after warnings issued by the auditor general in past reports.

"The auditor general's unprecedented denial of opinion on the NBCC's financial statements is deeply troubling," said Iqaluit Centre MLA Hunter Tootoo, the chair of the committee.

The auditor general also dug up the rotted corpse of yet another dysfunctional Nunavut organization: the Kitikmeot Business Development Centre, which expired in 2001 when the GN ordered the NBCC to take it over, along with the Kivalliq region's failed business centre.

It turns out that the NBCC still holds on to the Kitikmeot centre's assets, which include 10 unpaid loans worth $306,000 and a $400,000 bank account. Transactions were made on those accounts but never recorded, and no financial statements have been prepared for the Kitikmeot centre since 2001.

"Information was simply filed away in a cabinet and ignored," the report says.

The NBCC is a Crown corporation that Nunavut inherited through the division of the old Northwest Territories Business Credit Corp. Its function is to make loans to higher-risk business people who can't get credit from banks.

Located in Cape Dorset, the credit corporation employs five people, including a chief executive officer. The CEO reports to a seven-to-12-member board, which in turn reports to the minister of Economic Development and Transportation.

Among its numerous findings, the auditor general's staff found fundamental failures of governance:

"The board of directors did not exercise sufficient oversight and control to direct the operations of the NBCC in order to ensure that the public interest and the funds entrusted to it were protected," the report says.

The report says this was made worse "by the fact that the former CEO did not discharge his duty to be sure that appropriate management practices were in place."

That includes loaning out big chunks of public money without assessing clients or their business plans.

The NBCC receives about $450,000 each year from the Nunavut government to pay for its day-to-day operations. As of March 31, 2006, the corporation had approved 62 loans worth about $22.7 million, distributed among 51 businesses.

After the auditor general's staff began their audit in 2006, the credit corporation's CEO at the time, Mel Orecklin, departed from his job along with most other staff members.

That, combined with numerous missing documents, made for a difficult auditing job.

Information that did exist was scattered around various filing cabinets, a shared computer hard drive in the NBCC's office, and at the office of the organization's Ottawa lawyer.

To find some of it, auditors had to dig through 60,000 emails stored on the CEO's computer.

As well, "electronic data that may have contained information related to loans had been erased." The auditor general says there is no satisfactory explanation for this.