When Richard Nixon told David Frost than an illegal activity is not illegal “when the president does it” he confirmed what we’d all suspected: the “tone at the top” as far as the 37th President of the United States was concerned was hopelessly corrupt.
Richard Milhous Nixon, 37th President of the United States (Photo credit: Wikipedia)
Most breaches of good governance are not as dramatic as Watergate, but the consequences of poor governance, even on a small scale, can be devastating.
Bearing that in mind, let’s turn our attention to the governance of Alberta Health Services (AHS).
The “tone at the top” at AHS struck a sour note last week when Albertans opened their newspapers and saw two contradictory headlines: “AHS in forefront of health-care achievements”—a puff piece by the Chairman of the AHS Board rebutting allegations that AHS executives and managers were wasteful and inefficient and “Control expense gaps, auditor tells AHS”—a story about the Auditor General’s report on AHS’s sloppy governance practices.*
The Auditor General’s report focused on expense claims, travel claims and AHS corporate credit card expenses (P-cards).** The AHS ran up a whopping $100 million in the space of 17 months. Even the Auditor General was “taken aback at how large the sum was.”* To be fair just a small percentage of this amount, not the entire $100 million, was improperly claimed or improperly recorded and paid out.
I don’t know what it is about auditors, but the Report is a dry slog (yes that was sarcasm). It does however lead to some interesting conclusions.
High tolerance for a lack of controls and non-compliance
The AHS, a $12.6 billion corporation, has serious gaps in its financial controls process and doesn’t appear to be concerned about it. These include:
– ridiculously high limits on P-cards. What could possibly justify a spending limit of $900,000 a year? Is the executive buying an MRI facility?
The “C of Red” in Calgary prior to game 3 of the Calgary Flames’ National Hockey League playoff series against the Chicago Blackhawks, in Calgary. (Photo credit: Wikipedia)
– approving expenses without any business justification. In 2011 and 2012 Carewest, a long term care facility, expensed 2 Calgary Flames season tickets and 275 Calgary Stampede admission tickets. In 2012 it expensed 40 grandstand show passes and 10 rodeo tickets. Carewest says the tickets were resold to staff and residents. There is no supporting documentation. The Auditor is investigating. (I should hope so!)
– the misuse of P-cards to purchase capital assets like computers (so much for cost savings generated by centralized purchasing).
Centralization?
The consolidation of the regional health regions into the AHS brought $3 billion in purchasing power under one roof. This gave the AHS tremendous bargaining power.***
Too bad they don’t know how to use it.
AHS has yet to centralize travel to save costs on hotels, airlines and ground transportation. It’s failed to set up a competitive bid process to find the most efficient way to transport patients. And when it does use its bargaining power, AHS blunders into bad deals. Here’s an example.
The AHS signed contracts with two large service providers that allowed them to charge $6.1 million in travel expenses without producing a single receipt to substantiate the cost. Travel costs are paid as a percentage of the contract fee and there’s no mechanism to cap travel costs if they are excessive. Anyone see an opportunity to pad the bill here?
$3 billion in purchasing power means nothing if you lack the skills to apply it properly.
Country Club Mentality
The senior executives at AHS are showered with perks—club memberships, allowances for personal, financial and tax advice, professional development and vehicle allowances. These perks are unauditable because the financial audit group has no way to check whether the allowance limits have been exceeded. Why?
Where is the Chairman of the Board of Directors?
So how did Mr Lockwood respond to the Auditor General’s report? He didn’t. Instead he popped up in the press with a two pronged message.
He defended the need for 81 senior executives at AHS. They “put in long hours, days and nights keeping a complex health system on track”. Join the club! The rest of us also put in long hours, days and nights doing our jobs. And we do it in environments that demand a higher degree of rigor, accountability and dare I say it, integrity, than the AHS.
He pointed to an “improved rate for patient satisfaction”… without mentioning that it had only gone up by 2% (it’s now 64%) and is described as “relatively unchanged from 2010” by the Health Quality Council of Alberta who conducted the survey.****
This is a disappointing response. The AHS has staggered from scandal to scandal since it was created in 2008. Instead of being defensive or glossing over problems, it’s time to call the Board of Directors and Chairman Lockwood to account. They govern the AHS. It’s up to them to set the “tone at the top”.
The “tone” must ring with accountability and integrity. The health and well being of all Albertans depends on it.
*Calgary Herald, Feb 13, 2013, A3 and A15
**Report of the Auditor General of Alberta Feb 2013
***Speech by Ken Hughes, then Chairman of the AHS Board, to Calgary Chamber of Commerce, March 2011
****Satisfaction and Experience with Health Care Services. A Survey of Albertans 2012
Susan on the Soapbox 
It leaves me speechless, is there no end to this nightmare.
Tom, the violations of the AHS expense policies boggle my mind. If the AHS had been a private company two things would have happened: (1) the Board of Directors and CEO would have issued a strong statement that such “lapses” were unacceptable and would be rectified immediately and (2) heads would roll for the failure to address gaps that had been outstanding since 2008. But this is politics and the AHS board does nothing but issue platitudes. Appalling.
I’m not sure if changing the “tone” of the AHS leadership will effect change. It might be time to “drain the pond” there. We are constantly reminded about how much Alberta Health “spends”, but it is increasingly apparent that the most important factor is, where is the money going? This whole business is good news/bad news. I am glad this auditor was called in to examine the executive expenses, but am appalled at his findings.
Elaine, it’s definitely time to “drain the pond”. The AHS and its predecessor organizations have been censured by the Auditor General for accounting irregularities since 2004 and they still can’t get their act together. That tells me that the “tone at the top” at the Board of Directors’ level is, shall we say, “lax” when it comes to effective financial controls. This willful blindness extends right up into the government. You’ll recall that Health Minister Horne was not the least bit troubled by Mr Merali’s past audit breaches and overblown expense account when the AHS Board appointed Mr Merali as CFO. Furthermore, Finance Minister Horner picked Mr Merali to be his Chief Controller.
I don’t think either of them have the slightest inkling of what good corporate governance looks like.
Only people that believe what is happening is acceptable can let it continue for so long. Maybe what we need is not the auditor general anymore, we need the police.
Good point Carlos. If a private corporations makes a material “misstatement” in its quarterly filings it has to file a restatement. This is a huge red flag for investors. Pretty soon the securities regulator is watching the company like a hawk. One wonders why the same rules don’t apply to government. I was just reading the government’s 3rd quarter fiscal update. They’re forecasting the 2012-13 deficit of between $3.5 and $4 billion. That’s pretty material in my books!
I am speechless after reading some recently posted CH expenses, for Joanna Pawlyshyn, VP and COO, Royal Alex Hosp from July 2008. (Ref : http://www.albertahealthservices.ca/ahs-applicant-copy-pawlyshyn.pdf ) On Page 188 it reaches a new low, in my opinion, when an expense charge of over $2,212 is claimed, with the incredible explanation given as “TGIF for all corporate staff and VPs in recognition of difficult week with S. Weatherill termination.” Good grief!!!! Is there no shame on any of these expense claimants??!!! Spending over $2K of tax payers money for a corporate night out, with an added $100 tip too, is beyond shameless and speaks to the entitlement of these folks, who seem to think it’s OK to misuse public funds.
Liz that is just the tip of the iceberg and it is not only in the government. Corporations are as bad and as far as bonuses to the top wigs it is way worse.
We pay for all of it – we are back in feudal times.
Liz I went to the link you provided–I’m aghast! I plowed through Joanna Pawlyshyn’s expenses and found a number of items I’d have trouble connecting back to her role as COO of Capital Health including:
– Sponsoring dinners for the Inuit Arctic Tour ($2,146) or buying tickets to the Gaye Hanson (motivational speaker) dinner
– Treating other CH employees and consultants to dinner and golf (in the real world this is called business development and it’s done by the marketing guys who take clients/potential clients out to dinner and golf events; they never waste their time or money on other staff)
– an item labeled “miscellaneous” for $3,271 (signed off by Sheila Weatherill)
– and of course the TGIF dinner for Sheila Weatherill ($2,212 which was approved by none other than Mr Merali–the man who expensed everything from butlers to beer). What I can’t understand is why Joanna and the other VPs felt sorry for Sheila. The woman walked away with a $1.5 package plus a $1.7 executive pension!
Yesterday I spoke to a recent (former) University Hosp. employee about the inquiry. I shared my disgust at the expenses claimed by the various “executives” including Joanna Pawlyshyn, and Deb Gordon – who happened to be in charge at UAH. I was told that at that same period there was never enough funding in the budget for some minor rehabilitation items, requested by the staff for use with the UAH patients. Meanwhile there was no limit on the expenses! Frankly, I’d like to see some of these people charges with theft, or misuse, of public funds. I’m appalled at the lack of ethics in their wilful mismanagement. (See here for the larger cast of characters that have had their expense claims exposed via FOIPP. http://www.albertahealthservices.ca/7545.asp. ) Meanwhile, I just checked the AHS website now and note they are still using the dubious phrase ‘reimbursed expenses’ for Dr Chris Eagle and others. (Who is reimbusing whom???) Considering Dr Eagle was one of those who was forced to repay funds, for a personal flight that was claimed and paid by AHS on his expense account!
Liz, there is so much information buried in the bland words of the Auditor General. For example he says that of the $100 million in expenses, 52% was spend on supplies and maintenance and 3%, roughly $3 million, was spent on meals. Assuming that the front line staff are not allowed to expense their meals, that would generate an average expenditure of $37,000 per each of the 81 VPs and senior executives. I’ve worked at the executive level in three private corporations. That level of expenditure would be seriously challenged by the CEO and the Audit Committee of the Board of Directors. That’s what the Auditor General is talking about when he refers to “checks and balances”. The culture of entitlement that developed years ago under the regional health boards appears to be alive and well in “new and improved” AHS.