SISO financial statements raise questions

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Steve Buist – February 11, 2011

SISO, Hamilton’s landmark and now defunct newcomer services agency, is under a financial cloud. City police and the RCMP are investigating for fraud. Its former executive director says it’s all a misunderstanding prompted by minor financial discrepancies.

It’s a bankruptcy that makes no sense. Gone is most of the cash and nearly all the assets of SISO – Hamilton’s Settlement and Integration Services Organization. Only two years ago, SISO closed out its fiscal year with what appeared to be very rosy numbers.

It’s a sparse financial statement, to be sure, just one page, but that one page showed SISO reporting a $2-million surplus of revenues over expenses for the year.

There was $1 million in cash and nearly $5 million in total assets, more than twice as much as the previous year.

More impressively, revenues from the federal and provincial governments continued to skyrocket, nearly doubling from the previous year.

Fast forward to present day.

Bankruptcy documents filed by the organization three weeks ago report just $21,000 in cash, $10,000 in furniture and office equipment, and about $571,000 in total assets — and most of those assets turn out to be a loan owed to SISO from a separate foundation it created to own its two main buildings.

It’s difficult to know precisely what went on during that 22-month period, in part because SISO has neglected to file its 2010 financial statement with the Charities Directorate of the Canada Revenue Agency.

SISO’s financial report was due at the end of September. Four months later, it still hasn’t been submitted.

But a look at the financial statements that were filed by SISO with the government between 2003 and 2009 raises a number of troubling questions about the expenditures of an organization that now finds itself waist deep in turmoil.

SISO is currently the subject of a fraud investigation by Hamilton police and the RCMP, and its former executive director is out on bail facing a charge of uttering a death threat involving seven former staff members.

Citizenship and Immigration Canada, SISO’s primary funding agency, indicated it had met five times with SISO last year to discuss “issues of financial accountability and documentation, insufficient internal management controls and poor communication with the department,” according to a CIC spokesperson.

CIC eventually yanked its funding commitments from SISO, based on “serious concerns with the lack of financial accountability, documentation and reporting” by SISO that were uncovered by government audits, according to a statement made in October by local Conservative MP David Sweet.

SISO was Hamilton’s largest agency working with refugees and immigrants. It provided programs and supports to about 400 government-assisted refugees and helped about 8,000 immigrants access services each year.

SISO board chair Hussein Hamdani referred questions about SISO’s finances to Morteza Jafarpour, SISO’s former executive director until the end of 2010.

Jafarpour said he does not believe any money is missing from SISO.

“I believe, based on my knowledge, that every expenditure that was approved by me was appropriate,” Jafarpour said.

“They can come and look at my financial statements and my bank account … if they can prove I’ve taken one penny out of SISO without SISO board approval, I’ll walk to jail voluntarily myself.”

He acknowledged CIC identified some discrepancies.

“I was aware of that and they are not major,” said Jafarpour said. “They were some minor discrepancies.”

Jafarpour alleged CIC deliberately attempted to sabotage SISO.

“CIC, in one year, did everything possible to financially choke SISO with the hope that SISO would fail,” Jafarpour said.

“They cut our administrative costs last year by 50 per cent,” he added. “They tried to administratively paralyze us.”

A spokesperson for Citizenship and Immigration Canada categorically denied Jafarpour’s claims.

“These allegations are absurd,” said Tracie LeBlanc of CIC.

LeBlanc said SISO’s proposed administration costs for the 2011 fiscal year “lacked supporting documentation to validate SISO’s request.”

“CIC requested supporting documentation from SISO on multiple occasions,” LeBlanc stated. “However, SISO failed to provide this information.

“In the absence of any kind of rationale and supporting documents, CIC could not authorize funding for the administrative costs SISO requested.”

A Spectator analysis of SISO’s financial filings has uncovered anomalies and unusual expenditures:

• In 2003, SISO spent $166,701 on professional and consulting fees.

In 2009, SISO’s professional and consulting fees had soared to $1.12 million. That represented 10 per cent of SISO’s total revenues for 2009.

Jafarpour said some of SISO’s programs were paid on a fee-for-service basis, so they were captured in the consulting category. He also said SISO’s interpreters were paid as independent consultants.

  • In 2003, SISO spent $60,000 on office supplies and expenses. By 2008, SISO’s office supplies and expenses were $430,000.

Jafarpour said some of the increase was due to SISO’s rapid growth.

  • In 2006, SISO spent $31,000 on repairs, cleaning and maintenance. Two years later, in 2008, SISO spent $286,000 on repairs, cleaning and maintenance.
  • From 2003 through 2006, SISO reported it spent $0 on advertising and promotion. In 2007, that category rose to $106,000, then to $153,000 in 2008, and by 2009, it had soared to $358,000.

Jafarpour indicated some new programs included provisions for an advertising and promotional component that hadn’t existed earlier.

  • In 2003, SISO spent $26,000 on conferences, meetings and seminars. By 2008, that amount had risen to $212,000.
  • In 2004, SISO spent $20,000 on computer services. In 2008, SISO spent almost $144,000 on computer services.
  • From 2003 through 2006, SISO reported it spent $0 on travel and vehicles. In 2007, that rose to $71,000. In 2008, it rose to $91,000 and, in 2009, it had climbed to $110,000.
  • From 2003 through 2009, SISO consistently reported it had only two full-time staff members — even though 150 staff members were laid off at the beginning of the year when SISO shut down its operations.

The salary range identified for the two full-time staffers through 2008 was between $40,000 and $79,999.

Jafarpour was reportedly earning $205,000 in salary and benefits last year.

If SISO’s filings with the government are accurate, it means that Jafarpour’s salary must have at least doubled between 2008 and late 2010.

Jafarpour disputed his salary figure. He said his final salary was $147,000 and he did not receive any benefits.

From 2003 through 2006, SISO indicated in its government filings that it had 46 part-time staffers in addition to the two full-time staff members. The number of part-time employees rose to 61 in 2007, to 89 in 2008, and to 100 in 2009.

Based on SISO’s salary and wage declarations to the government, the average part-time wage paid by SISO in 2009 must have been at least $50,000.

If there were 102 full-time and part-time employees at SISO in 2009 and 150 staff members were laid off in January, the numbers suggest SISO’s employment levels rose by nearly 50 per cent in the 22 months preceding bankruptcy.

Jafarpour suggested the employment status designation was an error and that the full-time and part-time numbers should have been reversed.

But CRA’s financial statements require charities to identify the salary ranges for the 10 highest-paid full-time employees and SISO consistently reported the range for only two full-time salaries from 2003 through 2009.

Two things become clear from an examination of SISO’s financial statements — both the organization’s revenues and its expenditures began to skyrocket after 2006.

In 2006, the federal government contributed $2.2 million to SISO. By 2009, the federal contribution had climbed to $9.45 million.

Meanwhile, the provincial government gave SISO $298,000 in 2006, and by 2009, that amount had jumped to more than $1 million.

In that period, the amount SISO spent on salary compensation rose from $1.9 million to more than $5.2 million.

From 2006 to 2009, the management and administration expenses category for SISO rose from $401,000 to more than $1.3 million, and the generic category “Other expenditures” jumped from $500,000 to $1.27 million.

Yet despite SISO’s skyrocketing expenses, the organization still recorded a surplus of revenues over expenditures every year from 2004 through 2009.

In fact, SISO’s surplus jumped from $228,000 in 2008 to $2 million in 2009.

A look at SISO’s year-to-year revenue and expenditures shows that basically all the organization’s money was being used to pay salaries, expenses and professional fees.

In 2008, the last year that SISO provided a detailed breakdown of its expenses in its audited statement, nearly 93 per cent of SISO’s $6.8 million in revenues was spent on salaries, professional fees, rent, office supplies and expenses.

SISO’s 2009 audited financial report consists of just a single page listing assets and liabilities and a second page listing a breakdown of revenues received from various government agencies.

According to SISO’s bankruptcy filing, the largest debt outstanding was nearly $267,000 owed to SISO Foundation, the legal owner of SISO’s New Dawn Centre on Rosedene Avenue and a SISO building on Barton Street East.

The money owing represented an accumulation of rent SISO paid SISO Foundation: $20,000 a month for New Dawn Centre and $14,000 a month for the Barton Street East property.

At the same time, nearly $540,000 of SISO’s assets at the time of its bankruptcy represented a loan it made to SISO Foundation to help buy one of the properties.

Like SISO, SISO Foundation is a registered charity. It is a separate legal entity that is described as SISO’s fundraising arm.

Yet SISO Foundation’s 2009 financial statement filed with CRA stated SISO Foundation was not active in 2009 and raised no money.

Jafarpour suggested that rent payments to the foundation didn’t begin until the following fiscal year.

He said SISO’s board decided to create a foundation to keep fundraising activities separate from SISO’s day-to-day operations.

“Very often, donors want to make sure if they make any donations, they don’t go to the operation of the organization, it goes to the cause,” said Jafarpour said.

Jafarpour believes the board of SISO Foundation will opt to sell the two properties and turn the proceeds over to SISO’s bankruptcy estate.

“I don’t believe there is a legal obligation in that regard,” Jafarpour added. “I think it’s more a moral obligation than a legal obligation.”

The first meeting of SISO’s creditors is scheduled for 11 a.m. on Monday at the New Dawn Centre on Rosedene Avenue in Hamilton.

Related article: "SISO’s financial picture 2003-2009"


Original article on The Spectator website