Forensic Investigation: Appendix - M. Sack Companies

PRIVILEGED AND CONFIDENTIAL SUMMARY OF FINDINGS

FROM MNP LLP

TO

PINK LARKIN LLP

IN THE MATTER OF

INDIAN BROOK (SHUBENACADIE) FIRST NATION

APPENDIX #10 M. SACK & RELATED COMPANIES

Pink Larkin LLP Shubenacadie First Nation Privileged and Confidential Appendix 10 M. Sack and Related Companies, April 21, 2014

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TABLE OF CONTENTS

1 BACKGROUND ...................................................................................................... 1

2 M. SACK COMPANIES AND ASSOCIATED COMPANIES .................................... 2

3 AMOUNTS PAID TO M. SACK AND RELATED COMPANIES .............................. 5

4 LOANS .................................................................................................................... 6

5 CRANBERRY BOG ................................................................................................ 9

6 SNOWPLOWING .................................................................................................. 13

7 WALLACE HILLS ................................................................................................. 18

8 FISHERIES ........................................................................................................... 24

9 CAPITAL AND HOUSING ..................................................................................... 34

10 J. HAYES HOME .................................................................................................. 44

11 POTENTIAL CONFLICT OF INTEREST ............................................................... 48

12 RCMP INVESTIGATION ....................................................................................... 53

13 CONCLUSION ...................................................................................................... 54

14 RESTRICTIONS AND LIMITATIONS .................................................................... 58

TABLES Table 1: Amounts Paid to M. Sack and Related Companies ............................................ 5Table 2: Short-Term Loans and Repayments to Mainland Juggage and Sacks Contracting ...................................................................................................................... 6Table 3: Payments to Sacks Excavating ......................................................................... 9Table 4: Cranberry Bog Cost to March 31, 2012 ........................................................... 12Table 5: Snowplow Bids ................................................................................................ 14Table 6: Payments re: Wallace Hills .............................................................................. 22Table 7: Wallace Hills Questionable Amounts ............................................................... 23Table 8: Sources of Lobster Revenue ........................................................................... 27Table 9: Comparison of Lobster Catch Revenue and Lobster Wages ........................... 28Table 10: Actual and Achievable Snow Crab Gross Profit per pound ............................ 32Table 11: Housing Project Construction Timeline .......................................................... 34Table 12: Summary of Capitalized Housing Construction Costs .................................... 38Table 13: Summary of Schedule 4 expenses related to M. Sack Companies ................ 50


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Table 14: M. Sack Questionable Amounts .................................................................. 57

SCHEDULES Tab Title

1. Housing Capital Costs Sacks Excavating re Account 5870 10 Unit Project

2. Housing Capital Costs Sacks Excavating re Account 5871 13 Unit Project

3. Housing Capital Costs Sacks Excavating re Account 5873 2009 6 Band Homes

4. Housing Capital Costs Sacks Excavating/Sacks Contracting re 4 Units

5. Housing Capital Coss Sacks Excavating re Account 5881 Housing Brown Flats Extension

EXHIBITS Tab Title

1. MRJJ Management Inc. Certificate of Incorporation, January 13, 2010

2. $250,000 Michael Patrick Sack loan plus interest reconciliation

3. James Moore & Associates update re: Cranberries, dated September 22, 2009

4. Copies of cheques 45629, 45630 and 45631 issued to Sacks Excavating

5. Memo re: Council requests for tenders to be issued for snow removal, salting, sanding roads/parking lots/driveways in reference to December 9th Council Meeting

6. Service Agreement with H. Sack dated December 15, 2009

7. Letter from McLellan, Richards & Bgin dated February 17, 2014

8. Sacks Plowing cheque requisitions and cheque stubs for year ended March 31, 2010

9. Sacks Contracting & Management Limited (Sacks Contracting) Invoice 16042012snow for the amount $133,000, dated April 16, 2012 for snow plowing and salting services

10. Sacks Excavating Ltd. (Sacks Excavating) Invoice 20120104 in the amount $60,000, for blueprint drawings regarding Wallace Hills Entertainment Centre, dated January 4, 2012

11. Pockwock Road Property assessment for 2012 and 2013

12. Sale of Pockwock Road Property by Susan Wenning Cameron, Joan Wenning McMillan and Andrew S Wenning to Ramar Developments Limited


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13. Sale of Pockwock Road Property from Ramar Developments Limited to Michael Patrick Sack

14. Sale of Pockwock Road Property from Michael Patrick Sack to Shubenacadie First Nation (SFN)

15. Cheque #21321 in the amount $65,000 dated September 11, 2009 to Carruthers & MacDonnell for Wallace Hills from SFN CIBC Administration Account

16. Payment to Halifax Regional Municipality in the amount $229.26 for delinquent property taxes

17. Michael Patrick Sack Memorandum of Understanding

18. Michael Patrick Sack Development and Management Agreement dated June 2011

19. Sacks Excavating invoice 20110074wall dated September 6, 2011 in the amount of $28,523.60

20. Agreement between Alexander P. McDonald and SFN re: $20,000 loan to lease a commercial licence, dated November 17, 2009

21. Fisheries Lease Agreement between SFN and Michael Patrick Sack dated September 14, 2011

22. Email exchange between Jeffrey Hayes and Gary Richard re: lobster licences, dated September 14, 2011

23. Mainland Juggage loan reconciliation

24. Letter from Chief Jerry Sack re: Cheryl Maloney has access to snow crab quota and lobster licence, dated February 23, 2009

25. Chase Fisheries Project Proposal for Crab Fishing Operations, April 22, 2009

26. Band Council Resolution (BCR) 2010-2011-54 re: sale of snow crab quota to Mainland Juggage dated March 10, 2011

27. Letter from Canadian Mortgage and Housing Corporation (CMHC) re: 2007/2008 Project 13 Units, dated April 8, 2009

28. Wekatesk Invoice 2009-001 in the amount $1,269,500 re: construction of 13 homes, dated May 6, 2009

29. Bid Call Notification #RFP-09-01 with a closing date May 29, 2009 and Bid Proposal Form with a total bid of $60,220

30. Wekatesk quote for upgrades for heating to the 13 Unit Project, dated September 9, 2009

31. BCR 2009-2010-016 re: request an Accountable Advance for 75% funding of the capital costs of two housing units, dated December 16, 2009


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32. BCR 2009-2010-027 re: request to administer the 2009/2010 housing program including funding for a CMHC capital loan in the amount $180,200, dated March 17, 2010

33. BCR 2009-2010-028 re: request to administer the 2009/2010 housing program including funding for a CMHC capital loan in the amount $362,420, dated March 17, 2010

34. BCR 2009-2010-040 re: re: request to administer the 2009/2010 housing program including funding for a CMHC capital loan in the amount $180,200, dated July 6, 2010

35. BCR 2009-2010-041 re: request to administer the 2009/2010 housing program including funding for a CMHC capital loan in the amount $362,420, dated July 6, 2010

36. BCR 2009-2010-042 re: request to administer the 2010/2011 housing program including funding for a CMHC capital loan in the amount $189,190, dated July 28, 2010

37. Sacks Excavating invoices re: 10 Unit Project

38. Sacks Excavating invoices re: 13 Unit Project

39. Sacks Excavating invoices re: 6 Band Homes

40. Sacks Contracting Invoice 12032012brflfinal in the amount $130,000 for two Energuide homes dated March 12, 2012

41. Sacks Excavating invoices re: Brown Flats Extension

42. 22 Kittiwake Property Assessment

43. Indian and Northern Affairs Canada Band Council History Report dated March 4, 2013

44. Sacks Contracting Invoice 100159 in the amount $19,400, dated July 7, 2011

45. Sacks Contracting Invoice 100174 in the amount $170.54, dated June 17, 2011

46. Sacks Contracting Invoice 100189 in the amount $98.58, dated July 26, 2011

47. Sacks Contracting Invoice 05052011ib17 in the amount $25.00 for house visit when nobody was home, dated May 5, 2011

48. Castone Construction Limited corporate search

49. Sacks Excavating Invoice 20110071 in the amount $13,463.04, dated August 18, 2011, example showing lack of detail in invoice

50. CJS Excavating Invoice 2009-74 in the amount $29,839, dated June 1, 2009


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1 BACKGROUND

1.1 Throughout our review we have noted that Michael P. Sack (Mike Sack or M. Sack) or companies associated with M. Sack were financially involved with various operations of Shubenacadie First Nation (SFN or the Nation or the Band). These include Housing, Operations and Maintenance, Economic Development and Fisheries.

1.2 The Sack family of companies (M. Sack Companies) offer a number of service lines to SFN. The companies in the family are wholly or partially owned by M. Sack who is currently a Councillor at SFN. This is M. Sacks fourth time as a Councillor for SFN. Prior to the current term he served on Council as follows:

October 4, 2004 to October 3, 2006; November 5, 2006 to April 19, 2007; and, June 13, 2009 to September 23, 2010.

1.3 We understand that SFN was doing business with M. Sack and some of the related companies while he was a Councillor. This presents a potential for a conflict of interest depending on how the relationships and transactions were presented to Council.

1.4 Concerns have been raised with respect to the lack of contracts with the Sack companies, amounts paid and documentation related to invoicing. In addition, we understand that M. Sack loaned money to SFN where cash flow was an issue. Concerns have been raised with respect to how the loans were initiated and the amount of interest paid.

1.5 Unless otherwise noted the period of review is April 1, 2009 to March 31, 2012 (Period of Review). Amounts have been rounded for reporting purposes.


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2 M. SACK COMPANIES AND ASSOCIATED COMPANIES

2.1 Collectively, the Sack group of companies is a major vendor to SFN. The group of companies is associated with M. Sack through ownership or operation. In order to understand the breadth of M. Sacks involvement with SFN, we have identified committees, relationships and companies that conduct business with SFN.

2.2 To date, we have identified five companies directly associated with M. Sack. They are as follows:

Sacks Contracting and Management Limited (Sacks Contracting); Sacks Excavating Ltd. (Sacks Excavating); CJS Excavating or CJs Excavating (CJS Excavating); Castone Construction Limited (Castone); and, Mainland Juggage Seafood Broker (Mainland Juggage).

Sacks Contracting

2.3 Sacks Contracting is a Nova Scotia Limited company. M. Sack is the director, president and recognized agent. The civic address is 582 Church St. Indian Brook, Nova Scotia, and it was incorporated in January 2010. This company replaced Sacks Contracting and Management which was a partnership registered in October 2009.

Sacks Excavating

2.4 Sacks Excavating is a Nova Scotia Limited company. The director and president of this company is M. Sack. The civic address for this company is 582 Church St. Indian Brook, Nova Scotia. The recognized agent is Greg Mullen of Burchell MacDougall Lawyers (Burchell MacDougall). The company was incorporated in August 2010. This company replaced Sacks Excavating which was a partnership registered in April 2006. Sacks Excavating (2002) was registered to Lyn Sack which was registered in July 2002 but revoked in September 2005 for non-payment. Prior to this, Sacks Excavating was registered in 1988 by Carl Joseph Sack the father of M. Sack. This company was revoked in 1998 for non-payment.


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CJS Excavating

2.5 CJS Excavating was a partnership registered in Nova Scotia on April 12, 2006 and changed names to Sacks Excavating in 2009. It was formally dissolved on August 3, 2010. M. Sack is listed as the partner and the registered office was located at 582 Church St, Indian Brook, Nova Scotia.

Castone

2.6 Castone is a Nova Scotia Limited company. The directors are Michael P. Sack and Dean R. Shea. The civic address is 528 Windmill Road, Unit 1, Dartmouth, Nova Scotia and M. Sack is listed as vice president and treasurer. The recognized agent is Denny Pickup of Burchell MacDougall LLP. The company was registered on November 10, 2005. The company was previously registered as a partnership in October 2005 by Ron Lovett of 330-1096 Queen St. Halifax Nova Scotia, but dissolved in November 2005.

Mainland Juggage

2.7 Mainland Juggage is a partnership registered in Nova Scotia. The sole partner of the company is M. Sack. The civic address for this company is 582 Church St. Indian Brook, Nova Scotia, and was registered on October 18, 2007. This company was previously known as Mainland Juggage Seafood Buyers. This company changed names as of October 28, 2009.

Other Related Companies

Gloade Electrical and related companies

2.8 Gloade Electrical Services Limited (Gloade Electrical) is a company owned by Dana Gloade (D. Gloade), the former Housing Manager at SFN. D. Gloade advised us that he sold the customer list, equipment and transferred his employees to M. Sack. He advised us that he worked for M. Sack on those times he was not working for the Nation. Gloade Construction Ltd. is a N.S. Limited company which has been revoked for non-payment. This company listed D. Gloade as director and president. This company was registered in March 2009 and revoked for non-payment in May 2010.

2.9 Gloade Electric is a partnership in Nova Scotia. Stephen Ling (S. Ling) is the recognized agent for the company which has been revoked for non-payment. S. Ling is also the recognized agent for Gloade Construction Ltd. S. Ling is a partner in the Dartmouth law firm Landry McGillivray. This company was registered in May 2002 and revoked in July 2010 for non-payment.


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2.10 Gloade Holdings Inc. is a Nova Scotia Limited company. The director and president of this company is D. Gloade. This company was registered in March 2009 and revoked in May 2010 for non-payment.

MRJJ Management Inc.

2.11 MRJJ Management Inc. (MRJJ) was incorporated on January 13, 2010 by Burchell MacDougall Lawyers (Burchell MacDougall), a law firm in Truro, Nova Scotia (refer Exhibit 1). The companys recognised agent is Gary Richard (G. Richard), a partner at Burchell MacDougall and the Bands former solicitor. The sole director is listed as Jeffrey Hayes (J. Hayes). The shareholders of MRJJ were Michael Sack, Ronald Augustine (R. Augustine), Jerry (F.) Sack (Jerry F. Sack or Chief Sack) and J. Hayes. We are not aware of a change in the shareholding of MRJJ.

2.12 We understand that MRJJ was incorporated in anticipation of the development of the Wallace Hills property at Hammonds Plains being made a reserve of SFN. It was intended that the company become a development corporation for the land and would be presented as such to Council. Council would then determine whether it wished to take control of the company and use it for the development. In our review of the Council Minutes, there was no reference to the incorporation of MRJJ.

2.13 The Wallace Hills Development is also referred to as the Hammonds Plains Development; they are the same development. The focus of the development was a casino and related businesses which would produce revenue for the SFN. The Council Minutes on July 9, 2009 indicate that Wallace Hills Development Committee (the Wallace Hills Committee) is made up of Chief Jerry F. Sack, M. Sack, Ryan Julian (R. Julian), R. Augustine and J. Hayes. We note that a number of these individuals are also shareholders of MRJJ, however, the Wallace Hills Committee is not referred to as being the same as MRJJ.

Sacks Plowing

2.14 Sacks Plowing is not an incorporated company but we understand it to be owned by Henry Sack (H. Sack). Payments for snowplowing are made in 2010 to Sacks Plowing and then in 2011 to Sacks Contracting. We do not have any information to understand the relationship between Sacks Plowing and Sacks Contracting.


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3 AMOUNTS PAID TO M. SACK AND RELATED COMPANIES

3.1 To further understand the relationship between SFN and the M. Sack Companies, we summarized the amounts paid to M. Sack and the collective group. According to the general ledger, a total of $5.67 million has been paid to M. Sack and the M. Sack Companies during the Period of Review as follows:

Table 1: Amounts Paid to M. Sack and Related Companies

Company Amount Mainland Juggage $1,116,125 Michael P Sack 24,134 Sack's Contracting 3,451,925 Sack's Excavating 889,588 Castone 136,177 Other 50,000 Total Paid $5,667,949

3.2 The $50,000 listed as Other payments in the table above relate to interest charged on a $200,000 advance. M. Sack advanced $200,000 to SFN on February 15, 2012 for a lobster licence. This interest was not paid to him and instead was used to offset amounts he owed to SFN.


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4 LOANS

4.1 During the period December 16 2010 to June 1, 2012, Mainland Juggage and Sacks Contracting loaned $1,550,000 to SFN. All loans were on a short term basis and the total interest charge was $252,500. We understand that loans were to assist with cash flow and the payment of Christmas bonuses. We identified the following loans and repayments:

Table 2: Short-Term Loans and Repayments to Mainland Juggage and Sacks Contracting

Ref Issued Repaid

Days of

Loan Loan from Repayment to Capital Repayment Interest 1 16-Dec-10 11-Jan-11 26 Mainland

Juggage Mainland Juggage

$200,000 240,000 40,000

2 09-Feb-11 22-Feb-11

13 Mainland Juggage

Mainland Juggage

200,000 200,000 -

3 18-May-11 01-Jun-11 14 Mainland Juggage

Sacks Contracting

100,000 100,000 -

4 26-Aug-11 01-Sep-11

6 Mainland Juggage

Sacks Contracting

100,000 100,000 -

5 14-Dec-11 12-Jan-12 29 Mainland Juggage

Mainland Juggage

500,000 600,000 100,000

6 14-Dec-11 01-Feb-12

49 Mainland Juggage

Sacks Contracting

70,000 87,500 17,500

7 25-Jan-12 01-Feb-12

7 Sacks Contracting

Sacks Contracting

180,000 225,000 45,000

8 15-Feb-12 01-Jun-12 107 Mainland Juggage

Mainland Juggage

200,000 250,000 50,000

Total $1,550,000.00 1,802,500 252,500

4.2 In preparing Table 2 above, we have relied on descriptions in the general ledger and discussions with accounting staff. No loan agreements between M. Sacks companies and SFN have been identified and we were advised that no such agreements exist. It is assumed that the amount to be repaid would have been directed verbally but it is not known by whom.

4.3 We have also reviewed Council Minutes for the periods April 7, 2009 to December 15, 2009; January 5, 2010 to April 27, 2010 and November 23, 2010 to February 28, 2012 and were unable to identify any motions from Council approving SFN taking loans from M. Sack.


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4.4 We have therefore made the following assumptions as to which repayment(s) relate to loans made and therefore the terms of the loans. In Table 2 above we assume the following:

After a loan has been made, the first payment identified as a loan payment, to any of M. Sacks companies is allocated to the loan. Where necessary, we apply the next payment and so on, until repayment exceeds capital loaned;

Loans #5 and #6 ($500,000 and $70,000), both of which were received on December 14, 2010, were repaid as follows: o $600,000 on January 12, 2012; and, o $87,500 on February 1, 2012. This repayment was made along with

repayment of loan #7 ($180,000) made on January 25, 2012. We assume a loan is repaid on the date the funds clear the bank, not the

date on which the cheque was issued.

4.5 In addition, although we note that loan #8 ($200,000) was received on February 15, 2012, we understand that repayment of this amount was not by cash. Instead, repayment of the loan amount plus interest was made by way of an offset against amounts owed by Mainland Juggage for lobster and snow crab. The reconciliation showing the offset of the $250,000 loan including interest is attached at Exhibit 2. There is no date on the reconciliation, however the general ledger records this offset transaction took place on June 1, 2012. We therefore assume that the $200,000 was repaid on that date.

4.6 Based on our analysis in Table 2 it appears M. Sack did not charge interest on loans #2, #3, and #4. However, for all other loans, interest was charged at an implied rate of 20% or 25%. Although we refer to an implied rate, this does not reflect the Annualised Interest of the loan, i.e. the interest rate that would be charged if the loan had been held for one year1

1 For the purposes of this Report, we have calculated interest on a simple interest basis, rather than using a compound interest basis.

. M. Sack provided short term loans ranging from 6 days to 107 days, we calculate the Annualised Interest for each of the loans to be in excess of 85%. In the case of three of the loans, the Annualised Interest rate is in excess of 200%. Such a high interest rate is demonstrated on loan #7 of $180,000 on January 25, 2012. The money was loaned for seven days, yet the interest charge was $45,000.


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4.7 By applying an illustrative Interest rate of 25% per annum on all of the loans, the total interest charges would have been $34,514 which is $217,486 less than the $252,000 charged by M. Sack. Given the Annualised Interest rate charged by M. Sack was in excess of 85%, $217,486 of the interest is considered questionable.

Conclusion

4.8 Although we do not know the specific circumstances and/or relationship that SFN had with its bankers/institutional lenders at that time, we note that RBC charged an overdraft interest of Royal Bank Prime +5% and an overdraft handling fee of $5.00 on RBC account 131-124-0 (Tobacco). Additionally, during the 2011 calendar year the Royal Bank Prime rate was 3%. It is not clear whether SFN would have been able to obtain additional credit from their bankers and consequently avoid entering into arrangements with M. Sack for loans at such a high interest rate.

4.9 As noted in Paragraph 4.6 above, no interest was charged on three of the loans. It is not known why this is the case. We have reviewed the general ledger for payments to M. Sacks companies around the time of the capital repayments and note no payments which approximate 20% or 25% of the loan, or which indicate that they relate to a loan. However, we note that on February 18, 2011, around the time that the loan of February 9, 2011 was repaid, a payment of $40,000 was made to Mainland Juggage for Snow Crab Quota. Based on our knowledge of snow crab, we would not expect a payment to be made to Mainland Juggage for the quota. We note that $40,000 is consistent with the 20% implied charge for a loan of the same amount which was made on December 16, 2010. We have found no supporting documentation for this transaction and are therefore unable to confirm if this payment relates to snow crab.


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5 CRANBERRY BOG

5.1 We were advised as a result of our interviews that M. Sack was involved with the preparation and excavation of the cranberry bog. We reviewed documents that indicated that planning for the bog commenced in 2008/2009 with the report submitted by James Moore on September 22, 2009 (refer Exhibit 3). It would appear that work commenced in December 2010 and the majority of the excavation was conducted in the summer of 2011. We were advised, and we have identified, invoices which indicate that Sacks Excavating conducted partial construction of the cranberry bog. M. Sack was not a Councillor at the time of the construction.

5.2 The financial projections in the business plan were prepared by Blake Johnston and correlated by an accounting firm in Truro, Nova Scotia. Based upon the financial plan, the clearing of the first five acres was to have cost a total of $90,000.

5.3 The payments to Sacks Excavating are as follows:

Table 3: Payments to Sacks Excavating Invoice Payment

Date Reference Amount Cheque Date Aug 22, 2011 22082011cran $175,798.66 45629 Sep 28, 2011 Sep 08, 2011 20110073 17,995.00 63058 Apr 23, 2012 Sep 28, 2011 28092011cran3 194,612.00 45630 Sep 28, 2011 Sep 28, 2011 28092011cran4 19,500.00 45631 Sep 28, 2011 Nov 30, 2011 30112011cran5 26,862.43 63058 Apr 23, 2012 Total $434,768.09

5.4 We have located copies of the cancelled cheques related to the remaining invoices totalling $389,911 and have confirmed that they were issued to Sacks Excavating. Copies of those cheques are attached as Exhibit 4. The three cheques were all issued on the same day and bear the signatures of Chief Jerry Sack and J. Hayes. Upon review, the signature of Chief Jerry Sack is virtually identical on each cheque indicating that a signature stamp could have been used versus Chief Sack personally signing the cheques. In addition, Chief Jerry Sack typically signs using his middle initial F. Invoices supporting these payments have not been found.

5.5 In an interview with M. Sack, he discussed the work his company performed on the cranberry bog as follows:


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SACK: (Talk over) Yeah. Like they hired their own guys to cut and stuff and then we did all the machine work, cleared all of the grubs, did a cut and fill, like a six foot cut in at one side and took it to the other side and built it all up to make it level and stuff. And to me it was crazy, they wanted it done, we're in business, well do it, right but I would never have tried that myself but . . .

MCCORMACK: The, when you did the bog, like you said so your guys only did the cut

and fill part, right or the cut, no sorry you didnt do any of the cuts, you guys just took out all the grubs and all the other stuff.

SACK: (Talk over) They, all the excavating and stuff. MCCORMACK: All the excavating and stuff. SACK: (Talk over) Yeah. Yeah we didnt actually cut the trees, no. MCCORMACK: How big or how much land did you have to do? Do you remember? SACK: I think the first section was like five acres or something. Right? And further M. Sack stated: MCCORMACK: (Talk over) Yeah, yeah. Now in terms of the work that youve done have

you, did you finish what you were supposed to do on that, on the bog? SACK: I . . . MCCORMACK: Except for the sand. SACK: (Talk over) . . . I think we got to the sand point I think and that's where it

stopped. MCCORMACK: So youve done all the clearing . . .

5.6 Based upon our discussion with Blake Johnston (B. Johnston), we were advised that he was asked to work with M. Sack and Bedford Excavating although he did not see either when on site. B. Johnston indicated that he started to have problems getting his work paid and was advised by M. Sack during the construction process, to provide him with the invoices, that M. Sack would increase the costs by $10 per hour and then get them paid. We assume that M. Sack would then invoice SFN for the work. B. Johnston advised that he did not follow M. Sacks suggestion. He advised that:

MCCORMACK: Right. JOHNSTON: But I know, again, you know, the big part of the project is to generate

work. MCCORMACK: Mm hm.


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JOHNSTON: ..so at that point, Mike Sack had been talked about all the way through the project as a local contractor who could get involved in excavating this thing. I was very supportive of the idea of using a local guy. I dont really, Im not really in the business of running construction equipment. I had a construction equipment business in Ontario for about eight years which was a lot of fun. But thats not what I do now. But I do have specific equipment for cranberry bed preparation. My bulldozer, for example, has laser grading equipment which is just vastly more efficient than what most guys have. Same thing, my excavator has a plough on it for ploughing in the irrigation and the draining products. So, that was really my only real interest in getting involved in the project was to do those things. So I was very happy with the idea that Mike Sack would headline things there. Interestingly through the almost year and a half, or whatever, before we got rolling on the project, I traded voice mails with him a couple of times. I think I actually spoke with him once on the telephone trying to schedule meetings. Every time I went down there I said, lets get together and see how this is gonna go together. And we never met. It was not until things were actually moving along. I had, you know, laid out an area that needed to be cleared and grubbed and, but again, hed never met with me directly, but just gone through Jerry. Finally I was actually on site one time and I said, I really, really need to talk to Mike to find out, you know, what exactly his interest is in this. But it had been obvious at that point, I think the project had been up and running for a week or two, his guys were on site, but he hadnt been there. He hadnt actually arrived on the job site. So. Which I thought was a fairly interesting way to run a construction. As well, by that point in time, hes got, I think at that point, John from Bedford Excavating Services. Let me just put his name out of here. No, I never got his last name. Bedford Backhoe Services. Ive got a telephone number, but no last name for him. He had a couple of pieces of equipment there. Theyd been working on some other projects on the site. And swung into gear on this one. Anyway, so I did meet with Mike once in all the time that I was down there. At his house. And at that point it was fairly obvious to me that things were starting to get out of control. There was no control in terms of budgeting, in terms of money. Yeah, we were a couple weeks into it. I hadnt got paid of course, and so I discussed the issues of billing and he said, well just send me the invoices and Ill mark them up. I think it was ten bucks an hour or something of that nature, and submit them and youll get paid, no problem. I said, well, thats not really the way that this is going to work because I am involved in trying to make sure that this thing is a success. So, Ive gotta make sure that I see whats going on so that I have some semblance of control.

5.7 B. Johnston advised that, through his companies, he invoiced SFN a total of $120,528 for which he has not been paid. Of that total, he billed $46,058 from July 9, 2011 to July 30, 2011 for excavation, land clearing and supervision.


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5.8 Based on the above, the total cost of the cranberry bog to date is shown in Table 4 below:

Table 4: Cranberry Bog Cost to March 31, 2012 Description Amount Excavating $ 434,768 Payroll 151,497 Legal 14,719 Consultants 12,450 Other 11,603 Total Paid 625,037 Excavating and consulting - Unpaid 120,528 Total Effective Cost $ 745,565

5.9 B. Johnston advised that when he was last at the property in late 2011 approximately five acres had been cleared at that time. However, the property needed additional work to be ready for planting and growing cranberries on the cleared area.

MCCORMACK: At what percentage of completion do you think theyre at now? I know you said that the land, from what you can tell, the land has been cleared.

JOHNSTON: For the first five acre bed, maybe fifty percent. And MCCORMACK: So about fifty percent completion. Dollar value? JOHNSTON: Id have a hard time nailing down right now, you know, what it would take

to get it into production only because I havent been there since theyve, I havent walked the site or done a level survey since these other contractors got off. But after we left, John from Bedford Backhoe Services and Mike Sack and his guys continued moving dirt around there with no direction. So, you know, they had a general idea of what needed to be done, but I, you know, stopped providing information because really that was the only hammer that I had in terms of trying to get paid.

5.10 Although $745,565 has been effectively incurred, the bog is not operational. It appears that much more work is required to fulfill the plan of having 25 acres in production. The cost of the additional work and timeline to do so is unknown.

Conclusion

5.11 Due to the lack of supporting documentation and the indication that work performed by Sacks Excavating was essentially performed by B. Johnston, the $434,768 paid to Sacks Excavating is considered questionable.


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6 SNOWPLOWING

6.1 Based upon our review of available materials, Sacks Contracting and Sacks Plowing have been providing snowplowing services for SFN without a contract during the Period of Review. SFN attempted to have a bid process for the snowplowing in 2008/2009 which was frustrated.

6.2 Prior to 2009 we understand that the snowplowing on the reserve was done by two employees of Operations and Maintenance (O&M) with a Bobcat equipped and a three ton truck both equipped with a plow. Both were owned by SFN and used on an as needed basis. When the employees were not doing the snowplowing they were employed doing other operations such as garbage removal. When the Manager of O&M left the community for approximately one year, and returned in late 2010, he discovered that the snowplow equipment had been sold or given away. In addition, snowplowing had come under the control of Housing. The Manager of O&M was under the impression that there was a 10 year contract for the snowplowing and did not question it. As he was not responsible for the budget he did not monitor the expenses.

6.3 Documents related to the tendering of a snowplowing contract were found in the records of Burchell MacDougall. In 2008, a memo was released which referenced a Council Meeting on December 9, where the Council requested invitations for tenders be issued for snow removal, salting, sanding roads/parking lots/driveways. The bid process stipulates that the contract is from December 16th, 2008 until March 31st, 2009 for all main roads and subdivisions and lanes, community parking lots/driveways, emergency responders driveways and seniors, disabled, driveways. The memo does not indicate how much snow must fall before snow removal is to take place. A copy of the memo is attached as Exhibit 5.


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6.4 The Band received five bids; John Peter Paul, M. Sack, CJ Sack, CJS Excavating and Thomas Maloney (T. Maloney). However, a note on the bid from CJS Excavating indicated that it was not received on time, therefore not considered. The bids can be summarized as follows:

Table 5: Snowplow Bids Name Bid M. Sack $1,070 for 107 and $2,080

for 2081 CJ Sack $802.50 for 107 and

$1,560 for 2082

CJS Excavating

$124,750.00 T. Maloney $127,454.15 John Peter Paul Total not provided

6.5 We understand that the tendering process failed and no bid was accepted. Burchell MacDougall was asked to provide an opinion on the process. The January 14, 2009 opinion found that the process was fatally flawed and that the bids were largely not comparable. The recommendation was to reject all proposals and contact the four bidders who submitted their documents on time to offer them the ability to re-submit bids. We are not aware if this was done. Invoices and payment for snowplowing services prior to March 31, 2009 have not been examined as they are outside of our Period of Review.

6.6 In addition to the Burchell MacDougall comments, we also note that the bids attributed to M. Sack and CJ Sack are identical in formatting and the handwriting appears to be the same, however the cost is different. According to corporate searches, M. Sack was the owner of CJS Excavating at the time.

6.7 The next reference to snowplowing was found in the Council Minutes dated November 18, 2009. They refer to Gary Richards to complete a contract for snow removal. Based upon the date of the meeting we assume that the contract would, at a minimum, be for the winter of 2009/2010.

6.8 MNP was provided a Service Agreement between SFN and H. Sack dated December 15, 2009 by Pink Larkin LLP. Pink Larkin LLP also provided a letter from Alain Begin, the legal counsel of H. Sack in regard to the termination of the snow contract. A copy of these documents is attached at Exhibits 6 and 7 respectively.

2 We believe that the reference to 107 and 208 refer to the number of homes or driveways to be plowed.


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6.9 The contract stipulates that this is a contract for the performance of a service and Mr. Sack is engaged under the contract as an independent contractor for the sole purpose of providing a service. The contract further stipulates

i) the Band will pay Mr. Sack upon acceptance of invoices for services provided. The value of the monthly invoices submitted shall not exceed forty thousand dollars ($40,000).

ii) Total amount of remuneration to be paid to Mr. Sack by the Band shall not exceed ($158,000) one hundred and fifty-eight dollars per annum.

iii) The Contract is limited in term commencing on December 1, 2009 and terminating on November 30, 2016

iv) The Contractor and the Band may, by mutual agreement, terminate this Agreement upon ninety (90) days written notice delivered to the other party.

v) An appendix titled Schedule of Remuneration indicates The months of December, January and February will be billed at a flat rate of $40,000 per month. March of each year will be billed at a flat rat of $38,000. Snow removal outside of the billed months are included in these costs., and

vi) The contract refers to the Contractors address shall be as it is stated in the Registry of Joint Stock Companies records but there is no referral to a corporation name within the contract itself.

6.10 The letter from Mr. Bgin of McLellan, Richards and Bgin Barristers and Solicitors indicates that H. Sack did 85% of the work himself and that he leased the equipment from Sacks Excavating. Although there is reference to a termination of the contract the financial records reflect payments to Sacks Plowing in fiscal 2010 which were primarily signed by M. Sack. In addition, the financial records indicate that Sacks Excavating, a business associated to M. Sack, has billed SFN for snowplowing services for the years ended 2011 through 2012.

6.11 Based upon a review of the general ledger and available supporting documentation we note the following with respect to snowplowing:

March 31, 2010

The billing for the year ended March 31, 2010 consisted of five progress bills; four for $30,000 and the last one for $38,000. Available invoices from Sacks Plowing, cheque requisitions and cheque stubs are attached as Exhibit 8.


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The registration of a business under the name of Sacks Plowing was not found and the invoices do not list an address;

The progress billings indicate that the total amount spent on snowplowing for the 2010 fiscal year was $158,000 whereas the financial statements report a total expense of $120,000. The financial statements are prepared on an accrual basis therefore the final payment was recorded in the 2011 fiscal year. It is likely that the final draw was not set up as an accrual. One reason for this could be that the contract was not available to refer to and the invoice does not indicate when then work was performed;

Of the cheque requisitions obtained, J. Hayes approved all the payments. There is no evidence of any other approval from the O&M Manager or the Housing Manager;

None of the cheque requisitions refer to a purchase order or work order. Although the description of services rendered refers to a snow contract H. Sack signed the cheque requisition for draw #2 as the person who received the payment. M. Sack signed the others; and,

The invoice and cheque requisition for the first draw was not located, however the general ledger record shows that cheque #24568 in the amount of $30,000 was issued on January 7, 2010 to Sacks Plowing.

March 31, 2011

No invoices or cheque requisitions were found for the year ended March 31, 2011;

As noted in the 2010 financial statements, the amount reported is based upon the payables recorded in the general ledger. In the case of fiscal 2011, the last draw from 2010 in the amount of $38,000 was added to the first four draws recorded for 2011; and,

Looking at the transactions on a cash basis, the general ledger indicates that two cheques were issued totaling $158,000 as follows: o December 17, 2010, cheque #38221 for $30,0000 to Sacks Plowing;

and, o March 31, 2011, cheque #40674 for $128,000 to Sacks Contracting.

March 31, 2012

One invoice was located with respect to snowplowing for fiscal 2012. Invoice 16042012snow, dated April 16, 2012 in the amount of $133,000 is attached as Exhibit 9;

The invoice refers to the snow plowing and salting services contract, Winter 2011/2012. The amount of this invoice is net of a payment of $25,000


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which was made on December 13, 2011. Cheque #49277 was recorded in the general ledger as paid to Sacks Plowing New contract 2011-2012;

The new contract referred to on the invoice and in the general ledger has not been found;

Invoice 16042012snow was effectively settled by M. Sack offsetting the amount against fishing revenue owed to SFN. The application of this amount is discussed in the Fisheries Appendix, Appendix 9; and,

Although the invoice for 2011/2012 totals $158,000, the final payment from 2010/2011 in the amount of $38,000 was effectively expensed in 2011/2012. The difference of the $38,000 is a timing difference for reporting purposes. In effect, $158,000 was paid in each of the three years reviewed, for a total of $474,000.

Conclusion

6.12 Based on the above, the total cost of snowplowing for the three year period was $474,000.

6.13 We believe that Mike Sack has an interest in Sacks Plowing and owns Sacks Excavating. This belief is based on the following:

i) The initial invoices under the Sacks Plowing letterhead were signed by Henry Sack and then only by M. Sack after February 2010.

ii) M. Sack invoiced the Band using Sacks Excavating letterhead in 2011 and 2012. These invoices were not in relation to snowplowing;;

iii) M. Sack applied monies owed for snowplowing against monies he owed the Band for fishing revenues.

6.14 It does not make sense that the snowplowing contract would be reviewed and authorized by the Housing department. Operations and maintenance historically was responsible for this area and would have the expertise to determine the condition of the roads, the responsiveness of the snowplowing contractor and the effectiveness in the community. We were not advised of the rationale for the change of responsibility to Housing. We note that D. Gloade, the Housing Manager at the time was also an employee of M. Sack. This is a serious risk to the organization and potential conflict of interest for D. Gloade.

6.15 The contract was signed by H. Sack but M. Sack did the majority of the invoicing and received most of the payments for the snowplowing. M. Sack is not referenced in the contract and appears to have circumvented the bid process he engaged in the year previously. M. Sack was a member of Council and did not declare his conflict of interest in regard to this contract.


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7 WALLACE HILLS

7.1 The lands of Wallace Hills were awarded to SFN by the Federal Government on March 10, 2011 as Wallace Hills Indian Reserve no 14A in Nova Scotia, consisting of 54.799 hectare (135.35 acres) excluding mines and minerals. The Band had been negotiating for these lands since the 1960s.

7.2 M. Sack was a member of the Wallace Hills Development Committee (the Wallace Hills Committee) created by Council and noted in the minutes of July 9, 2009.

7.3 In an interview with J. Hayes he was asked about the incorporation of MRJJ, he indicated that it was a condition of Aboriginal Affairs Northern Development Canada (AANDC) that a corporation be formed to handle all the economic development related to Wallace Hills. He further indicated that the funds generated from the tobacco rebate program with Loblaw Companies Limited (Loblaw) were to be used for the Wallace Hills Development.

7.4 The Council Minutes on April 12, 2011 indicate that there was a meeting about [the] layout of land architect for Wallace Hills. At this same meeting, there was a motion to remove M. Sack from the Wallace Hills Committee however, the motion was defeated. We were advised that the motion was presented because of M. Sacks involvement with MRJJ and the proposal for Wallace Hills at the time.

7.5 The Council Minutes on June 7, 2011 indicate that M. Sack approached the Band in regard to constructing a building on the Wallace Hills property. His plan was called the Wallace Hills Entertainment Centre. A motion to accept the proposal and work on an agreement at the same time was initiated by Councillor R. Augustine and seconded by Councillor Ian Knockwood.

7.6 The Council Minutes on August 5, 2011 indicate that SFN passed a Band Council Resolution (BCR) that stated any band developments involving gaming matters will be with 100 per cent ownership of the band unless otherwise with full community support through a community referendum.

7.7 The following are transactions and documents detailing the involvement of M. Sack with the development of Wallace Hills.


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Sacks Excavating Invoice 20120104

7.8 Invoice 20120104 dated January 4, 2012, from Sacks Excavating (refer Exhibit 10) is for blueprint drawing regarding the Wallace Hills Entertainment Centre from Harvery Mackenzie Architects as approved by Council in the amount of $60,000 was identified in July 2013 through inquiries by the auditors. We reviewed the Council Minutes from July 28, 2011 until February 28, 2012 and found no instance of Council discussion or approval of this invoice. We further contacted the third party managers of SFN who advised that Council was not aware of Harvery Mackenzie Architects or having requested M. Sack to conduct this or any blueprints received. We understand that this invoice has not been paid or recorded as a payable.

7.9 MNP conducted Internet research and identified Harvey and Mackenzie Architects conducting business at 5531 Cunard in Halifax Nova Scotia which we believe to be the company indicated above.

Pockwock Road Property

7.10 MNP was advised that SFN had purchased an acre section of land, Property Identification (PID) #00423335 (Pockwock Road Property) from M. Sack in November 2009 and that he had bought it only four months prior to the sale to SFN. The lot is now considered part of or close to the Wallace Hills reserve lands.

7.11 In an email from G. Richard to Thea Langille, from the Planning Department of the Halifax Regional Municipality (HRM), dated May 14, 2012, G. Richard indicated that he had attached a survey plan of the Wallace Hill Reserve. Reserve 14A consists of Lots 325, 327, 328 and 330. The survey plan and legal description notes that all watercourses remain under provincial jurisdiction. As you can see, Reserve 14A straddles the Hammonds Plain Road, has access to Pockwock Road via a non-Reserve property purchased in fee simple by the Band contemporaneous with the addition to Reserve in March 2011. This property is assumed to include the Pockwock Road Property.

7.12 MNP reviewed the Nova Scotia online land registry and noted that the Pockwock Road Property abuts the reserve land to the northeast and appears to be a strategic location which could provide access to the MicMac Rd residential area. Image 1 below is a map of the area obtained from the land registry. The black outlined property just above the words Hammond is the area identified as the Pockwock Road Property.


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Image 1: Pockwock Road Property Map

7.13 The assessment value of the Pockwock Road Property as per Nova Scotia Online was $40,500 in 2012 and $42,800 in 2013 (refer Exhibit 11).

7.14 Exhibits 12 to 14 contain land registry information for the Pockwock Road Property which shows the historical ownership as follows:

January 1999 - the property was sold by Susan Wenning Cameron, Joan Wenning McMillan and Andrew S Wenning to Ramar Developments (refer Exhibit 12);

July 23, 2009 - Ramar Developments sold the property to M. Sack (refer Exhibit 13); and,

October 7, 2009 - M. Sack sold the property to SFN, however, the transaction was not registered until November 27, 2009 (refer Exhibit 14).

7.15 MNP contacted Ramar Developments Chris Marchand, who advised that the land was sold to M. Sack for $40,000 in July 2009. A review of the general ledger showed that a $65,000 cheque was drawn on the CIBC Administration account on September 11, 2009. Cheque number 21321 was paid to Carruthers and MacDonnell and the memo field refers to Wallace Hills. Carruthers MacDonnell and Robson is a law firm situated in Shubenacadie Nova Scotia. The cheque requisition describes the payment as for Wallace Hills Land and is approved for payment by J. Hayes. The cheque advice, requisition, and letter confirming the payment from Carruthers and MacDonnell are attached as Exhibit 15.


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7.16 In addition to the purchase of the land, a payment of $229.26 to HRM for delinquent 2009 property taxes was found. The invoice, attached as Exhibit 16, indicates that the taxes were delinquent as of October 12, 2009, effectively five days after the property was purchased. Based on the documentation obtained to date it is not clear if the taxes were the responsibility of SFN or the previous owner(s).

7.17 MNP reviewed the Council Minutes from April 2009 until January 2010 and there is no notation of a BCR or discussion in regard to the purchase of this land from M. Sack. There is also no discussion about the necessity to purchase this acre of land. M. Sack was a councillor with SFN commencing in June 2009 and was present for a number of Council Meetings when the discussions were occurring with respect to the Wallace Hills Development and was also a member of the Wallace Hills Development Committee.

7.18 Based upon the available documents, it appears that M. Sack realised a profit of approximately $25,000 ($65,000 - $40,000) in the sale of the Pockwock Road Property while he was a Councillor and member of the Wallace Hills Development Committee. We did not find any disclosure to Council or the Community of this transaction and the parties involved. It is not known if the amount paid by SFN was fair market value as there is no indication that the property was appraised by a third party.

7.19 Absent further information we consider the profit and payment of the delinquent property taxes totalling $25,229 questionable.

Wallace Hills Plans

7.20 We are aware of two submissions by M. Sack for the development of Wallace Hills. They are as follows:

Memorandum of Understanding (refer Exhibit 17), and, Development and Management Agreement (refer Exhibit 18).

7.21 The Memorandum of Understanding was not dated and was based upon a ten year management agreement where M. Sack would construct the building but the Band would own the building. In the agreement M. Sack would receive 20% of the gross revenue from all operations at the business over the term of the agreement. This agreement was not executed.

7.22 The Development and Management Agreement is dated June 2011 and the terms included the following:

The construction of a facility to be utilized and operated for the purposes of housing video lottery terminals;


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Retention of the Developer [M. Sack] for the purposes of developing and constructing the Facility as well as to manage and operate the Facility; and,

A fifteen (15) year exclusive licence as well as the operation of forty-five (45) VLTs on site.

7.23 There are sections in the contract that appear to give a great financial advantage to M. Sack, including:

Section 3.7 - provided that it fulfills its obligation to pay the Monthly License Fee to the Band, the Parties hereby agree that the Developer shall be entitled to all of the net revenue derived from the Business during the course of the term; and,

Section 3.8 - notwithstanding any other provision of this Agreement, including section 2.4 hereof [refers to ownership of facility] for the purposes of permitting the Developer the better assurance of its rights under this agreement, the Band shall, on the written request of the Developer, provide the Developer with a certificate of possession, or other similar instrument or declaration, in respect of the Subject Land for the Term.

7.24 This agreement was never signed as we understand that the Community raised concerns over the ability of M. Sack to obtain a Certificate of Possession on the land and the revenue sharing he was proposing.

Wallace Hills Expenses

7.25 Amounts recorded to account 5331, prior to adjustment for financial statement purposes were as follows:

Table 6: Payments re: Wallace Hills Payments 2010 2011 2012 Total MRJJ $ 38,682 130,755 - 169,437 Land 65,000 - - 65,000 Legal 16,825 20,487 22,617 59,929 Sacks Contracting / Excavating

7,765 - 28,524 36,289

Marketing 12,657 - - 12,657 Audit - - 2,200 2,200 Amcrest 845 900 - 1,745 Other 10,548 5,090 4,079 19,717 Total $ 152,322 157,232 57,420 366,974


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7.26 The payments to Sacks Contracting in 2010 and Sacks Excavating in 2012 totalling $36,289 are related to single invoices recorded on July 9, 2009 and September 6, 2011, respectively. We have not located the invoice for July 9, 2009, therefore it is not known what the charges were for and why the amount was capitalized. Invoice 20110074wall in the amount of $28,524 from Sacks Excavating is dated September 6, 2011 and attached as Exhibit 19. The charges are for plan preparation, labour, machine time and materials. However, the details (hours and rates) of the charges are not set out in the invoice and the invoicing follows the submission of proposals in April and June for the project. Concerns have been raised that the invoice represents M. Sacks cost to prepare the proposal for Wallace Hills. If that is the case then it is highly unusual for a proponent to charge for preparation of a proposal. Pending the receipt of the 2009 invoice and confirmation of the work performed we consider these amounts questionable.

Conclusion

7.27 Based upon our review of the transactions related to Wallace Hills, M. Sack and the M. Sack Companies we consider the following amounts to be questionable:

Table 7: Wallace Hills Questionable Amounts Description Amount Pockwock Road $ 25,229 Sacks Contracting unsupported payment 7,765 Sacks Excavating invoice #20110074wall 28,524 Total $61,518


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8 FISHERIES

8.1 SFN manages two main fisheries; a ceremonial food fishery (Food Fishery) and a communal commercial fishery (Commercial Fishery). The two fisheries are administered under agreements with the Department of Fisheries and Oceans (DFO) on behalf of the Government of Canada. Licences are granted to the Band under these agreements.

8.2 The Commercial Fishery is represented by licences assigned by the DFO to SFN. They are managed by SFN with the oversight of the DFO. These licences can be used by Band members or leased to third parties. We understand that there is a requirement for the individual holding the lease to be a licensed boat captain.

8.3 Through various interviews and review of the Council Minutes, we understand that the Council directs how the licences will be issued and the lease amount per licence. The Fisheries Manager is then responsible for the management of the licences, including the collection of revenue and managing the first nation crews. The licences include lobster, snow crab, swordfish, scallop, herring and groundfish.

8.4 The crew of the boats fishing the SFN licences are to be made up of members of SFN. We understand that the terms of the lease for lobster licences require the company or person who fished the licence to submit 24% of the value of the catch to SFN. There would typically be three crew members, therefore SFN would in turn issue a third of the 24%, or 8%, to each crew member.

M. Sack and Mainland Juggage Role in Fisheries

8.5 M. Sack operates Mainland Juggage and we were advised that Mainland Juggage purchases catch from the snow crab and lobster fisherman and acts as a middleman for Wedgeport Lobsters Ltd. (Wedgeport Lobsters). Wedgeport Lobsters is owned by Reginald Leblanc (R. Leblanc) and sells the lobsters at market.


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8.6 We reviewed a newspaper article from the June 20123

8.7 According to the news article M. Sack acted as the broker in the deal to sell the lobster to Wedgeport. It further states that M. Sack may have received a handling fee with LeBlancs lawyer suggesting that the sales were used for Band purposes. We are not aware of any funds flowing to the Band from M. Sack or Mainland Juggage for fisheries outside of the payment for the commercial licences and payroll.

Yarmouth County Vanguard that indicated that M. Sack and R. Leblanc were charged as a result of a search and forensic audit conducted at Wedgeport Lobsters in July and August 2010. The audit revealed that lobster that had been caught as a part of the food, social and ceremonial fishery had been sold. This is in reference to food fishery licences. SFN and DFO had an agreement to bring together 81 of the individual two pot licences to create one overall community licence that had a daily trap limit making it easier for DFO to manage and monitor.

8.8 R. Leblanc was fined $15,000 and M. Sack was fined $5,000 after they entered guilty pleas of buying, selling, trading or bartering lobster without a licence.

8.9 MNP contacted Terry Zinck (T. Zinck) who operates Xsealent Seafood Company (Xsealant Seafood). T. Zinck advised that his company has been leasing lobster licences from SFN, via M. Sack (or Mainland Juggage), for a number of years. He advised that:

They have leased four (4) licences in the past but in the past couple of years have only leased one (1);

Xsealent Seafood leases the licences directly from M. Sack who approached them. They paid $30,000 for the lease. T. Zinck indicated that his company provides 6% of the catch revenue to M. Sack for each crew member;

Xsealent Seafood also pays M. Sack $0.40 per pound for the landed catch as a commission;

Xsealent Seafood sells the lobster to its vendors. T. Zinck stated that M. Sack does not buy seafood;

Xsealent Seafood does a direct deposit to an account (it is assumed this is the account of M. Sack) for the crew percentage and the commission; and,

T. Zinck does not know M. Sack personally and has only dealt with him once or twice.

3 http://www.thevanguard.ca/News/Regional/2012-06-18/article-3011241/$20,000-in-fines-in-lobster-case/1


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8.10 T. Zinck stated that when he approached Council, they were concerned that M. Sack paid $20,000 for the licences and were not aware of the commission he was receiving. T. Zinck indicated that it is not unusual for third parties to act as brokers and to receive commissions to pay for the crews and their expenses. We have not reviewed the invoices of T. Zinck at the time of this Report.

8.11 We are aware that SFN has a Fisheries Manager and completes all payroll for the crew members assigned to the fishing vessels. Therefore, it is not known why the Fisheries Manager did not or could not have set up a direct relationship with Xsealant Seafood for the Band.

Fishing Licence Revenue

8.12 In the next section, we will discuss three principal areas;

Amounts owing by Alex McDonald Sr. (A. McDonald) from his loan from SFN;

Lobster licences; revenues and issues; and, Snow crab licences; revenues and issues.

A. McDonald - Loan

8.13 At the November 17, 2009 Council Meeting, A. McDonald requested a loan of $20,000 to lease a commercial licence (refer Exhibit 20). A. McDonald was a Councillor at the time and left the room during a discussion of the request. The minutes reflect a revision to the request as follows:

REVISED: asking for an additional 15K to pay Mike Sack and he will make payments on the 20K fisheries license as well.

8.14 We note that M. Sack was a Councillor at the time of this meeting and there are no notes of M. Sack exiting the room while this motion was discussed and voted on. The motion was passed with six votes for and five votes opposed. The minutes do not indicate if M. Sack voted or not, however according to the minutes, there were 12 Councillors at the meeting and only 11 voted, therefore it is plausible that M. Sack did not vote.

8.15 The $15,000 amount to pay M. Sack was paid from SFN funds directly to M. Sack and the repayment has been discussed in the Fisheries Appendix, Appendix 9.


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Lobster Licences

September 2011 M. Sack all LFA Licences

8.16 In Council Minutes for September 13, 2011, a financial update was provided by J. Hayes where it was noted that there was no funding for payroll, LSK4

8.17 A Fisheries Lease Agreement between SFN and M. Sack dated September 14, 2011 (refer Exhibit

and Admin and that the Council would have to worry about welfare within the next week. Jerome Paul (J. Paul) was summoned to the meeting to discuss what could be done for payroll etc. A motion was then passed with respect to the fisheries licences where it was agreed to lease the fisheries licences for $40,000 each and a 24% allocation of catch revenue to SFN to pay for labour costs. There is no indication in the minutes of who the licences would be issued to and there is no distinction made between the lobster licences and other licences.

21) was located in the records. The agreement appears to reflect the Council Minutes from September 13, 2011 and is signed by Chief Sack, seven Councillors and J. Hayes. The document does not bear the signature of M. Sack. The agreement provides for the lease of all licences for LFA 34 (9 licences) and LFA 35 (3 licences) for the 20112012 Lobster season for $40,000 each. Therefore, M. Sack was to pay SFN a total of $480,000; $240,000 was due immediately, $60,000 no later than October 14, 2011 and $180,000 no later than November 25, 2011.

8.18 An email exchange between J. Hayes and G. Richard, legal counsel to SFN, on September 14, 2011, attached as Exhibit 22, confirms that the agreement relates to lobster licences only. In the last email sent by G. Richard at 3:42 PM, he says that J. Paul has advised that all the captains that would have been licensed, are financed through M. Sack, so whether the band deals with Mike directly or through Captains, it is essentially the same transaction.

Lobster revenue

8.19 Based upon the general ledger, catch revenue in relation to Mainland Juggage is broken down as follows:

Table 8: Sources of Lobster Revenue Licensee 2010 2011 2012 Total Mainland Juggage $ 214,472 405,794 347,105 $ 967,371

4 LSK is the Lnu Sipuk Kinamuokuom.


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8.20 We note the following with respect to lobster revenue:

SFN entered into an agreement with Mainland Juggage to lease three LFA 35 licences and nine LFA 34 licences (refer Exhibit 21), for the 2011 2012 lobster season, for a total of $480,000: o $240,000 to be paid on September 15, 2011; o $60,000 no later than October 14, 2011; and, o $180,000 no later than November 25, 2011.

In reviewing how the $480,000 was settled, we identified a payment of $240,000 on September 15, 2011. Our review of the records indicate that $200,000 of the outstanding $240,000 was offset against amounts that M. Sack claims was owed to his other companies by SFN (refer Exhibit 23). We have not identified how the remaining $40,000 was settled;

Lobster wages should approximate lobster catch revenue. A comparison between catch revenue and wages identified that wages were significantly higher than reported revenues during the years ended 2011 and 2012. This is inconsistent with our expectations that wages should approximate revenue earned:

Table 9: Comparison of Lobster Catch Revenue and Lobster Wages Description 2010 2011 2012 Lobster catch revenue $ 255,126 343,841(1) 347,105 Lobster wages (261,797) (536,808) (564,430) Difference $ (6,671) (192,967) (217,325)

(1) This amount includes an audit adjustment in respect of unreconciled bank balances, writes offs of balance sheet items and other which lowers total revenue by $83,796. This is why this balance is lower than revenue earned from Mainland Juggage in Table 8 above.

8.21 Based upon the summary comparison above, we have attempted to reconcile the differences between salaries paid and reported revenue in Table 9 above. Documentation with respect to catch revenue is voluminous, consequently we have performed testing on a sample basis of the available documentation. The following were sampled:

Invoices from licensees setting out catch weight, catch price and crew share; SFN payroll records including payroll calculations and cheque payments;

and, DFO Lobster Buyer Summaries (DFO Landing Summaries) which set out,

by vessel, the weight and value of lobsters landed.


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8.22 Our review of the above documents noted that payroll records were not always complete, for instance some did not detail the catch weight, and others did not have invoices from licensees attached to the records. We would expect this information to be attached to the payroll records as catch revenue forms the basis for the calculation of amounts payable to the crew.

8.23 In order to reconcile the differences in Table 9 above, we considered calculating expected revenue based on amounts paid for payroll, i.e. assuming wages are correctly calculated, then revenue should approximate wages paid. However, there is uncertainty as to whether the records, which form the basis of payroll and which are provided to SFN by the licensee, report accurate landing weights.

8.24 To confirm the accuracy of reports from the licensees, we compared catch weights in the DFO Landing Summaries to those found in the payroll records. We compared the records for October 2010, December 2010 and January 2011. The comparison showed that the DFO records had much higher landed weights than those reported to SFN. However, in a number of cases, the licensee reported landed weights to SFN which do not appear in the DFO records. Absent any further information, it appears that not all licensees are reporting catch weights to the DFO and not all licensees are reporting the correct catch weight to SFN. Additionally, one sample indicates that revenue due from the licensee was higher than 24% of the catch. It is not known why this occurred5

8.25 Due to the variations in the reported catch weights, it is not possible to test for unaccounted revenue based on SFN payroll, or based on the DFO records. We note that the disparity between reported lobster revenue and wages could include the following:

.

Monies not received from licensees; Wages not being properly calculated resulting in overpayment of wages; or, A mixture of both.

8.26 In each of the above circumstances, SFN suffers a loss where wages are significantly higher than revenue. This imbalance is reported in the financial statements for the years ended March 31, 2011 and 2012. Due to incomplete payroll documentation and uncertainty as to the accuracy of catch weights reported by the licensees to SFN, we are unable to quantify the losses due to this imbalance.

5 We also noted that the price per pound listed in the payroll records did not always reflect that reported by the DFO. Despite this, we assume that the prices used for payroll purposes are based on an agreed price between licensees and SFN.


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8.27 An examination of the Mainland Juggage records would be required to determine the reason for the disparity.

Snow Crab Licences

8.28 Based upon the available records, crab licences/quotas were leased to Cheryl Maloney (C. Maloney) for the 2009-2010 and 2010-2011 fishing seasons and then M. Sack for 2011-2012. Although C. Maloney was granted the licences/quota the records indicate that she was required to sell to M. Sack. A summary of the history of the licences for those years follows.

C. Maloney Crab Licence 2009-2010

8.29 In February 2009 Chief Sack issued a letter stating that C. Maloney will have access to snow crab quota and lobster licences (refer Exhibit 24). Following that, C. Maloney submitted a Project Proposal for Crab Fishing Operations under the name Chase Fisheries to the Council at the April 22, 2009 Council Meeting (Exhibit 25). The project proposal outlined two options for C. Maloney to obtain a SFN snow crab licence. A motion was made to accept the proposal submitted by C. Maloney. All members present at the Council Meeting were in favour of the motion and although it was passed, the Council Minutes do not specify if Option 1, a straight buyout per pound, or Option 2 fixed rate was accepted by Council. Manual notes on Exhibit 25 indicate that Option 2 was preferred for two years at a time.

8.30 On August 3, 2009 C. Maloney sent a letter (refer Exhibit 25) to the Council requesting clarification on the snow crab fishing arrangement. Her main concern, among others, was regarding instructions she received from the Council to sell her catch to Mainland Juggage due to a perceived conflict of interest. There is no indication in the minutes that C. Maloneys concerns were addressed at this time and if so, how.

C. Maloney Crab Licence 2010-2011

8.31 During the Council Meeting on April 6, 2010 C. Maloney offered to lower her rate she receives from the Band to $0.60 per lb from $0.65 per lb and expressed her concerns about selling to M. Sack, aka Mainland Juggage. Various accounting documents were presented during the Council Meeting by C. Maloney to explain her concerns; however, they were confusing to the Council and it was agreed that Shawn Fitzgerald, accounting clerk, would have a more in-depth look at the numbers and explain them to Council. A motion was made to give C. Maloney the crab quota at $0.60 per lb and she would supply the fuel, bait, gear, lodging and all other expenses and the SFN would pay only the all native crew.


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8.32 It is not known if Shawn Fitzgerald completed this task prior to the termination of his employment in July/August 2010. There is no reference to a Fitzgerald analysis in the Council Minutes after April 2010.

8.33 After the motion was passed, the Council revisited the crab discussion. A request was made by a Council member for clarification as to why C. Maloney must sell to Mainland Juggage and that G. Richards send/draft a letter stating the sell price to Mainland Juggage must be at a competitive rate. It is not known if this letter was drafted or issued.

M. Sack Crab Licences 2011-2012

8.34 BCR 2010-2011-54, dated March 2011 and titled Crab Quota - Mainland Juggage was identified in the BCR Register as dated March 2011. This is attached as Exhibit 26 and states Shubenacadie First Nation Agrees to sell their 2011 snow crab quota to Mainland Juggage (in the water) for a total of three hundred and seventy-one thousand dollars, $371,000.

8.35 During the September 20, 2011 Council Meeting, a motion was made to allow the Band to borrow money from M. Sack with the revenue from snow crab quota being used as collateral. This motion was defeated.

8.36 Snow crab revenue during the year ended March 2012 was based on a flat in the water price. This is inconsistent with the 2011 and prior period which was based on the shore price less boat owner costs (the 2011 revenue formula). Upon entering into the agreement the $371,000 was received which was prior to the commencement of the snow crab fishing season. In the prior years, revenue was received once catches were landed.

8.37 The accounting records indicate that $371,000 was paid into the Tobacco Shop bank account (RBC account 131-124-0) (Tobacco Account) on March 15, 2011. The total deposited was $459,3156

6 Although the accounting records indicate that $371,000 is included within the deposit, we have been unable to review the deposit slip or other similar documentation to confirm that this is the case.

. On the same day, $474,640 was paid to Atlantic Wholesale, we assume to settle debts owed with respect to tobacco purchases. It is not known why fisheries revenue was paid into the Tobacco Account or why other funds were not used to settle amounts owed to Loblaw. It is also not known what circumstances led to the agreement to sell the quota in advance rather than continue with the 2011 revenue formula.


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8.38 Based on catch weights reported to SFN by Mainland Juggage, the sale of the entire snow crab quota for 2012 represents a price of approximately $1.10 per lb7

8.39 We have considered the impact of entering into this agreement compared with a continuation of the 2011 revenue formula. We calculate that as a result of entering into the agreement, there is a potential difference between actual and achievable gross profit as follows:

. Consistent with the year ended 2011 crew wages of $0.28 per lb were paid out of this sales price, leaving SFN with a gross profit from snow crab of $0.82 per lb. This gross profit compares favourably with the amounts achieved in the years ended 2010 and 2011, $0.21 per lb and $0.57 per lb, respectively.

Table 10: Actual and Achievable Snow Crab Gross Profit per pound Description 2012 Snow Crab price per PEI Fish Report $3.25 Less: $0.60 per lb for boat owner (0.60) Less: $0.28 per lb for crew wages (0.28) Achievable gross profit 2.37 Actual gross profit (0.82) Potential difference in gross profit $1.55 Catch weight reported to SFN (lbs) 336,776.88 Potential additional profit $522,004

8.40 Although the circumstances leading to the agreement with Mainland Juggage are not known, based on Table 10 above, should SFN have retained the 2011 revenue formula, it would have achieved a further $522,004 of gross profit7. It is not known whether the potential difference of $1.55 per lb was retained by Mainland Juggage.

8.41 Finally, we have compared total catch weights reported to SFN by Mainland Juggage with those listed on the Snow Crab DFO Landing Summary of 374,143.41lbs. Mainland Juggage reports a total catch weight of 37,366.53lbs less than the Snow Crab recorded on the DFO Landing Summary.

8.42 Although the payroll records indicate that the buyer was Mainland Juggage, the Snow Crab DFO Landing Summary states the buyer is Three Ports Fisheries Limited. The reason for selling the 2011 quota to Mainland Juggage if the ultimate buyer was Three Ports Fisheries Limited is not explained in the records of SFN.

7 Based on total catch weight of 336,776.88 lbs reported to SFN by Mainland Juggage.


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8.43 Finally, during the year ended 2011, we noted the following unsupported miscellaneous expenses which are considered questionable:

$18,125 paid to Mainland Juggage for snow crab; and, A payment of $40,000 dated February 18, 2011 to Mainland Juggage. The

transaction description states Snow Crab Quota; however we have not identified any supporting documents for this transaction. We do not know why the payment was recorded in revenue, rather than expense.

Other

8.44 As indicated above, Mainland Juggage was the organization which contracted with SFN for the purchase of commercial lobster licence and snow crab quota yet the ultimate buyers were third parties as listed on the DFO records. It is not known why the Fisheries Manager or Council would not have investigated dealing directly with the third parties or through a tendering process to ensure that the revenue from the commercial quotas was maximized.

Conclusion

8.45 There are unreconciled differences between lobster catch revenue and lobster wages. We have been unable to reconcile these differences due to incomplete records and lack of documentation. We also note that there are discrepancies between landing weights reported by DFO and those reported to SFN. An examination of the Mainland Juggage records would be required to determine the reason for the disparity.

8.46 The Band missed out on revenue of approximately $522,000 when the Council agreed to sell the 2011-2012 crab quota to Mainland Juggage for a flat fee in the water. The decision to change the revenue formula in 2012 is an anomaly when compared to the prior and subsequent years.

8.47 Similarly to our findings with respect to lobster catch weights, there are discrepancies between landed snow crab weights reported by DFO and those reported to SFN. An examination of the Mainland Juggage records would be required to determine the reason for the disparity.

8.48 The payments to Mainland Juggage for snow crab of $40,000 and $18,125, a total of $58,125, are unsupported and therefore considered questionable.


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9 CAPITAL AND HOUSING

9.1 SFN Housing was managed by D. Gloade from May 2009 until December 2012, when he resigned. D. Gloade now works for M. Sack on a full-time basis. SFN Housing operations consisted of the construction and property management of SFN housing.

9.2 It is our understanding that during the Period of Review, SFN planned five housing projects to construct 31 houses, also referred to as units, on Band lands. The first was a 10 Unit Project and the second a 13 Unit Project. The 10 Unit Project was started prior to our Period of Review. The 13 Unit Project was contracted to Wekatesk Planning and Development (Wekatesk), a business that Councillor Thomas Maloney (T. Maloney) has an interest in. The remaining three housing projects were planned for a total of eight units. Construction related to these units appears to have been done in part by M. Sack companies. No contracts were found in relation to these homes but the largest amounts paid to a contracting company were paid to a combination of Sacks Contracting and Sacks Excavating.

9.3 During our review of the records, it was not apparent that budgets and project files were maintained for these houses. Absent project files, we reviewed the Council Minutes, BCRs and other documentation to understand the development of these sites. Table 11 below is a summary of the timeline of events from these records related to the construction of the housing projects:

Table 11: Housing Project Construction Timeline Date Event Reference Apr 8, 2009 Letter from CMHC re: 2007/2008 Project 13 Units.

The letter indicates that the 13 Units had not been started.

Letter (refer Exhibit 27)

May 6, 2009 Invoice 2009-001 from Wekatesk and related documents referencing the construction of 13 homes at various locations on the Nation.

Invoice (refer Exhibit 28)

May 19, 2009 M. Sack and Pat Gehue ask

Forensic Investigation: Appendix - M. Sack Companies

Documents

Transcript of Forensic Investigation: Appendix - M. Sack Companies