The Portland Hotel Society – An Update

In Committee A on Thursday, April 3, the Budget Estimates debates for the Housing Ministry were up. I had the opportunity to question the Minister, Honourable Rich Coleman, on a topic that I felt deserved to be explored more thoroughly. In particular, I was concerned that as a result of the recent controversy surrounding the Portland Hotel Society, the extremely important programs offered by this society would suffer. If this were to happen, the most vulnerable in our society would be those who ended up being hurt the most by the scandal.

As noted in the questions and answers extracted from Hansard and reproduced below, the Minister offered very reassuring responses that clearly indicate that the Portland Hotel Society’s programs will continue to operate, albeit under different management and a new Board.

Question 1:

A. Weaver: I have a couple of questions. First off, I’d like to apologize to the minister and the critic. I had not planned to ask Housing questions just because so much is going on at the same time, but I did want to ask just a couple of questions on a topic that I think needs to be addressed. These are pertaining to the Portland Hotel Society.

I’d like to acknowledge first off that it’s clearly been noted that a vast majority of the projects supported by this B.C. Housing do excellent work and are highly accountable. I also know that everybody is trying to ensure that we learn from the mistakes that happened and is trying to remedy these mistakes at the Portland Hotel Society.

Nevertheless, I have a couple of quick questions. First, if the minister is able to let me know, what is the allocated budget for the Portland Hotel Society in this fiscal year?

Answer:

Hon. R. Coleman: The budget we’re providing to that particular society this year would be approximately $9 million from Housing and about $9 million from Health.

Question 2:

A. Weaver: I’m wondering what steps the minister is taking to ensure that the mismanagement of public expenses at the Portland Hotel Society — not only the hotel society but potentially other housing societies. What account, what steps are being taken to ensure that mismanagement will not occur in the future?

Answer:

Hon. R. Coleman: I don’t want this discussion to leave any question that all of a sudden every non-profit society in British Columbia isn’t operating properly in housing. We have about 500 societies we do business with. They operate either, in some cases, in one building and sometimes multiple buildings. Sometimes they have other relationships in government with regards to social services or health.

Basically, the first thing I want to do is give the typical review process for the member, because this is what drives where we get to. I will say this: in this case, this is the most egregious anomaly that I have ever seen in housing in British Columbia, what went on at the Portland Hotel Society with regards to — not the services to the client but the poor management, the arm’s-length decisions that actually were interrelated with people, family, relatives and friends on social enterprises that weren’t profitable and ended up having to be subsidized, and the egregious spending with regards to some luxurious trips where people are actually donating to an organization where this should never happen.

I can tell you that they are an anomaly on that file, but here is the typical review process. B.C. Housing, a non–profit housing provider — I can give this to members; you don’t have to write it down — prepare and agree on a budget for the upcoming fiscal year on an annual basis. Our staff sit down with every society, go over their budget from the previous year, and set up a budget. Once the fiscal year is over, the auditor would require the non-profit providers to submit an audited financial statement. So they can have a bookkeeper, somebody doing their books all year long. Their books then have to go to a separate auditor, a chartered accountant, to do an audited financial statement. We review the financial statements and budgets to the budget versus actual on an annual basis for each one of these organizations.

Based on that review, we will make adjustments to the budget if it’s required, or we can sit down and talk to them about a range of some minor changes or further discussions, specific financial or operational costs that need to be improved. It’s an ongoing working relationship to make sure we’re all doing a good job.

The housing providers implement the changes that we recommend to them, and B.C. Housing follows up to ensure changes are made. So that’s what we do. This is how we operate this.

If changes are not made and the concerns continue to escalate, then we will escalate action based on the issues of the breaches that are noted. If we think that somebody is, for instance, not managing their maintenance account very well or their capital reserve has been misspent, and if they continue to do that, there could be a number of things. We could come in and sit down with the board and say: “You’re not doing your fiduciary duty. You need to improve this.” We can sit down with the management and help them improve their management practices and accounting. But we work with these guys, recognizing that in many cases…. All of these boards are volunteers, and so we recognize the personal commitment they have made to their communities.

When it really goes outside of that relationship not working, that’s the only time escalation would include a B.C. Housing internal audit team or a third-party auditor going in and taking a look at the books, which was the case of…. Every one of those steps actually happened on Portland. The Portland Hotel Society were audited in 2002. We initiated a third-party audit of the society then after the regular oversight process identified some operation and financial issues. One of the things that was taking place at the time is their accountant had passed away. There were some concerns because there were issues with their books. A third-party firm at that time went in, were brought in, to conduct an audit. Upon completion of that audit, B.C. Housing and the Portland Hotel Society took the required actions to implement the recommendation. So they actually did what they were told to do back in 2002. They went through and basically did their thing.

We’ve asked the new board, even with accounting for privacy rules, if they could please release that audit. But at the time, when we looked at releasing it back then, we weren’t allowed to under protection of privacy issues.

Those recommendations in that audit were implemented immediately. For the next number of years, the audited financial statements every year was matched up to the budget. There were no issues with the spending or concerns that were flagged until about 2010, when we started to see a small deficit.

That brought us through a number of processes and audits in a period of time up to the date that we actually we had to do the unfortunate thing that we had to do with the Portland Hotel Society and basically change its management and its board. It was either do that or take it into receivership and take it over financially.

Question 3:

A. Weaver: Thank you, minister, for that answer. My concern for this is the services that the society provided. My final question is: what steps in this budget is the minister taking to ensure the essential services such as Insite, the safe injection site, are actually sustainable for the community that the Portland Hotel Society served?

Answer:

Hon. R. Coleman: That’s a very fair question. You go through this unfortunate process, but you do have people that work for this society and units they manage. And they have the services and programs they deliver for both health and for housing that work and, quite frankly, are doing valuable work with the some of the hardest to house and hardest people in the community.

The arrogance of the people that were their bosses doesn’t mean…. It should not reflect on their concern and love for the people that they actually deal with every day. So what we did to make sure that this is stable and controlled is….

We had three options in front of us. One, to have the executive, the management team, resign and replace the management team and have the board resign and replace the board.

Two was to say: “In cooperation, because we’re not going to fund you anymore, if you don’t agree with these changes, you’re in receivership. You have two issues in and around receivership. You can accept it, or you can challenge it in court. If you wish to do either one of those, we will pursue it either way.” They chose to leave, which is better for the society, because it does have members that are members of the society and who, I think, were a part of a valuable thing that was happening for the people that were the clients of the organization.

Today, what we’ve done is we’ve gone in and put in a new board. We have a chair, Faye Wightman, who used to be the head of the Vancouver Foundation, on the board. We have, Ida Goodreau, who used to be the CEO of Vancouver Coastal Health Authority, on the board.

We brought in Jim O’Day. I’ve known Jim for decades. He was actually at one time the chair of B.C. Housing, a number of years ago. He has quite a good reputation on working with societies for developments and stuff like that, in that field.

Then there is Andy Broderick from Vancity and four other people. We brought in very good, high performing people to be volunteers on this board.

Then we went in and said, “Well, now the management’s gone,” so we took a senior management from B.C. Housing and the senior manager from Health, who now run the Portland Hotel Society operation.

In addition to that, we brought in Deloitte to basically be the accountant within the society to take a look at all the documentation and all the receipts that led up to this thing so that we’ll have any concerns there but also, obviously build a long-term financial plan for the sustainability of the society.

We will look at all of these social enterprises that basically were put in place by Portland, arm’s length to any funding we gave, but they were cross-subsidizing and it led to some of the deficit problems, because they weren’t well run or they had interrelationships that should not have existed in an organization like this.

We will analyze all of that and determine which ones are sustainable, which are not, which ones make sense, which…. You know, if it’s a painting contract to a friendly company owned by somebody that’s friendly, then we’re going to let that contract go out for bid, and they can all bid on it. That sort of thing, right? There will be competition brought in and some accountability to those expenses.

We’re in the process right now of selecting an interim CEO — sorry, an executive director and a director of finance for the organization so that…. We obviously don’t want our senior managers having to run Portland in the long term. We will go through with a restructuring of the management. Then, in addition to that as we go along, we will eventually transition the board back to some community members as well, who will part of the long-term board.

That’s basically the structure we put in place to protect it. Obviously there will be some changes on the fiscal side at Portland Hotel Society. There won’t be any trips down the Danube or limousine cruises to concerts or trips to Disneyland, you know, those types of things really raised the ire, quite frankly, of the public and unfortunately damaged the great reputation of so many good societies that do work in British Columbia, including the Downtown Eastside.

You could go through these other organizations who do the same accountability process, as I described, every year — they’re audited financial statements — who work with us. You can improve the management. You can always get a situation with a society where there’s some little management glitch that needs to be improved. We work with them to solve those problems and to improve their ability to manage, because that’s part of the education management process when we’re the funder and the holder of the operating agreement with them.

I think that we’ve done…. I shouldn’t say “we.” The folks at B.C. Housing and the folks at Health have done an exceptional job dealing with a very difficult problem. At the end of the day, we did so in such a way that we had the compassion and concern for the very difficult clients that the Portland Hotel Society serves. While we’re doing that, we’re protecting the integrity of the non-profit sector and moving on to get to where this society will have a long-term viability as well