By Noushin Ziafati
Since the 2014 discovery of a Canadian Federation of Students (CFS) hidden bank account, there have been a number of questions surrounding the creation and usage of the account. Only recently have some of those questions been answered, following a forensic review summary of the bank account.
Here’s what we know:
- The CIBC bank account was first opened in July 2009. It was later frozen and closed in December 2014, after the at-large CFS executive found out about its existence.
- The bank account was initially opened to provide a security deposit for Travel CUTS, a subsidiary of CFS-Services between July 2009 until May 2010. But it was put back into use two months later, in July 2010, for a series of unauthorized transactions.
- The unauthorized transactions consisted of 13 deposits (totalling 263,052.80) and 16 disbursements (totalling 262,776.13)–the difference between the deposits and withdrawals is $279.67. The deposits all consisted of funds intended for different parts of the organization, which were meant to be made in the CFS accounts at Scotiabank.
- The unauthorized disbursements went to five recipients, two of whom are former CFS employees, along with a further individual, a law firm and a consulting company. The unauthorized transactions were made without the knowledge or approval of the chair and treasurer of the federation. It has not been noted what the recipients did with the money.
Why does this matter?
The CFS is the largest national student association in Canada, representing more than 650,000 college, undergraduate, graduate, part-time and international students.
The Ryerson Students’ Union (RSU) has been a member of the CFS since 1982, and it pays an annual membership fee. Last year, the RSU paid a total of $546,999.71 for membership to the CFS and CFS-Ontario.
In a July Board of Directors meeting, RSU vice-president student life & events Lauren Emberson presented a motion for the RSU to not participate in CFS campaigns or use its resources, but it did not pass. She cited the CFS’ hidden bank account and how there was no access given to view the audit of the bank account.
Last school year, Ryerson students started a petition to leave the CFS. However the attempt was unsuccessful, as a petition signed by 15 per cent of the student population of a college or university student union must be officially submitted to the CFS and approved for a referendum to take place before they can decertify–which they did not meet. As previously reported by The Eye, some RSU executives think that the CFS doesn’t intend for student referendums to go through at all.
Full forensic review not released
The forensic review of the hidden bank account was conducted by accounting firm Grant Thornton LLP, which issued a report dated January 14, 2016 detailing the scope of the review.
The Eye obtained a summary of the review, which was eventually released by the CFS at their semi annual general meeting in June.
CFS national treasurer Peyton Veitch said they will not be releasing the full forensic review because it is not a public document as it “contains confidential information pertaining to human resources.”
Veitch added that the organization was recommended against releasing the full report from their legal counsel, as it may put the federation in a position of legal liability.
“Members of the national executive have a fiduciary responsibility to act in the best interest of the organization and knowingly placing the Federation in a position of legal liability would be acting contrary to this obligation,” Veitch said.
The forensic review summary details when the bank account was opened and closed, the original purpose of the account, the activity on the account including authorized and unauthorized transactions as well as who was involved in the bank account’s activity.
Bank account open and closed
According to the bank records obtained in the forensic review, the CIBC account was opened on July 17, 2009 in the name of CFS-Services (CFS-S), and was closed on December 17, 2014 after the bank received a fax from the CFS office indicating for the account to be closed.
The account was discovered by members of the at-large executive in December 2014 and immediately frozen, according to CFS national communications coordinator, Juhi Sohani.
Account initially opened to provide security deposit for former CFS-owned company
The first transaction on the account was a security deposit of $1.6 million made on July 17, 2009 for Travel CUTS, a former subsidiary of CFS-S, in relation to its debt with Moneris, a company that processes credit and debit payments.
Travel CUTS is a Canadian travel agency catering to student, youth, educational, and budget travellers, which belonged to the CFS until October 2009 when it was sold by the CFS to Merit Travel Group.
According to Sohani, in preparation for the sale, CFS-S deposited the $1.6 million as a secured loan in July 2009 to facilitate the receivership and sale process as Travel CUTS was experiencing cash-flow problems.
The loan was repaid in full by Travel CUTS to CFS-S, as noted in the forensic review, which indicated that the $1.6 million was withdrawn in two instalments–once on December 10, 2009 and again on May 6, 2010.
After the three transactions (a deposit of $1.6 million, a withdrawal of $1,225,500 and another withdrawal of $374,868.22 (including $368.22 in interest) the balance for the account was $0.
Unauthorized transactions made by bank account—13 deposits and 16 disbursements made
The bank account then remained inactive for two months, until on July 14, 2010, the bank account was brought back into use for a deposit.
In total, a series of 13 unauthorized deposits were made into the account from that date until March 25, 2014, totalling $263,052.80.
The 13 deposits into the CIBC account all consisted of funds intended for different parts of the organization, including payments intended for services and advertising, payments relating to the national health plan and small payments for International Student ID Cards.
The deposits were made at a CIBC branch in Ottawa, which is a ten minute walk from the CFS office at 338C Somerset Street.
A series of 16 unauthorized withdrawals were also made from the account between July 15, 2010 and December 17, 2014, totalling $262,776.13.
The difference of $279.67 between the deposits and withdrawals is made up of account and other fees.
According to the forensic review summary, the last withdrawal, which took place on December 17, 2014, was taken by CIBC, after the bank had received a fax from the CFS office instructing that the account be closed and the remaining balance sent to CFS in a draft. The fax included the signatures of a former CFS officer and a CFS former employee. The former officer told Grant Thornton that he had never seen or authorized the fax, and that it was his electronic signature that was used in it, which was often used for other CFS payments.
Former executives said they were unaware of bank account
As indicated in the forensic review summary, former executives interviewed by Grant Thornton said that they did not know that the CIBC account was being used for this purpose of depositing its funds and were under the impression “that all funds belonging to the CFS were deposited into its accounts at the Scotia Bank.”
Sohani confirmed that the funds were meant to be made into the CFS’ accounts with Scotiabank.
“These transactions were not authorized or known of by the key executive members of the Federation (the Chair, and the Treasurer) at the time they occurred,” the forensic review states.
Two former officers were notified about the account, but they were unaware of the specifics of either the account itself, or the details of the unauthorized transactions. The forensic review summary says that “both claim to have been told about the nature of the activities on the account at a strategic level only.”
Unauthorized disbursements went to five recipients, including two former CFS employees
The unauthorized withdrawals from the CIBC account went to five recipients–two of whom are former CFS employees, another individual, a law firm and a consulting company.
“These transactions, together with the closing transaction, bank fees, interest, etc. totalled $263,055.80,” the forensic review summary states.
Two former employees admitted to being aware of unauthorized transactions
According to the forensic review summary, two former CFS employees said they had knowledge of the unauthorized transactions made from the account.
All other witnesses claimed to be unaware and were surprised that “off the book” payments were being made on behalf of the federation.
Forensic review does not make clear where the unauthorized disbursements went
The forensic review did not explain what the five recipients of the funds taken from the CIBC account did with the money.
“The investigators from Grant Thornton were not able to ascertain the purposes of the disbursements. However, any disbursement that is unauthorized and unreported, as these ones were, is by that fact itself improper,” said Sohani.
Sohani added that the CFS has implemented “new financial controls” to help ensure that unauthorized financial activity does not occur in the future.
More to come.