This is the first of two articles on this subject. Watch for the second, to be posted on this site soon.

Every nonprofit leader in Canada should have been paying attention as the Toronto Community Housing Corporation (TCHC) story unfolded from February to June of this year. Municipal councillors and other elected representatives likely have!

Background

TCHC was formed in 2002 from the amalgamation of two former housing authorities in Toronto, and immediately became one of the largest organizations of its kind. It is a landlord to 160,000 Toronto residents, who are highly diverse and often have complex social services and health needs. It is run by a mix of politicians, citizens appointed by the City, and representatives elected by the tenants.

The CEO throughout most of its history was praised for his initiatives such as starting the revitalization of Regent Park. He moved in early 2009 to head up another important municipal agency; he lost that job after audit reports on TCHC were released. A new TCHC CEO started in 2010, initially on an interim basis.

The City gave its auditor the authority to audit the TCHC in 2007, and in early 2011 the auditor released the two audit reports (with the intention of more) covering the years from 2002 to 2010. The reports kicked off a media storm just when a new mayor was looking to "stop the gravy train."

The mayor demanded the resignation of the entire board, including new appointees who had not been at the TCHC during the audit period. He also asked Council to appoint the former politician who had headed his campaign to be the sole head of the agency until a new board was in place. And he tried to fire the CEO. The municipal council eventually granted his requests. All directors were gone by March, and the newly appointed agency head fired the CEO.

A new board started in June, and has kept a very low initial profile. A relatively new CFO is now acting as interim CEO.

Lesson 1: Procurement is a major risk area; policy not enough

The first audit dealt entirely with procurement, and its gist is that good policies and procedures were routinely ignored, breached or not learned.  The list of failings outlined in the detailed report is long. Many millions of public monies were spent without proper controls; the City's annual subsidy is $309 million.

Procurement is a target for auditors, detractors and media. It is not something that can be left to procurement staff - particularly not when the person in charge of strategic procurement sits on the board of the major supplier. This wasn't quite as bad as it sounds, since that supplier was a subsidiary which generated revenues for TCHC but it still smells.

Staff apparently contracted with whomever they wanted despite policies and procedures. TCHC sole-sourced, split contracts to get around authority levels, hired personal associates, and much more.

The board did no oversight to see if its policies were followed. Its corporate affairs committee, set up to oversee risk management systems, does not seem to have done anything to manage procurement risk. Perhaps it ignored recent outrage about other government procurement issues, such as the uproar over the Niagara Parks Commission.

Lesson 2: The board needs to know; it's their duty to ask!

Staff may have kept spending hidden from the board, but that couldn't have happened if the board had asked the right questions and requested the right information. Boards are responsible for getting the information they need.

Boards should ask to be informed of any circumstance where its policies were not followed, at least annually. For large variances, it is normal for a board to be informed up front, or retain the authority to approve such variances in advance rather than delegating it to senior staff.

These lessons will continue in Part 2 in the next issue of Canadian Fundraising & Philanthropy.  In the interim, think whether your organization could be perceived as fiddling while your community burns!

Jane Garthson is president of the Garthson Leadership Centre, dedicated to creating better futures for our communities and our organizations through values-based leadership. She's a contributing author to You and Your Nonprofit. For more information, see http://www.garthsonleadership.ca.