By Kenneth Jackson
APTN National News
When provincial auditors start poring over nearly a billion dollars worth of transactions between CN Rail and GO Transit they need to focus on what is known as “journaling” according to a former CN supervisor.
That’s the process of moving money from one account to another at CN Rail and Scott Holmes says he was ordered to improperly charge GO “millions” over a five-year span beginning in 2002.
According to Holmes the auditors will need to know what they’re looking for.
“Journaling is a way at the end of the year to move a lot of money, quick. They don’t like doing it because now you have to get some of the senior financial officers to do it and it’s of course traceable. There’s a computer trail,” said Holmes, adding auditors will need to open CN’s books to be able to find any alleged financial irregularities.
CN spokesman Mark Hallman said the company adamantly denies any suggestion of impropriety in its management and involvements relating to GO rail projects.
However, APTN has specifically asked CN for comment on “journaling” and has yet to receive a direct response.
Metrolinx, which oversees GO, said Wednesday it has launched an audit after APTN revealed allegations that millions of dollars were improperly charged to taxpayers by CN Rail.
Ontario Transport Minister Glen Murray said GO Transit and Metrolinx are taking the allegations “seriously.”
Holmes has been caught up in a bitter legal battle with CN after he was fired in 2008. CN sued Holmes for fraud and later charged with him with the same allegation. The Crown stayed all charges against him, twice.
Holmes countered sued CN and CN police. The case has yet to reach a trial.
The Ontario Provincial Police first met with Holmes earlier this year when he provided a video statement on all the allegations. He then took two detectives through a massive amount of documents, including internal CN emails and invoices he says proves CN charged taxpayers improperly.
After the first meeting one detective from the OPP’s corruption section of the anti-rackets unit kept coming back to Holmes for more information.
The OPP won’t confirm or deny they are investigating but told APTN corruption cases are sensitive and take time.
CN said the company is unaware of any investigation.
Holmes said it will help if auditors understand the billing systems between GO and CN. At the beginning of each year GO provides CN with account numbers, typically known as the “M” numbers.
Most of the work charged to GO is through these numbers.
CN has their own internal numbers, such as “C” for their own capital projects.
Holmes said at the end the year the M-numbered accounts close and there’d be a mad rush to wrap-up accounting with in CN.
That’s when he claims he’d start getting telephone calls from superiors directing him which capital projects would be allegedly charged to GO. He said they’d charge to M accounts that still had money left over.
“You could do hundreds of thousands at a time into an M number that’s sitting there with hardly anything charged to it,” said Holmes. “You may find the odd time the foreman may have used the wrong the number, but I can’t remember that happening too often.”
Large movements like this leave a trail in the computer system and that’s what GO auditors should be looking for said Holmes.
CN said it employs strict accounting procedures and controls.
“Mistakes, if any, are identified and corrected. As the work performed by CN on behalf of GO on a fixed-price basis with the work approved in advance and reviewed after completion, there was no risk of GO being overcharged due to any miscoding,” said Hallman.
In court documents filed by CN, the company describes Holmes as someone adept to CN’s computer system.
But, if CN didn’t want to leave a trail, Holmes and another person he worked with would change the work line-by-line by going into the computer system and altering contracts, dates and times.
“You had to go in and change it physically and that took hours and hours and a lot of times we had to do that,” he said.
Scott has an email that directs him, by superiors, to solve a problem where a CN capital project was “overspent in net labour by $93,000 and change.”
APTN asked Holmes to explain what the internal CN jargon laden email says in plain English.
“They’re going to take money, the $93,000, and they’re going to journal it over to an M network against GO,” said Holmes.
He said he knows that because he claims to have done it after getting a telephone call from a superior after getting the email.
“So they called me and we worked it out so GO couldn’t really figure it out. I was instructed to do that,” said Holmes. “[At CN] you do whatever someone asks.”
Holmes said he never personally profited from any of the billing changes.
CN said GO was entitled to spot audits.
“CN strongly rejects any suggestion of impropriety in its management of GO rail projects,” said Hallman.
GO Transit began expanding in the late 1990s to keep-up with the booming growth in Toronto. If they wanted to expand they had to do it mainly on CN property.
Using that advantage to ensure it would be the sole contractor on expansion work, CN would provide GO with cost estimates for a particular project and would receive board approval from GO management before the work began.
One area Metrolinx is focusing on is a $72 million project between Burlington and Hamilton in 2007.
The project was funded by the province, federal government and local municipalities.
GO paid to have a third rail line put in on CN’s property.
A senior source at GO Transit said as part of the project GO paid for upgrades to CN’s own freight lines as well.
“In order for us to run the service CN comes in and they might have to improve their existing freight service as well in order for the GO trains to come through. So it’s not unreasonable to assume improvements to all the tracks in the given corridor are required,” said the source, adding there is no dedicated GO track even after they pay to build it. “That is the reality of a monopolistic situation. They are a private company and trying to make a profit. We’re a public agency trying to provide a service provided they don’t try to gouge us.”
The track GO paid for still isn’t a dedicated GO line and, in fact, GO has to pay an access fee to run trains through the corridor.
CN Rail kept ownership of the three mile track and can use it for freight trains.
If GO was entitled to spot audits…….i would like to know if they did them…and if not why not? Seems suspicius to me.