Fraud, Regina v. Lisa Fortier (Part 1): Bookkeeper gets two and a half years; property management company owner benefitted but not charged; condo owners get four cents on the dollar

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* Leaks, Rot, Mould and Fraud *


Citation:

Regina v. Lisa Fortier

Date:

20040629

2004 BCPC 0189

File No:

54948-2C

 

Registry:

Kelowna

 

 

 

IN THE PROVINCIAL COURT OF BRITISH COLUMBIA

 

 

 

 

 

REGINA

 

 

 

 

 

 

v.

 

 

 

 

 

 

LISA FORTIER

 

 

 

 

DECISION AT SENTENCING HEARING

OF THE

HONOURABLE JUDGE N.N. PHILLIPS

 

 

Counsel for the Crown:

Theresa Mitchell-Banks

Counsel for the Defendant:

Bill Smart and J. Austin-Olsen

Place of Hearing:

Kelowna, B.C.

Dates of Hearing:

May 12-16, & 20-23, 2003; June 5, 2003;

 

July 3 & 4, 2003; August 13-15, 2003;

 

March 17 & 18, 2004; May 27 & 28, 2004

Date of Judgment:

June 29, 2004

 

[1] This is my decision at a sentencing hearing where Lisa Fortier is charged (on Information 54948 - 2C) that between the 1st day of Sept. 1999 and the 4th day of April 2000, at or near Penticton, Summerland, Kelowna and elsewhere in the Province of BC, did by deceit, falsehood or other fraudulent means defraud the strata clients of Pat Derrick Property Management, to wit: [32 strata corporations] and Dr. Coursley, of monies, of a value in excess of $5000, contrary to s. 380(1)(a).

[2] This matter had been set to proceed to trial commencing May 12th, 2003. Shortly before the scheduled trial date, counsel advised the Court the matter would be dealt with by way of a guilty plea. By agreement, counsel called extensive evidence at the sentencing hearing. The sentencing hearing took place over the course of the past year and took approximately twenty days of court time.

1. OVERVIEW

[3] Patricia Derrick started the company Pat Derrick Property Management (hereinafter referred to as "PDPM" or the "company") in 1992. The company made money on strata and rental property management fees. This was the company's sole source of revenue.

[4] Lisa Fortier, the accused, began working for Derrick's company in 1993. Over the years, Fortier came to be regarded by Derrick like a daughter and the two women developed an intimate and trusting relationship. Fortier became the de facto office manager and ran the accounting department in a close-knit working environment. There were effectively no checks and balances in place for the bookkeeping department.

[5] PDPM operated as a property management company first in Penticton and later opened a second office in Kelowna. The financial affairs of the company were run out of the Penticton office and were not segregated. In 1999, the company had 32 strata clients and 159 rental properties. The revenue for the fiscal year ending June 30, 1999 was $349,486. The expenses for this same year were $337,511 and the company had an operating deficit of $21,134.

[6] As of June 30th, 1999, there should have been $734,938.31 in the collective strata accounts, after paying the bills on the financial statements. In reality, all the money was gone and all 32 strata bank accounts were overdrawn in the amount of $11,568.49. By this time, PDPM was not only broke, the strata client money was gone and the company was in debt. The Crown says that only Fortier knew this and she was responsible for the misappropriation.

2. EVIDENCE LEAD AT THE SENTENCING HEARING

[7] Crown counsel spent a significant amount of time at the outset of the sentencing hearing reviewing the vast volume of corporate books and records and the related accounting materials. Through this process, Ms. Mitchell-Banks, crown counsel, detailed the manner in which the crown says Fortier was the principal actor behind this fraud.

[8] At the outset, defence counsel advised the Court that Fortier did not take issue, for the most part, with the extensive documentary evidence the crown was relying upon at this hearing. It was the position of the defence throughout that Fortier did not act on her own nor did she gain personally. The Court would need to determine whether Derrick was a party to this offence and whether she and PDPM were beneficiaries of the money defrauded. Fortier did not dispute the book-keeping scheme but said she did what she did with explicit approval and knowledge of Derrick. Fortier says the money went to run the company and to finance Derrick's life.

(a) FRAUDULENT ACTIVITIES & BOOKS OF ACCOUNT

[9] In order to be able to properly assess the roles Fortier and Derrick played in the loss of the strata money, it is necessary, in my opinion, to begin where crown counsel began the sentencing hearing, with a thorough review of the PDPM bank statements and books of account. To do so, I will rely upon the forensic accounting and other work that attempted to reconstruct the fraudulent scheme.

(i) Court appointed receiver manager

[10] On April 4, 2000, the Superintendent of Real Estate for British Columbia froze all of the accounts of PDPM at the Royal Bank of Canada (hereinafter referred to as "RBC"). Deloitte and Touche, the Receiver Manager (hereinafter referred to as the "RM"), was appointed on April 10, 2000.

[11] For strata clients, PDPM arranged for the collection of monthly strata fees from the owners and payment of the strata corporations' liabilities to trade creditors. The monthly strata fees were received by either direct withdrawals from the owners' accounts or by cheque. The deposits were made either to the strata corporations' separate trust accounts (the "sub-trusts"), if the payment was by cheque; or directly into the PDPM consolidated trust account if the payment was by electronic transfer.

[12] The starting date on the Information of November 1, 1999 coincides with the transfer of PDPM bank accounts from the Bank of Nova Scotia (hereinafter referred to as the "BNS") to the RBC. The transfer of the accounts allowed for a clear assessment of the PDPM account balances. It should be noted that the BNS accounts were being operated in an unsatisfactory manner and the BNS was not willing to maintain a relationship with PDPM. The consolidated trust account was overdrawn on numerous instances when the account was at BNS as well as when it was with the RBC.

[13] PDPM utilized electronic banking at both BNS and RBC. Through electronic banking, PDPM was able to withdraw payments directly from strata owners' accounts for monthly maintenance fees as well as deposit money directly into rental property owners' accounts for their net tenant deposits. Commencing in June 1999, there was a marked increase in the number of electronic transactions occurring.

Strata Corporation Bank Accounts

[14] The RM found that a number of disbursements, supplier invoices or payments to rental property owners were recorded as paid in the financial statements (hereinafter referred to as "F/S") but cheques were not sent or electronic transfers did not occurred. The F/S showed that expenses had been incurred and the bank balance consequently reduced. However, it was apparent that many suppliers' invoices had not been paid, some for a substantial time.

[15] There were numerous incidents of strata owners having their strata maintenance fees withdrawn from their personal bank account twice in a single month, starting in mid-to-late 1999. Some of these were corrected but many were unresolved. There were a number of instances where the strata bank accounts were overdrawn. There were also numerous instances where the strata corporation accounts were used to flow money to the PDPM consolidated trust with no apparent purpose.

Proceeds for Distribution

[16] The funds held in PDPM accounts as of July 31, 2000 totalled $89,667.43 (approximately $46,000.00 in individual strata corporation bank accounts and $44,000.00 in the consolidated trust). The Superintendent of Real Estate received claims totaling approximately $1.3 million leaving a massive shortfall. The majority of the shortfall related to funds missing from the trust accounts (rental and strata). The remainder related to ongoing business operations of PDPM. The Receiver distributed proceeds on a pro rata basis at approximately 4 cents on the dollar for property/rental owners and 2 cents on the dollar for stratas.

(ii) Forensic Accounting

[17] A forensic audit was performed for the time frame captured in the Information before the Court. Key findings of the forensic accounting report were as follows:

1. There were material discrepancies in the accounting books and records. The books of account, as they relate to the affairs of the strata property clients, reflected expected financial results ("what should be") rather than actual results ("what is").
2. Monthly financial statements prepared by Fortier and presented to PDPM clients as factual, contained material errors and misrepresentations.
3. Funds held in trust for certain clients were used for purposes of other clients. The pattern was perpetual throughout the 5 months and involved large amounts of money. This loss was not quantified.
4. An analysis of the consolidated trust transactions from November 1999 to March 2000 showed:
-only 26.3 % ($1,476,468) of the total deposits ($5,614,441) were receipts of "fresh" or "real" money for strata fees or rental revenues (those collected month-to-month in the ordinary course of business), while 62.7% were receipts by way of payments/transfers from the 40 individual strata trust accounts.
- 80% of all of the transactions were pure kite.
5. WV Income Properties and Victor Durman (hereinafter referred to as "WV" or "Durman"), a PDPM rental client, was owed $90,565.00 at the end of March 2000. Although WV was legitimately owed these funds, PDPM diverted approximately $65,580 of other clients' funds to the benefit of WV. This figure was based on the presumption that $23,895 of funds on hand in the consolidated trust belonged to Durman.

(iii) "Cheque Kiting"

[18] Cheque kiting is where funds are transferred between accounts followed by an immediate transfer of funds back of a similar or identical amount to the originating account. The purpose of this scheme is to inflate bank balances during the "clearing" period, when the recipient bank was clearing the initial transaction from the transferor bank. In essence, the transaction is included in the balances of both accounts since in the first account, the cheque having not cleared results in a higher balance until the cheque does clear; and, in the second account, the cheque having been included in a deposit, will increase the bank balance.

(iv) Failure to Separate Accounts

[19] Crown counsel advised the Court that the Information covers a limited timeframe and a limited number of PDPM clients because of the cost of a more expansive forensic accounting. However, to understand Fortier's conduct during this window of time, it is necessary to look at her behaviour from a much earlier point.

[20] The strata funds should have been kept in individual and separate trust accounts. The property management books were set up to look as if this was how things were being done and this is what the strata clients understood was happening. Instead the money was co-mingled in the larger consolidated account. This is not a crime per se, but is what the crown described as high risk bookkeeping. The money was all gone before the start date on the Information. Fortier kept all of the new money that was coming in "kited" around to keep the company afloat until the business was closed at the end of March 2000.

[21] By law, strata councils must build-up contingency relief funds (hereinafter referred to as "CRF"). Fortier routinely withdrew CRF money and deposited it into PDPM's consolidated trust and dispersed money from there not to the benefit of the strata involved, but to pay whatever bills needed paying.

[22] The monthly financial statements prepared by Fortier were entirely false. They portrayed the situation as it should have been. What allowed this to go on so long was that the stratas councils never saw the bank statements. Had they seen a true bank account statement with a balance of five cents, obviously the fraud would have been over.

[23] A significant change occurred in April of 1996 when PDPM went onto electronic banking. Although the basic account structure remained the same, the accounts became linked electronically. Only Fortier could do electronic banking at PDPM. Fortier could see exactly what was in each bank account at any time. In combination with a pre-authorized debit system, Fortier could manipulate real money if the kite was insufficient. This was effectively a short-term interest-free loan. Fortier was emptying the strata accounts by moving money from them into the consolidated trust. This was trust money belonging to the stratas.

[24] There should have been a "wall" between the PDPM consolidated trust and the operating account. The only contact between the two accounts should have been the transfer of management fees from the trust to the general, one-way.

(v) Strata K801 - An Example

[25] Regarding strata K801, the crown says Fortier committed fraud by misdirecting funds in direct contradiction to strata owners' direction.

[26] By the fall of 1999, the K801 strata council had become concerned with the late payment of some of its accounts by PDPM. They were also concerned that some of their money might not be held in a stand-alone account and was possibly co-mingled. Their concerns focused specifically on a $45,000 GIC that was to be held as part of their CRF and the strata began to make demands relating to this money.

[27] None of the K801 bank accounts had sufficient funds to cover the demands being brought to bear for the production of the $45,000 GIC. Fortier was able to buy time by blaming the friction between the two banks (BNS and RBC) for her difficulties in posting the $45,000 to a K801 account. By late October 1999, Fortier came up with the funds from other sources and bought a $45,000 GIC.

[28] The chair of the K801 strata council demanded that Fortier keep these funds in a separate, stand alone account that was not electronically linked. Fortier opened a new bank account for this stated purpose, however no monies were ever deposited into it. There had in fact been a deposit made to this account, but there was no money behind it and a reversal was enacted but not recorded.

[29] On December 1, 1999, Fortier opened another K801 account at the RBC which was electronically connected. This allowed Fortier to start moving money back and forth through the strata accounts and the CT.

[30] On March 28, 2000, Fortier was directed by the K801 strata council to cash in the $45,000 term deposit and credit it to the stand-alone account at RBC. Fortier sent a fax to the RBC directing that this transaction occur, but then called the bank and sent another fax telling the bank to transfer the money to the another K801 account. Ultimately, the $45,000 was not deposited according to K801's directions. The money was transferred electronically to the PDPM consolidated trust account. This money as well as other money in the consolidated trust was then dispersed to the most demanding creditors. The RBC admitted it made an error at one point in terms of signatories required and wound up covering the loss suffered by the K801.

(vi) Internal Accountant's Report & The Real Estate Council of B.C.

[31] Every year, an accountant (Mr. Milligan of White Kennedy Chartered Accountants) did two different accounting reviews for PDPM as required for a property management company under the Real Estate Act. However, a full audit was not required nor performed.

[32] There were many instances when The Real Estate Council of B.C. (hereinafter referred to as "RECBC") communicated concerns about PDPM's accounting practices via PDPM's "agent nominee", Robert Mayes. The 1992/93 Accountant's Report (which was signed by Derrick) cautioned that current assets did not exceed current liabilities and that total assets did not exceed total liabilities.

[33] On November. 24, 1998, RECBC had sent a letter to Mayes which stated: "the Accountant's Report discloses financial results where the agent's current liabilities exceed current assets and the total liabilities exceed total assets. These deficiencies bring into question the agent's ability to discharge its liabilities in the coming year. As such, subordination of the shareholders' loan is required." A similar letter had been sent on January 5, 1998 and another subordination agreement demanded.

[34] The annual review for the 98/99 fiscal year ending June 30th, 1999 was filed with the RECBC on January 17th, 2000. This report was signed by PDPM's agent nominee on January 11, 2000. The report stated that nothing came to the accountant's attention that "causes us to believe that these financial statements are not, in all material respects, in accordance with generally accepted accounting principles." The revenue of the company for this fiscal period was $349,486 and the expenses were $337,511 with consequent income of $11,975. The running deficit was $21,134 at the end of this period.

[35] On February 14, 2000, RECBC sent a letter to PDPM's agent nominee raising a number of concerns relating to the 98/99 accountant's report. For example, several instances were noted during the year where employees' direct deposit payroll were made through the trust account. The Real Estate Act does not permit an agent to maintain non-trust funds in a trust account, as this could be misconstrued as co-mingling of trust and general funds. PDPM was directed to ensure that this practice did not recur.

[36] RECBC asked for written confirmation that corrective measures were implemented by March 6, 2000. Derrick's letter in response, dated March 6,2000, offered that steady growth in "the past 5 years has put pressure on our limited accounting staff." The letter adds that the company has reorganized its' accounting department by adding staff.

(b) PATRICIA DERRICK

[37] Derrick was a licensed real estate salesperson. As a result of a complaint over sale proceeds from a house sale in the 1980's, she lost her real estate sales license. Her licensing afterward was restricted to leasing, rental management and supervision of real estate and the collection of money payable as rent for use of real estate. Derrick was 70 years old at the sentencing hearing.

[38] As the owner of the company, Derrick negotiated office space and equipment leases, purchased/rented office equipment, hired staff and set their salaries, negotiated the purchase of property management portfolios, and negotiated management fees with property owners and strata councils (including any raises).

[39] Derrick testified that she had only very little bookkeeping knowledge. However, she acknowledged she was the treasurer and did the books of account on a computer system for her church for a number of years. Her duties at the church included posting expenses and income, payroll and tax matters and also producing an income and expense sheet each month. Derrick testified that Fortier never asked her about where she should post something in the PDPM ledgers and asserted that she would not have known the answer herself because she did not know enough about postings.

[40] PDPM was the only source of income for Derrick and her family throughout its operation. In 1996, Derrick and her husband purchased a house in Penticton for approximately $205,000. Both the 1st and 2nd mortgage payments were paid from PDPM accounts.

[41] In cross-examination, Derrick denied she knew or deliberately avoided knowing that in the last few years of the company, she and the company were spending more than the company was making. Derrick denied using client money to finance company business and her own personal matters. She acknowledged, however, having a pretty good idea of what the monthly and annual income was from the strata management business. Derrick also agreed that as the owner, she had a concern about what her income was from PDPM.

[42] Derrick acknowledged that every year she would meet with the company's external accountant and review certain financial documents. Consequently, she agreed she knew that PDPM was losing money. When asked why the company continued to incur additional operating costs (such as leasing more expensive office space and hiring more staff), Derrick said she needed more staff to look after the business. When asked how she thought she could finance all of this and her personal expenses, she testified she could do so by going out and getting more business. Derrick said she had continued to see more clients coming to the business and that if they had a few more clients on board at any given time, they were "back into it". PDPM's own external accountant documented deficits every year (from 1993 to 1999).

[43] Defence counsel reviewed with Derrick a large number of exhibits prepared by the defence as supporting material for Fortier's own accounting calculations. For the most part, Derrick agreed that the numbers utilized for Fortier's final calculations seemed reasonable.

[44] Derrick was questioned extensively about items recorded in the "due to shareholder" loan account which were posted to her credit. She acknowledged receiving the benefit of payments made by the company toward personal matters over and above her regular wages.

[45] Derrick was asked whether she treated the company general account like her own personal account. She answered she did not see it like that at the time, but agreed in hindsight it looked that way. Derrick was questioned about the subordination agreements that were required by RECBC and asked whether she had to borrow money from Mayes for the subordination loan because her personal spending of company funds had to be offset. Derrick answered that she did not total up what she was taking from the company.

[46] Derrick agreed that a multitude of personal items were paid from the company's general account. Derrick was questioned about the lease of a luxury motor vehicle in December 1996 in the face of on-going company deficits. Derrick offered she thought it was a tax write-off (which it was not because of the deficit situation). When asked why she would not opt for a cheaper vehicle, she said she wanted to look successful. Derrick also said she discussed the lease vehicle with Fortier and Fortier said "we could do it." Upon further questioning, Derrick said she did not recall whether she discussed the lease amount ($762 per month) with Fortier.

[47] Derrick testified that in September or October of 1999, she entered into a new lease for a vehicle of similar or greater value. She believed she spoke with Fortier before the new vehicle was leased, but was not sure. Any discussions that occurred were to inform Fortier of the new lease and not for Derrick to discuss with her whether the company could afford it.

[48] Derrick was asked whether in the last years of the company her personal and business spending had become totally out of control. She disagreed with this suggestion and said that things were only partially out of control.

[49] Derrick was asked whether she declared the payment by the company of these personal expenses on her tax returns. She said she did so in 2000. When asked why she did not declare the monies to Revenue Canada earlier, Derrick testified she did not think about it. She added that at some point she knew she would have to go back and pay, but claimed she just forgot about it. She denied that at the end of the 95/96 fiscal year Fortier told her that unless she put back the money she had taken out of the company for personal expenses, Derrick would have to pay taxes on it.

[50] Derrick was asked whether she was worried about the mounting expenses of the company and she answered no. Derrick said Fortier never came to her about any shortfalls and Derrick rarely ever looked at the books. .

[51] Derrick testified that in the early days of the company, she received monthly income and expense statements from Fortier but this ended when Fortier said she got too busy. When asked why she would not insist on obtaining these statements, Derrick said she did not push Fortier too hard because Fortier was recovering from a motor vehicle accident. This is to be contrasted with Derrick's statement that during the last months of business, she had assigned the management of strata K1840, the biggest client, to Fortier. Derrick was asked whether the statements she received told her that company expenses were out-stripping income. She replied they may have, but that she remembered very little about them.

[52] Derrick was asked whether she had a good working knowledge of what the wages were and the income she was bringing into the company and she said she thought she did. When it was then suggested that she must have known she was spending more than she was making, she said she did not. Derrick denied knowing the company was in a revenue crisis or that client money was being misappropriated at any time. Derrick testified she thought the onus was on Fortier to come to her if there were financial problems with the company. Derrick said she did not look at the overall income received and the expenses incurred.

[53] Derrick acknowledged that the total amount paid out of company funds each month for her two mortgages and her lease vehicle, separate and apart from her salary and all other personal expenses paid by the company, was approximately $2200. Derrick said she was not really aware that her expenses were more than her company's income. She said she was a very busy person and she left the books entirely up to her accounting department.

[54] Derrick agreed in cross-examination that at the start of the business, things were tight and on at least one occasion, she took management fees ahead of time (before PDPM was entitled to the revenue). Derrick had initially asked an employee (Shirley Trowell) to do this dishonest accounting for her, but when Trowell refused, Derrick was forced to change the dates herself to create this required pre-paid revenue. Derrick initially denied telling Fortier to take management fees early at any time and said that if Fortier took management fees early, she did not know about it and it was done without her direction. However, defence counsel revisited this issue much later cross-examination and asked Derrick whether, from time to time in the 1st few years when the company was short money at month end, she told Fortier to take management fees early. Derrick answered she did not recall this but did not disagree and said it depended on how early. She did not disagree with "a little bit early".

[55] Derrick testified she and Fortier would have regular closed-door office meetings where they discussed business and personal matters. None of the office staff overheard any inappropriate direction.

[56] In late summer of 1999, Mr. Green, the BNS manager, became concerned enough with the volume of transactions in the various PDPM accounts, that he met with Derrick and expressed his concerns. Derrick told him the volume was normal given the number of rentals and the Mt. Baldy chairlift development account (set up by one of the strata clients). Derrick also said that new staff were not matching up transactions correctly. Two further meetings were held in short order where the problem with overdrawn trust accounts was discussed. Derrick offered the same excuses and Green was not accepting of same. Fortier was brought into the final meeting and said the accounts were overdrawn because of problems relating to the timing of the night deposits. The bank manager was unimpressed and the tense meeting ended with Derrick opining that PDPM had grown too large for BNS. This lead to the movement of the banking business to RBC shortly thereafter.

[57] Derrick acknowledged that sometime in August-October 1999, Green had spoken with her on a number of issues including a concern that large amounts of money were going in and out of trust and that the trust was in an overdraft situation. Green provide Derrick with print-outs showing these "significant transactions and changes" (Exhibit #25). Derrick denied that Green used the word "kite" in reference to these transactions. Derrick was asked whether Green's comments about these large transactions concerned her. She testified that she did not remember what she did in response, but expected that she went back and asked Fortier.

[58] A total of $29,126.17 was transferred to RBC as of October 28, 1999. The strata accounts collectively should have had hundreds of thousands of dollars in them when they were transferred to the RBC.

[59] On October 21st, 1999, BNS hand-delivered a letter to PDPM demanding payment. In his letter, Green told Derrick it was not acceptable to be overdrawing the trust account and the various strata accounts. Green reminded Derrick of the recent substantial overdraft of $98,265.17 in the trust account. BNS told PDPM that as a result of the unsatisfactory manner in which the company accounts were operated, PDPM would have to transfer all of its accounts to another bank within seven days.

[60] At this time, PDPM's accounts with BNS were $103,000 overdrawn. The BNS demand was satisfied in November 1999. Crown counsel reminded the Court that PDPM legitimately earned approximately $30,000 per month from management fees and this was their sole entitlement. Accordingly, in order to satisfy its debt with BNS, PDPM must have taken a large amount of money from the strata and rental accounts because no money was available elsewhere. It should be noted that Fortier disputed the submission that most of the money used to pay BNS was rental or strata money. Fortier testified that a large amount of money had been transferred legitimately to the RBC and this money was lawfully utilized.

[61] It was Derrick's evidence that it was not until early 2000 that she learned of some complaints of bills not being paid. Wendy Jablonsky, a PDPM staff member, spoke with Derrick over concerns about unpaid bills around January 2000. Derrick sent her to speak with Fortier. Derrick agreed it might have been as early as 1999 when she inquired with the postmaster over concerns of alleged non-delivery of mail.

[62] In February 2000, the PDPM property managers were concerned enough with the state of affairs in the company that they meet with Derrick and discussed the non-payment of bills. Derrick told them it would all be taken care of. Derrick testified repeatedly that she knew nothing to be out of the ordinary at the time the client money was being improperly used.

[63] A second report (Exhibit # 10) was prepared by Deloitte & Touche, the Receiver Manager. The second report looked at activities related specifically to Derrick.

[64] The RM determined Derrick "paid for numerous personal items through the use of company funds. Items that have been paid on Mrs. Derrick's behalf include mortgages on her personal residence, car and home insurance, funeral expenses, birthday expenses, fireplace installation and yard and building materials." The RM also noted numerous instances where the due to shareholder account was in a debit position (indicating Derrick owed money to the company).

[65] Derrick acknowledged that the $43,846 showing on the books as "due to shareholder" was false. Derrick stated that Fortier posted these figures. Derrick also acknowledged in her testimony that most of the money that was credited to the "due to shareholder" account was money on loan from Mayes. Derrick also agreed that the money which had been posted to satisfy the required subordination agreements was withdrawn within months of the posting. This was contrary to the agreement she had signed with RECBC requiring the money not be withdrawn within the year. Derrick was questioned as to how Fortier would know where to post this loan money in the ledgers and she said she did not know.

[66] Derrick was able to offer no explanation as to the various entries to the credit of the shareholder given that she had no other source of income other than from PDPM and the company had no other source itself beyond the money it held in trust.

[67] A letter sent to Derrick from the rental client, Durman, dated November 30, 1998 is important in assessing Derrick's knowledge of the problems with the accounting in PDPM. In the letter, Durman related the discovery of a $30,000 to $35,000 shortfall in his accounts with PDPM.

[68] Durman noted that as of the date of his letter, neither the October nor the November rents had been deposited and his accounts were approximately $60,000 "adrift". Durman added that "the one glaring point that comes out is that the deposit slips that are being sent to us seem to have no relationship to when the money is actually deposited to our account." He offered an easy procedure to rectify the problem including PDPM ensuring the deposit slip be dated the day the deposit actually went into the bank thereby allowing the client to verify the deposit with its own bank. The evidence did not establish that any of the recommended remedial steps were undertaken.

[69] Durman's letter needs to be read in conjunction with Derrick's own letter to him which she had sent six days earlier on November 24, 1998. Having been made aware of complaints from Durman, Derrick said she "immediately gathered all the records pertaining to [the client] for a full investigation." Derrick stated she had "gone through the deposits and compared cancelled cheques back to November 1997, making notes directly on the photocopies." Derrick's letter makes it clear she purportedly thought nothing was amiss with Durman's accounts at PDPM's end and invited Durman himself to scrutinize his own books. Obviously, when Durman responded in his November 30, 1998 letter, he was certain the problem was at PDPM's end.

[70] In her testimony, Derrick referred to an undated letter (Exhibit #22) that she wrote to Fortier. Derrick told the court she thought the letter was given to Fortier in February 2000. Derrick said she knew the memo was written after January, as she was in Florida on a holiday then. Derrick testified that she did not look at the bank statement to see if she had enough money to go to Florida!

[71] In the letter, Derrick asked how much income the company would lose as a result of three strata corporations leaving PDPM and whether the Kelowna office was close to being self-sufficient. It is interesting to note that although Derrick made some specific inquiries as to wages and changes in revenue, she did not inquire about the current gross operating costs of the company and whether revenue was keeping up with expenses in a general sense.

[72] Fortier's reply to Derrick's inquiries was recorded directly on the letter. Fortier indicated the loss of the three strata corporations would mean a drop of $1094 in monthly revenue and that the Kelowna office was costing the company $1000 per month. Fortier also indicated that "it will be tight" to cover the staff raises Derrick was contemplating.

[73] Derrick admitted that at the time the note was authored, she knew the company was in a difficult position and had been so for at least six months. Derrick said she was trying to determine what the problems were. She was asked what she did upon being told things were "tight" and she said that she went about trying to get more business.

[74] Derrick testified that after RBC had called her on Thursday March 30, 2000 and she learned a large amount of money appeared to be missing from the company, she spoke with both Fortier and Milligan. When Derrick told them of the suspected missing money, Fortier replied that there was no money missing and they were just behind in posting. Derrick spent time over the weekend at the office assessing the situation, but did not call the police. On Monday morning, Financial Institutes Commission ("FICOM") staff arrived at the PDPM office and the business was shut down.

(c) BRENDA BRYANT

[75] Bryant is one of Derrick's children. Bryant is 47 years old. She was called on behalf of Fortier at this sentencing hearing.

[76] Bryant testified she worked for PDPM from 1996 until it closed doing a variety of duties, including filing, reception, secretarial, and assisting in accounting. She met Fortier at the job site.

[77] Bryant gave evidence about a number of conversations she had overheard in the office involving various accounting matters. Little, if any weight, can be given to this evidence due to the lack of context offered as to these overheard conversations. Bryant admitted to having a strained relationship with her mother as of the court date. She agreed that she and Fortier are close friends now. Bryant refused to give a statement to investigators.

[78] Bryant described her mother as being a "hands on" sort of manager. Bryant acknowledged in cross-examination that Fortier was totally in charge in the accounting department. She said Fortier appeared really knowledgeable and seemed to have an almost photographic memory. Bryant said that Derrick pushed Fortier in terms of telling Fortier what bills to pay, but otherwise, Fortier was not a push-over. Bryant knew very little about the details of the accounting department at PDPM.

(d) LISA FORTIER

[79] Fortier, age 33, grew up in Penticton. After graduating from high school, Fortier took one year of a bachelor's of commerce degree program at Okanagan University College. She then started a C.G.A. program by correspondence but did not get very far. Fortier agreed she is good with numbers.

[80] Fortier testified she began work for the Bob Brown Pontiac dealership in Penticton in 1989 or 1990. Fortier's job at the dealership was to post payments on account. This job required her to take money from clients. While Fortier was working there cash went missing between reception and the office. Fortier acknowledged she was confronted about the theft and told her employers she stole money from them. Fortier admitted she stole between $1000 and $1500. She was dismissed from this job after 4 or 5 months because of the thefts. Fortier told the Court her boyfriend had beaten her up and threatened both her and her sister. The boyfriend told Fortier to take the money and she did so. Fortier said the money went to her boyfriend, and although he was partially to blame, she was more to blame.

[81] In early 1991, Fortier took a job at Locations West, a property management company. While at this job, she was trained by Shirley Trowell. Fortier agreed Trowell was a meticulous bookkeeper and that she trained Fortier well.

[82] Fortier met Derrick when they worked together at Locations West Property Management. In the spring of 1993 she moved to PDPM as a bookkeeper. Fortier was 22 years old at the time. By this time in her career, Fortier had become competent as a bookkeeper and knowledgeable in the property management field.

[83] Fortier said she and Derrick developed a mother-daughter type relationship and she trusted and respected Derrick. Fortier admitted she could speak her mind to Derrick and that they sometimes argued.

[84] Fortier became PDPM's accounts manager/internal bookkeeper. PDPM staff described Fortier as very charming; the office staff liked her. She was thought to be very bright, with an almost photographic memory.

[85] Fortier earned $1450 per month for her work at PDPM throughout the entire time she worked for the company. She told the Court she did not think she received a fair salary and was underpaid.

[86] Fortier testified that until April 1996, the accounting was done manually. There was a separate account for each strata. There was a separate trust account for the rentals and a separate operating account for the business of PDPM. The bills for the individual stratas were paid out of their separate accounts by cheque. Up to this time, there would be a paper document left behind creating a trail for all of Fortier's accounting work.

[87] Fortier testified that very close to the time when she started with PDPM there were cash flow difficulties. She stated that at month end, there would not be enough money to make the payroll and there was an agreement between Derrick and the bank that allowed the general account to go into overdraft for a day or so to cover the shortfall.

[88] Fortier said this situation changed with an increase in the number of bills that had to be paid. Fortier testified she went to Derrick and told her that bills needed paying and she could not cover them and asked what to do. Fortier stated Derrick instructed her to take the management fees early and this is what Fortier did. Fortier testified this practice became more frequent in 1996. Fortier told the court she discussed the early withdrawal of management fees many times with Derrick. By 1997, the company was regularly taking management fees early and Fortier did this when she needed to pay bills. Fortier agreed that at times they were years ahead on taking management fees.

[89] Fortier testified she spoke with Milligan, PDPM's accountant, and Derrick about Derrick's personal expenses being paid by PDPM and the need to declare this to Revenue Canada. Derrick told Fortier she did not have the money to put into the company to off-set the personal expenses nor could she afford to pay the taxes on them. Fortier testified that generally she did not believe it was her place to tell Derrick if she should be spending PDPM money on personal items because Derrick was the boss.

[90] Fortier was adamant that she discussed the shareholder's credit from the pre-paid revenue with Derrick over time. She said she also spoke with Derrick about the fact that there was not enough money to cover the expenses which had been paid on her behalf by the company and not enough money to cover the amount that was credited to the shareholder. The source of the credit was other peoples' money and Derrick knew this.

 

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