Advocates demand inquiry into Ontario's costly handling of Royal Crest nursing-home failure

Advocates representing nursing-home staff and residents are calling for a public inquiry into how the Ontario government dealt with a chain of long-term care homes that showed questionable business and care practices.

Bankruptcy of nursing-home chain cost feds, province, unions tens of millions of dollars

Advocates representing nursing-home staff and residents are calling for a public inquiry into how the Ontario government dealt with a chain of long-term care homes that showed questionable business and care practices.

Royal Crest Group ran 17 nursing and retirement homes in Ontario until the owners' bankruptcy forced the government to appoint a trustee to oversee the company in 2003.

The bankruptcy of the chain, considered the largest nursing-home failure in Canada at the time, cost workers, creditors, unions and both the provincial and the federal government tens of millions of dollars.

"There should be a systemic investigation not just into this particular bankruptcy and how it was handled but [into] how the government deals with these problems," said Jane Meadus, a lawyer for the Toronto-based Advocacy Centre for the Elderly.

"We need answers. The public has a right to know what happened. [Nursing-home residents] are …  some of the most vulnerable people in the province."

Meadus says the "rundown" Royal Crest homes had a higher volume of complaints about lack of care than most long-term care homes.

The complaints concerned such issues as residents not receiving enough baths, spending too long in diapers and not being given money that was rightfully theirs.

"People went in, and if they had family to help them, they often left quite quickly, as soon as they could get a place in another home," said Meadus. "So, the people left there tended to be some of the more vulnerable people."

Audit complained of shoddy books, 'sabotaged' computers

A provincially commissioned audit, obtained by the CBC under a freedom of information request, reveals a number of sketchy details about the financial situation of the company.

The audit, which focused on the period between Jan. 1, 2000, and fall of 2002, concluded that there was a "strong probability of criminal conduct, including conspiracy to defraud, conversion of property, bankruptcy fraud and tax evasion."

Efforts to obtain information about the company were hampered from the start, according to the audit: Royal Crest computers had been "sabotaged" and the state of its books were in disorder.

The audit, conducted by Porter Hetu Inc., outlined other suspicions, which couldn't be substantiated, including problems with Royal Crest "suppliers" who were related to the owners. The payments to the suppliers didn't seem to exist, according to the audit document.

"Basically, the allegation is that money came in the front door through government funding. And they said, 'Thank you very much,' and they went out the back door with their dividends and payments to … suppliers or family suppliers," said David Debenham, an Ottawa-based forensic accountant who reviewed the audit for CBC.

The non-operating expenses also raised questions as they were three times the average reported for Ontario nursing homes by the provincial Ministry of Health and Long-Term Care.

"If these expense had been equal to the provincial average, there would be about $35 million available to the company, which means that it could have probably stayed in business," the auditor estimated.

Debenham questioned how long the process has taken and why the government hired an outside forensic accounting firm when an internal government auditor and company auditor should have been available before the company declared bankruptcy.

When the province received the audit report in the summer of 2007, it turned the file over to the Ontario Provincial Police's health fraud investigators. But in December 2008, the OPP shut down its review, concluding there was insufficient evidence to lay charges.

Dues never made it to unions or to pension plan

When the owners declared bankruptcy, they claimed they were broke and couldn't pay creditors, leaving creditors such as the Bank of Nova Scotia and unions out millions of dollars.

Royal Crest owners, brothers John and Aldo Martino, declared they had only $10,000 each in personal assets. This despite the fact that, according to one court document, they were collecting $300,000 a year in company dividends.

In fact, in a 2004 Ontario Superior Court ruling, the judge said the Martinos had taken steps to "ensure that their eventual bankruptcy would find them without assets, yet the family assets would be sufficient to maintain their prior standard of living."

Lawyers for the Martinos at the time refused to comment to CBC News, saying they no longer represented the duo. John Martino was killed in a one-vehicle accident in 2006. His brother lives in the Hamilton area.

Jim Flynn, an official with the Canadian Union of Public Employees who handled the file, says workers first noticed problems in 2002.

"The dues and pensions were being deducted from the employees' paycheques, but the money was never being forwarded to the unions or to the pension plan," Flynn said. "So, that is how we started to file grievances."

CUPE represented about 500 long-term care workers at Royal Crest homes at the time.

Another union, Service Employees International Union Local 1 Canada, which represented about 900 workers for Royal Crest, also filed complaints.

"It was an intolerable situation as far as we were concerned," said union spokeswoman Marcelle Goldenberg. "Our members were out of pocket. Our first emphasis was on pension contributions because this is the livelihood of our members. And then we concentrated on vacation pay; and lastly, it was the union dues. The resources that we spent in trying to recoup these funds were unbelievable."

In 2005, the unions won a settlement, forcing the province's health ministry to pay out about $6.5 million. Most of the amount was for pension contributions, but just under $1 million represented union dues.

Flynn and Goldenberg say the money recouped in dues represented only a quarter of the money that went missing.

Flynn said CUPE still ended up losing millions of dollars because of the company. He and others think there should be a public inquiry into the case.

Other creditors, including the province and the federal government, are still trying to collect their money - six years after Ernst & Young Inc. took over as trustee following the bankruptcy.

Andrew Morrison, a spokesman for the Ontario Ministry of Health and Long-Term Care, said there's no talk about launching an investigation, though the government is still trying to recover $4.1 million owed. He said the ministry has installed safeguards to prevent such incidents in the future.