GO Transit audit sparked by claims CN overbilled taxpayers
Ex-CN employee lays out allegations of overspending, improper billing along expanded commuter line
CBC News has learned more details about an internal audit called this week at GO Transit, as well as a probe by the Ontario Provincial Police's anti-corruption unit into allegations that CN Rail improperly billed taxpayers for millions of dollars in expenses during upgrades to commuter train service west of Toronto between 2005 and 2008.
“They were taking money from GO to pay their operating [costs] to maintain that ratio of the best railroad in North America, “ former CN construction supervisor Scott Holmes alleged to CBC News in an interview this week. “They were using GO Transit as though it was a slush fund. I can prove it in a heartbeat let's just go to trial.”
Holmes has been locked in a bitter legal dispute with CN over the last five years. The company issued a statement Wednesday saying, “Mr. Holmes has made repeated spurious allegations against CN in recent months,” and also noting that the company fired Holmes in 2008 and is suing him for fraud.
Holmes says he was fired because he began speaking up to managers about CN’s billing practices and is fighting back with a lawsuit of his own.
He’s also gone public with interviews, first with APTN and now CBC News, detailing claims that CN charged GO Transit millions of dollars for unrelated expenses when the railway was hired to build an expansion to the commuter rail lines between Burlington and Hamilton five years ago. He’s also delivered thousands of pages of CN documents, invoices and billing records to the OPP asking them to investigate.
Former employee details allegations
“They were using ‘partially worn' material, which is used material being charged for new,” Holmes told CBC News. “[They charged GO transit for] millions of dollars of equipment working out on CN territory, not even on the GO territory. If [that equipment] was there three weeks a year, you'd be lucky. [CN was] upgrading CN tracks that have nothing to do with GO Transit."
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CBC News has obtained stacks of documents which Holmes says support his claims, including emails by a CN regional engineer showing the company scoured its inventory for ‘partially worn’ materials to be used in the new commuter line, planning to bill GO Transit for brand new materials.
Holmes says when GO Transit hired CN in 2005 to install a dedicated commuter line between Burlington and Hamilton at a cost of $72 million, he claims CN billed the government body for many upgrades that ‘had nothing to with GO.’ He alleges CN did upgrades to various freight lines, switches, and an underpass that was dug down to facilitate double-decker freight cars — not commuter train traffic.
Holmes also pointed to what he says are internal billing records from 2008 that showed that GO footed bills for hundreds of thousands of dollars in hotel charges for CN over a seven month period — including thousands for rooms rented in Cornwall, Ont., about 500 kilometres from the job site, as well as Niagara Falls and northern Ontario.
“CN denies alleged financial improprieties with regard to a rail expansion construction project it managed on behalf of GO Transit between 2005 and 2008,” CN spokesperson Mark Hallman told CBC News in a statement Wednesday.
“The vast majority, if not all, of the contractual work carried out by CN on behalf of GO was done on a fixed-price basis. CN provided GO with an estimate of the work to be carried out and the cost associated with it prior to ordering material or performing specified work. GO had full authority to review and question the estimates, and approved the scope and cost of the work before CN started it,” Hallman stated.
But Holmes points to a series of memos from Darryl Barnett, then CN’s regional supervising engineer, including one in which Barnett advised various fellow CN managers that not all the money in its GO Transit accounts was spent, so he invited them to submit additional invoices to ensure GO Transit received maximum billings.
In another memo, marked “private. confidential. do not share,” Barnett detailed a plan to deal with some unexpected CN cost overruns on a portion of the project by inflating numerous billings to GO Transit to minimize the exposure to CN.
Barnett is no longer at CN Rail, but has, in fact, moved over and now works at GO Transit where he is the director of railway corridor infrastructure. CBC tried numerous times but failed to reach him by telephone on Wednesday.
In the hands of auditors
Neither CN Rail nor GO Transit were willing to comment on the invoices, the expenses or the manner in which CN billed Ontario taxpayers for a project Holmes says was dramatically over-inflated.
GO Transit spokesperson Anne Marie Aikins told CBC News that these matters about costs are now in the hands of auditors.
"They're unproven allegations at this point, and we're taking them seriously and immediately called an audit," said Aikins.
“It's not their money. It's the taxpayer, GO's money for the infrastructure to build the new Lakeshore West program," insists Scott Holmes.
One of his biggest allegations, which he says he has brought to the OPP, is something he admits he has no paper work to support. He claims that in December 2005 he was at a CN weekend retreat at the Deerhurst Resort in Huntsville, Ont., when he overheard two senior managers discussing an operating shortfall. Holmes says one asked the other to transfer $12 million sitting in accounts earmarked for the GO project into CN’s operating budget to ensure the company ended the year in the black, and so that managers would make their bonuses.
Holmes says the following Monday, $14 million was transferred out of the GO project accounts which he was involved in overseeing.
Holmes admits he has no paperwork to support the claim, and is hoping the OPP and GO Transit auditors will investigate.
CBC can not verify Holmes’ account, and does not know whether any such discussions took place, let alone any financial transfer.