A recent report from Newfoundland and Labrador's auditor general, Dennis Hanrahan, found red flags in OilCo's operations.
A new report from Newfoundland and Labrador's auditor general, Dennis Hanrahan, found red flags in OilCo's operations. (Mike Sims/CBC)
Newfoundland and Labrador's auditor general issued the warning Wednesday in his first audit of Oil and Gas Corp., a crown corporation that was spun off from the now-disbanded Nalcor Energy.
Dennis Hanrahan said his staff found that executives at the company, known as OilCo, had failed to follow government guidance on job classifications. They also found insufficient oversight of public funds and deficiencies in adherence to conflict of interest policies, which Hanrahan called “a very important part of public service.”
“I was surprised to see a state-owned company actively opposing the Treasury Board's direction,” Hanrahan told reporters at a news conference in St. John's on Wednesday.
The 33-page report is the first on the fledgling Crown corporation, which operated as part of Nalcor Energy until it was dissolved in 2021. The Liberal government shut down Nalcor over its handling of the Muskrat Falls hydroelectric project and placed its non-oil assets under the umbrella of Newfoundland and Labrador Hydro.
OilCo leads oil and gas operations off the Newfoundland and Labrador coast on behalf of the provincial government, but the report said the company has not operated in line with all government policies.
For example, OilCo does not classify positions based on government pay scales, and most salaries exceed compensation for similar positions within the government.
For Nalcor employees who transfer to OilCo, the classification could affect their income.
“The classification will likely result in pay being frozen indefinitely or positions that have been terminated and transitioned will be filled,” Jim Keating, the company's CEO, said in the report.
Jim Keating is CEO of Newfoundland and Labrador's government-owned oil and gas corporation.
Jim Keating is CEO of Newfoundland and Labrador's government-owned Oil and Gas Corporation. (Terry Roberts/CBC)
Keating's annual salary is approximately $312,740. A similar government position would earn $182,789.
OilCo spent $23,805 on job classification consultants before management abandoned the job classification process. The company then spent $79,821 on alternative classifications.
Hanrahan's first recommendation for OilCo is to follow state guidance and classify the company's status under the government's criteria.
The company refused, instead implementing a market-based compensation scheme comparable to NL Hydro's.
Smartwatch Data
Job classifications aren't the only shortcomings Hanrahan cited in his report.
“Another lesson for me is the way public money is being spent and the lack of oversight on spending,” she said.
The report found that OilCo misused public funds by excessively spending on communications, rent and travel, and that technology owned by some former employees, for example, was kept in use long after they had left the company.
In one case, an oil company transitioned its geophysicists and engineers from Nalcor to smartwatches. These watches came with three-year data plans that cost a total of $720.
Two cells remained active for 19 months after the employees left the organization, totaling $671.
For general cell phone service, OilCo paid $6,259 more than it was required to during the audit period.
The company reportedly did not switch its monthly service package to the lowest-cost plan.
Rental furniture
Hanrahan said the company was paying exorbitant rent for its headquarters on Hebron Way in St. John's, with the $50,845 annual lease payment going towards repaying the cost of “equipment and furniture.”
“Fixtures and Furnishings” refers to the 237 pieces of furniture, artwork and appliances rented by OilCo, as well as initial preparations to make the interior space ready for occupancy in 2017.
The results of the first audit of the Newfoundland and Labrador Oil and Gas Corporation were released Wednesday morning.
The results of the Newfoundland and Labrador Oil and Gas Corporation's first audit were released Wednesday morning. (Mike Sims/CBC)
“During the period under review, this expenditure amounted to $152,535. Over the course of the initial five-year lease term and any subsequent five-year renewal periods, the cost of fixtures and furnishings is expected to be $508,455,” the report said.
Travel expenses were also high at Oilco: Two employees upgraded their tickets to France from economy to business class, paying an additional $10,268 to change the ticket.
In another example, an employee upgraded their flight for an additional $1,058.
State governments have strict standards regarding travel costs, and economy airfares are the standard unless business class is required (e.g. economy seats are not available).
Gaps in conflict of interest compliance were also a concern for Hanrahan: OilCo's directors had not completed annual certifications required by the company's code of business ethics and conduct by 2023, according to the report.
The company also did not provide any formal conflict of interest training to employees or contractors until its policies were updated last September.
Recommendations
Hanrahan made five recommendations to Oilco, of which the company accepted four, but rejected the recommendation that jobs be classified by government standards.
OilCo accepted the recommendations to fill necessary vacancies, ensure expenses incurred are in line with government policy, develop monitoring and reporting processes to ensure expenses are covered, and ensure all directors, employees and certain contractors receive training on the conflict of interest policy and certification of understanding and compliance, as well as disclosure of conflicts of interest, are made annually.
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