Law Times

Law times • OctOber 25, 2010 Where's the oversight at Queen's Park? T here's a new C-word banned around Queen's Park: consultants. Just breathing it brings Inside winces from mandarins and politicians alike. Ontario Auditor General Jim Mc- Carter's report last week on the flagrant waste within the health-care system in hiring consultants has brought the cringe fac- tor to its peak. "We can't use consultants," a friend who works in government tells Queen's Park By Ian Harvey me over beers one night. "We can't use the word. We can't make it look like we're using a consultant. The message is clear: no consultants." That was two months ago. I can only imagine the panic in the halls as McCarter tabled his investigation into hiring practices for consul- tants within the health-care system. People knew it was going to be bad news and they weren't disappointed. Eight of 16 hospitals checked used money earmarked for clinical and administrative services to pay consultants to lobby the govern- ment for more funding. More disturbingly, the revelations are part of an epidemic mak- ing its way through the health-care system. As NDP leader Andrea Horwath noted: "Contracts to consultants were being handed out like Halloween candy. One hospital hired a consultant at a cost of $163,000, and the firm got six untendered followup contracts worth another $1.1 million. Another contract grew magically from $51,000 to $675,000. Why are patients in Windsor losing surgical beds while consultants are watching contracts grow and grow and grow without any oversight by this government?" During my 20 years or so as a daily newspaper reporter, I filed some pretty strange expense claims for things such as clothes, underwear, toothbrushes, a cab fare from Nanticoke, Ont., to Toronto, and membership in American Airlines' elite club so I could get close to disgraced Olympian Ben John- son as he returned to Canada after being stripped of his medal. Our comptroller, a dour Scotsman named Jim Yates, parsed just about every receipt I put in. He was so tight with the company's money that he once suggested photographers stop using motor drives on their cameras to slow down the rate at which they con- sumed 35-millimetre film because it was expensive and threatened to dock our wages if we lost or broke our new $5,000 laptops. I miss Jim and I miss the Jims of this world because we need them at public agencies to scrutinize and question spending. I would never have submitted a claim I couldn't get past Jim or at least defend. Of course, as McCarter noted, not all spending is waste. "We acknowledge consultants can play an important role in the health-care sector," McCarter said in his 32-page report. "But we found far too many examples where consultants were engaged on a sole-sourced basis, where significant increases in the initial fee estimate and follow-on work were repeatedly awarded, where there was inadequate oversight to ensure consultants delivered on time and on budget, and where billings for fees and expenses were not properly monitored and supported." Clearly, this is a management problem. If Jim and his like-mind- ed scrutinizers had been on the job, they would likely have scowled at the antics of a consultant being paid about $275,000 annually over a 30-month period who also hired other consultants at $97,000 and charged $50,000 in administrative support services fees not included in the contract and presumably to keep track of all of their expenses. The consultant also billed twice for $7,000 to cover a bonus, for- eign-exchange fees, and a Christmas lunch. Wait — it gets better (or worse). The same consultant, who wasn't named but should be, also charged taxpayers $400 per night for three nights in Chicago along with $500 in hotel phone charges; $510 per night for a second four- night stay; and $700 per night for five nights in Singapore. Then there's the case of a hospital administrator who apparently hired his own company to provide consulting services. That one wasn't even in the report since the Toronto Star broke it separately. The upshot is red faces all around and apologies from the minister of health down to the Ontario Hospital Association. Meanwhile, the government will table legislation to bring hospitals under the Freedom of Information and Protection of Privacy Act and will require all agencies receiving more than $10 million a year to stop using lobbyists. Hospital CEOs who don't comply will face fines. But as Conservative MPP Lisa MacLeod pointed out in question period, what good are rules if there's no enforcement? "Eleven minis- ters and 19 agencies haven't posted their expenses for the past year on the government's expense disclosure web site," she noted. The heart of the issue here, as it was with the $1 billion in eHealth misspending last year, is that this is what passes for business as usual within many of our public agencies. What we need is a few more Jims to set them straight. LT Ian Harvey has been a journalist for 32 years writing about a diverse range of issues including legal and political affairs. His e-mail address is ian harvey@rogers.com. after the 2008-09 economic meltdown. As a re- sult, companies and their boards of directors are increasingly establishing formal systems to iden- tify, monitor, and mitigate risks as they occur. Whether you are a compliance officer or in- house counsel, a major concern with respect to the establishment of such systems is protecting against people whose in- terests are adverse to your company and there- by deny them access to and use of the informa- tion they contain. Canadian federal financial institutions E have, for at least the last 10 years, had to have in place a legislative compliance management system. Their experiences serve as a good ex- ample of the types of issues that can arise if the information contained in these systems isn't dealt with carefully. Normally, companies use electronic data- bases. They make it easy to store and search data; distribute, replicate, and multiply infor- mation; and communicate with people both inside and outside the organization. Experience shows that electronic communications, espe- cially e-mails, tend to be informal, candid, and perhaps with the benefit of hindsight, foolish. The interest in these internal electronic da- tabases to outsiders investigating or pursuing claims against your organization and the risk that such access poses are aggravated by recent developments in both administrative and civil claims and trends in prosecution. Pressure for administrative investigations and prosecutions has increased as regulators react to the fallout from the 2008 economic meltdown. Private claims for bad faith and aggravated dam- ages based on delays in responding to known or discoverable problems have increased greatly over the last 20 years. In addition, we have seen an ex- ponential increase in class actions based on sys- tematic problems affecting customers. Risk man- agement and compliance records may contain information and evidence on a company's prob- lems, its standards, and policies breached; when it first identified an issue; the scope of the problem; those potentially affected by it; the remediation proposed; remedial steps taken; the effectiveness of those actions; and the trade-offs made. At the same time as lawyers' interest in elec- tronic information has increased, so has their ability to access and use those records and da- tabases. This interest has resulted in onerous de- mands for production of electronic records and the development of new rules, practices, and software-based tools to facilitate searches, pres- ervation, and access by lawyers exercising claim- ants' rights to production in civil litigation and by regulators conducting investigations. The convergence of these developments may be seen by those charged with protecting their company's compliance systems and its interests as the makings of a perfect storm. But as with any business risk, it's important to understand the na- ture of the risk and the available responses to it. The risk in issue is the unnecessary disclosure of potentially prejudicial, confidential, internal corporate records to outsiders wishing to use them against the company. The challenge for those responsible for corporate risk management is to design a program that creates and maintains the records necessary to deal with the company's problems and requirements without unnecessar- ily providing them to those attacking it. The issue is particularly germane as regu- lators pursuing concerns normally have the www.lawtimesnews.com COMMENT Preserving privilege key to reducing risk BY FRANK PALMAY & R. NAIRN WATERMAN For Law Times nterprise-wide risk-management systems have become even more important for companies and their in-house counsel power to demand to enter the company prem- ises to search for and seize business records. The powers may include the right to regular reports and audits and to demand documents, review records, and search computers to take what's relevant to the investigation. At the same time, parties to civil lawsuits also Speaker's Corner have the right to compel disclosure of confiden- tial internal records. The rules of documentary discovery require broad disclosure between adver- saries. Broad discovery of records is seen as advanc- ing the public interest in the effective and efficient administration of justice. Privilege, of course, is the chief protection against disclosure of sensitive records to gov- ernment authorities or civil litigants. While they're not a constitutional right, some privi- leges, such as solicitor-client protections, are seen as being of such importance that our courts have held them to constitute a funda- mental legal right. Other types of privilege are applied by the courts in particular circum- stances where the public interest requires that the records be protected from disclosure. The main privileges relevant to those design- ing and operating internal risk management or compliance programs are solicitor-client, litiga- tion, and public interest privilege. In addition, legislation may recognize privilege in address- ing particular types of records or activities. When designing a risk-management or com- pliance program and the protocols to be followed by those implementing it, remember that privi- lege and the scope of the protection it provides will, if disputed, be determined by a court on the available evidence and legal principles. As a result, those designing risk-management and compli- ance programs must incorporate protocols and tools, such as templates, that not only apply the legal requirements for protection but also assist those on the front lines to consider privilege, identify when and where it might apply, and create a contemporary record supporting it. Elements to be considered in the design may include: • A requirement to involve either internal or external legal counsel at the earliest sugges- tion of a problem or legal question, docu- ment their retainer, use their services to re- quest information, and receive copies. • Protocols for specifying the retainer of counsel if their advice is being sought on a matter for which solicitor-client privilege is important. It's also important to ensure that the retainer describes the steps the person may be expected to take in order to collect the information necessary for giving the legal opinion. • Document templates incorporating stan- dard phrases that designate the record as confidential or privileged and that have room for outlining its purpose with sug- gested options such as "for legal counsel." • Protocols restricting or controlling the circu- lation, use, and retention of sensitive confi- dential records to ensure that those preparing them are knowledgeable of and sensitive to the requirements for confidentiality; the care necessary in creating them; the need to be able to segregate them to prevent inadvertent dis- closure or seizure; and the necessity to purge, where possible, unnecessary or stale records. Privilege is the best available legal tool to gather information necessary for the proper functioning of a company without the fear that it will be used by its adversaries. However, in order to get its pro- tection, privilege, along with its requirements and limitations, must be understood and a company's systems and personnel must take care to establish, maintain, and preserve the rights available. LT Frank Palmay and R. Nairn Waterman are both partners at Lang Michener LLP. PAGE 7

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