Business-class travel, smartwatch data among excessive expenses flagged in AG report in OilCo

Newfoundland and Labrador's auditor general raised red flags Wednesday in her first audit of the Oil and Gas Corp., the Crown corporation spun out of the now-defunct Nalcor Energy.

Denise Hanrahan says her staff found leaders of the corporation, known as OilCo, refused to follow government direction on job classifications. They also found a lack of oversight for public funds and gaps in compliance with policies on conflict of interest — something she called a "very key part of the public service."

"It surprised me to see a Crown corporation actively work against direction given by Treasury Board," Hanrahan told reporters at a news conference in St. John's on Wednesday.

The 33-page report is the first of its kind about the fledgling Crown corporation, which had operated as part of Nalcor Energy until Nalcor was dissolved in 2021. The Liberal government shut down Nalcor over its handling of the Muskrat Falls hydroelectric project, putting non-petroleum assets under Newfoundland and Labrador Hydro.

OilCo leads oil and gas activities in offshore Newfoundland and Labrador on behalf of the provincial government, but the report found the corporation doesn't operate in line with all government policies.

For example, OilCo does not classify positions on government pay scales, and most salaries exceed remuneration for similar jobs in government.

For Nalcor employees who transitioned to OilCo, classification could affect income.

"Classification would likely result in salaries being frozen indefinitely, or in termination and restaffing for transitioned positions," said Jim Keating, the corporation's chief executive officer, in the report.

Keating's income is approximately $312,740 per year. A similar position in government would be $182,789.

OilCo spent $23,805 on a consultant for position classification before the corporation's management abandoned the process. The corporation then spent $79,821 on alternative classification instead.

Hanrahan's first recommendation for OilCo is to classify its position on government scales, as directed by the province.

The corporation refused. Instead, they are proceeding with a market-based compensation system comparable to N.L. Hydro.

Smartwatch data

Position classifications weren't the only shortfall Hanrahan identified in her report.

"The other takeaway for me is the use of public money and the lack of oversight with respect to expenses," she said.

OilCo misused public funds by excessively spending on telecommunications, rent and travel, says the report. For example, technology that belonged to some former employees remained active long after they left the corporation.

In one case, a geophysicist and an engineer transitioned from Nalcor at OilCo's inception with smartwatches. These watches had data plans that remained active for three years, totalling $720.

Two cell were also left active for 19 months after employees left the organization, totalling $671.

For general cellphone services, OilCo paid $6,259 more than necessary during the audit period.

According to the report, the corporation didn't switch to the lowest price plan for its monthly service package.

Rented furniture

Hanrahan said the corporation is paying exorbitant rates for rent at its headquarters on Hebron Way in St. John's, with $50,845 of the annual lease cost specifically identified for the repayment of "fit-up and furniture" costs.

"Fit-up and furniture" refers to OilCo's 237 pieces of rented furniture, artwork, and appliances, as well as the initial preparation to make the interior space move-in ready in 2017.

"Over our scope period, this expenditure amounted to $152,535. Across the initial five-year lease term and the subsequent five-year renewal term, fit-up and furniture would be expected to cost $508,455," the report said.

Travel expenses were also high at OilCo. Two employees upgraded air travel from economy to business class for a flight to France, paying an extra $10,268 to change the tickets.

In another instance, an employee upgraded a flight at an incremental cost of $1,058.

The provincial government has strict criteria for travel expenses. Economy airfare is standard unless business class is required, such as when economy seats are unavailable.

Gaps in conflict of interest compliance were another topic of concern for Hanrahan. The report found that before 2023, OilCo board members didn't complete an annual certification as required by their code of business ethics and conduct.

The corporation also didn't provide formal conflict of interest training to employees or contractors until updates were made to the code last September.

Recommendations

Hanrahan issued five recommendations for OilCo, four of which the corporation has accepted, while rejecting the recommendation to classify employment on government scales.

OilCo accepted the recommendations to fill necessary vacant positions, ensure that expenses that are incurred do so in accordance with government policies, develop monitoring and reporting processes to ensure expenses, and ensure that all board members, employees, and certain contractors are trained in conflict of interest policies and that certification of understanding and compliance, as well as disclosure of any conflicts, is done annually.

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