News Release

FREDERICTON (GNB) – Auditor General Kim MacPherson answered “where did $63.4 million of financial assistance to Atcon go?” in her report tabled today in the legislative assembly. This is a follow-up to a report tabled in 2015 in which the auditor general examined the decision-making process that went into approving government aid to a financially struggling New Brunswick company.

“Based on the information we were able to obtain, the funds provided to Atcon appear to have been largely used for business-related activities. However, some practices we found were considered questionable,” said MacPherson.

With Atcon declaring bankruptcy just nine months after receiving $50 million in new loans, the auditor general conducted extensive testing to determine what the company did with the money prior to defaulting. The investigation included the examination of more than 15,000 computer files, the indexing and search of close to a million emails, and interviews with cabinet ministers involved in approving the government aid.

Over a period of three years, when Atcon was seeking financial assistance, more than $700,000 of personal expenses were put through company accounts. Purchases included a vacation property in Aruba, jewelry, luxury car lease payments, registered retirement savings plan (RRSP) contributions, personal income tax payments and more. Atcon was also leasing a corporate jet with estimated operational costs amounting to $8.2 million from 2008 to 2010.

In addition, certain family members of key management who did not appear to have a regular and sustained presence at Atcon received significant salaries.

“We were surprised to find that a company would have made these types of extravagant expenditures when they were under such significant financial pressure and were coming to the province asking for financial assistance,” added MacPherson.

MacPherson performed an in-depth analysis of Atcon’s audited financial statements and records prior to the company receiving assistance from the province. Irregularities were found which improved the company’s financial position in appearance, when in fact Atcon was operating under significant cash flow stress.

“We found Atcon’s overall financial health was poor and concluded that a $50-million loan was never going to have been enough to save Atcon from its eventual failure, as the loan was used primarily to refinance existing debt,” MacPherson said.

MacPherson interviewed six cabinet ministers who were part of the decision in 2009 to provide the $50 million in loan guarantees to Atcon and to release the province’s security in favour of a major bank. All ministers affirmed they understood the risks involved. In general, factors cited as reasons the assistance was granted include the depressed economy in the Miramichi region and the large number of businesses across New Brunswick that would be negatively affected should Atcon fail. However, no clear rationale was provided for the decision to release security on the guarantees in favour of Atcon’s bank.

The province has recovered an estimated 4.5 per cent of the amount owed from Atcon while Atcon’s bank has recovered close to 80 per cent.

“Had the security not been given up, we believe the province could have recovered significantly more, in the range of $12 to $19 million,” MacPherson added.

As part of preparing this report, a follow-up on the 2015 recommendations to Opportunities NB was conducted. Opportunities NB had reported it fully implemented 15 of the auditor general’s 19 recommendations. However, MacPherson determined four of 19 were implemented.

MacPherson also made eight new recommendations to Opportunities NB and one recommendation to the Executive Council Office to strengthen the financial analysis provided to cabinet for future decisions on financial assistance.

The chapter on Financial Assistance to Atcon – Unanswered Questions can be found in Volume II of the 2017 Auditor General Report. This volume and a one page summary are available online.