Penashue campaign finances were fine, says former agent

The man who served as Peter Penashue's official agent in the 2011 federal election says he doesn't know anything about overspending or questionable campaign contributions that have been placed at his feet, while Elections Canada records show repeated correspondence between him and its auditors over the spending.

Penashue, the federal minister of intergovernmental affairs, said in a statement Tuesday that "no one is more surprised than I am" at allegations of campaign spending that have dogged him for weeks.

Penashue has been criticized for a month over invoices that show he would have gone over his campaign spending limit had his campaign paid what it was billed for travel by Provincial Airlines. Instead, a letter from the airline's lawyer says someone from the campaign told Provincial that they could only afford to pay a flat $7,000 rate instead of the $24,711 for which it was invoiced. The airline wrote off the difference, saving the campaign thousands of dollars.

CBC also reported on Elections Canada data that show Penashue's campaign appeared to have received a $5,500 campaign contribution from St. John's construction company Pennecon. The campaign provided receipts to six senior officials with the company.

Penashue pointed responsibility for campaign finances to Reg Bowers, his former official agent, who "was responsible for administration and bookkeeping. I focused on campaigning across this massive riding and meeting the people of Labrador."

But Bowers, in an interview with the Toronto Star, said Penashue's campaign fell within federal limits.

"I did not sign off on the $4,000," he said, referring to the amount by which Elections Canada said the campaign overspent.

"When it left my desk, it was under the cap," Bowers, who was subsequently appointed to the Canada-Newfoundland and Labrador Offshore Petroleum Board, told the Star.

'I just kept my fingers crossed'

Records the campaign provided to Elections Canada show continuous correspondence between the agency and Bowers until he was removed as official agent last summer, replaced by the Conservative Party's chief financial officer.

"During the review of the [election spending] file, we have found that a number of adjustments are required to the return you have submitted," an Elections Canada auditor wrote to Bowers in a July 11, 2012 letter.

"The information provided to us indicates that the total election expenses of the campaign exceed the election expenses limit of $84,468.09."

A spreadsheet attached to the letter showed the campaign had overspent by $3,995.15.

The election agency repeatedly asked Bowers to provide more information about the campaign's spending. In a letter dated May 25, 2012, Bowers apologized for not having the details the auditor needed about the campaign's travel expenses. Candidate travel expenses don't count toward the spending cap, but the expenses of the candidate's staff, volunteers and family do.

Bowers says in the letter that he didn't know they were separate expenses.

"Given the circumstances, record keeping and budgeting did not get the top priority. In the beginning we had very limited funds, we couldn't get internet connection and, as mentioned, very limited help so there was a lot of wasted time running back and forth using my own computer and resources," he wrote to Elections Canada.

"We had to make the most of what we had and what we knew and I got advice wherever possible.... I just kept my fingers crossed and relied on a designated local person in each town. This way we cut down on costs and got the job done. All I can say is it worked."

'Mitigating factors' cited in airline writeoffs

Bowers told the Star that "there were mitigating factors" as to how Penashue's campaign came to have Provincial Airlines write off thousands of dollars worth of chartered flights during the campaign.

Records in Penashue's election file refer to his brother-in-law, Paul Rich, negotiating a flat rate for the campaign. At the time, Rich was the CEO of Innu Development Limited Partnership, which co-owned with Provincial Airlines the regional charter line that accounted for more than $14,000 billed to the campaign for its travel. Rich is also listed as a passenger on one of the flights Penashue took.

In the May 25 letter, Bowers says one of the advantages he brought to the campaign was his ability to "get around as effectively and cheaply as possible" because he had travelled in the area for more than 30 years.

"We had to arrange the campaign around the candidate's travel, which was around what was available. This included his vehicle, freight plane flights, passenger flights when all else failed and charters on a very limited basis because they were expensive. Then we negotiated a contract around this method," Bowers wrote to Elections Canada.

Penashue's campaign submitted documents to Elections Canada showing Bowers worked out an agreement with Provincial Airlines Ltd. in Labrador on April 4, 2011. But a separate letter of agreement says it was Rich who negotiated the deal. That letter, as well as an invoice for the $7,000 charge, show the agreement wasn't negotiated and finalized until Sept. 16, 2011, more than four months after Canadians cast their ballots, and five months after the date on the written deal.

The letter from the airline's lawyer also says the campaign didn't contact Provincial about the $7,000 limit until the fall of 2011.

A letter sent to Elections Canada by Conservative Party lawyer Arthur Hamilton says the contract submitted by Bowers, the official agent, "is not reliable in its costing, and does not represent the minimum commercial value Provincial Air believes the campaign received in the 2011 election period."

A discount on the commercial value of an item or service provided to candidates counts as a political donation. Corporate donations are illegal in Canada.

'Mistakes were made'

Bowers told the Star that he believed that Penashue's campaign would be able to clear the air with Elections Canada over allegations of overspending.

"I was in charge of the accounting and I was in charge of the campaign, there's no question about it, and these are all allegations at the moment," Bowers told the Star.

"We were very clear to all our people that there was no corporate donations, I will tell you that," he said. "One came in that I'm aware of now with some instructions attached to it, but we did make everybody aware that we were not receiving corporate donations."

Late Tuesday, Penashue's official released an email from April 7, 2011 — about four weeks before the election — in which Penashue instructs an undisclosed party that corporate donations are not acceptable.

In the May 25 letter, Bowers says he made mistakes.

"You must keep in mind, this was my first time being an official agent and campaign manager so I had to get advice wherever I could and very quickly because I had very limited time. So mistakes were made. Because there was so much to be done, time was of the essence so it was very hectic," he wrote.

Liberal Leader Bob Rae has asked Elections Canada for a formal investigation into the campaign, in which Penashue unseated Liberal incumbent Todd Russell by 79 votes.