Monday With The Auditor

Paul Waldie was just interviewed on BNN and detailed the testimony of Marilyn Stitt, a partner with KPMG. She testified about a 2002 meeting she had had with Jack Boultbee, wherein she found out about the individual non-compete payments. She wondered why they had not been disclosed, and told him that they should be disclosed. Mr. Boultbee said that they weren't related-party transaction according to the then-current meaning of the term, but Ms. Stitt got her back up and said that the audit report (found at the end of the financial statements of a shareholders' quarterly or annual report) would be modified if those payments were not disclosed. (Any modification of the standard auditor's report is considered a red flag; it isn't taken lightly by the investment community.) She then had raised questions about board approval and buyer knowledge of the payments, as it would have affected the audit. When today's morning sitting ended, Mark Kipnis' lawyer was cross-examining her. The defense will likely ask questions about why Ms. Stitt didn't dig deeper into the records, as those payments had been disclosed at other times and in other places. With regard to David Radler testifying, there are only rumours as of now. It seems sensible, Mr. Waldie related, to expect that the other members of the audit committee will testify before Mr. Radler goes on the stand.

[His report has been webbed by the Globe and Mail. It notes that Mr. Boultbee, according to Ms. Stitt, "was quite forceful and the two engaged in a debate about the issue." The ending has this significant snippet of testimony, given under direct examination: "Ms. Stitt said that an audit is only an opinion based on selective testing of a company's financial transactions and management representations. She also said that fraud is difficult to detect because it involves an intentional intent to deceive auditors are not generally looking for fraud when they carry out an audit."]

Romina Maurino has filed a report, as webbed by 680 News. It explains why Mr. Boultbee refused to disclose those payments in the 2001 annual report, which was what the 2002 meeting was about. "Stitt said Boultbee told her the company did not consider the CanWest payments fell under the related-party transaction category because Hollinger International 'was just acting as an agent' to help distribute the money to individual executives named in the agreements. " Ms. Stitt also testified that she gave a "clean" audit for the 2001 financial statements once the payments were disclosed in the annual report, as she believed that the audit committee had approved the payments. The report ends with a note that Richard Burt is expected to testify that the audit committee was misled, which would tie his testimony in with hers for the prosecution.

Bloomberg's report, written by Joe Schneider and Andrew Harris, has a summary of Ms. Stitt's testimony. It notes that she was "surprised'" that the non-compete payments were disclosed to regulators in a first-quarter 2001 filing, but doesn't note if she said so under direct or cross-examination. [It also notes that another non-compete agreement, for newspapers sold to Osprey Media and another party (presumably Community Newspaper Holdings Inc.) in exchange for $16.1 million, was brought into evidence by the prosecution.]

Ms. Maurino's report has been updated, with some of the cross-examination of Ms. Stitt near the end of it; it's been webbed by 680 News too. She describes Michael Swartz, defense lawyer for Mark Kipnis, making the point that KPMG staff could have brought up any suspicious items to the audit committee themselves, and that "various experienced, high-priced accountants had vetted Hollinger's results."

A further updated Bloomberg report has more details on the cross-examination. When asked by Csr. Swartz if she knew that other KPMG accountants had seen evidence of the non-compete payments associated with a sale of newspapers to CHNI, Ms. Stitt admitted that she hadn't. Coverage of the direct testimony has also been webbed by Reuters.