Licence Tribunal
Appeal d'appel en
Tribunal matière de permis
DATE:
2014-07-28
FILE:
8661/TIA
CASE NAME:
8661 v. Registrar, Travel Industry Act, 2002
An Appeal from a Notice of Proposal by the Registrar, Travel Industry Act, 2002, S.O. 2002, c. 30, Sch. D to Revoke Registration
Gala Toronto Travel Centre Inc.
Appellant
-and-
Registrar, Travel Industry Act, 2002
Respondent
REASONS FOR DECISION AND ORDER
ADJUDICATOR:
Simon Dann, Member
APPEARANCES:
For the Appellant:
Laurence Wong, Agent
For the Respondent:
Soussanna Karas, Counsel
Heard in Toronto:
July 3, 2014
DECISION AND ORDER
Background
This is a hearing before the Licence Appeal Tribunal (the “Tribunal”) arising out of a Notice of Proposal, dated February 11, 2014, to revoke the registration of Gala Toronto Travel Centre Inc. (the “Appellant/Gala”). The hearing was held in the presence of Laurence Wong, Agent, for the Appellant, and Soussanna Karas, Counsel, for the Registrar.
Opening Statements
The Registrar's position is based on concerns about the Appellant's financial responsibility, integrity, and ability to operate with honesty. There have been trust account issues with Gala since 2009 with the same issues being flagged through inspections in 2010, 2013 and 2014.
The concerns have been and continue to be that customer funds are being deposited to the general account and suppliers have also been paid from that account. Overhead expense payments have been made from the trust account and, the trust account has also been found overdrawn.
The Registrar has worked with Gala since 2009 and despite the Travel Industry Council of Ontario's ("TICO") best efforts to remedy the problems, Gala has failed to ensure proper trust account procedures were put in place.
In 2010, the consent order resulting from an agreement between the Registrar and Gala, provided Gala with another opportunity to comply but given the history of the registrant's conduct, the Registrar believes there is a risk to consumer funds and therefore asks the Tribunal to confirm the Registrar's proposal to revoke their registration.
The Appellant's agent, Mr. Wong, said he has been in business for over 20 years without a single consumer complaint. He stated there has never been any intention to misuse funds and TICO should bear with him as they are trying to improve their procedures and bookkeeping systems.
Registrar's Evidence
Sanja Skrbic is an employee of the Registrar who is a chartered accountant and the manager of financial compliance. Her responsibilities include ensuring that registrants are in compliance with their requirements for working capital and trust accounting. She reviews inspector reports, ensures registrants are visited regularly or as needed and communicates with them accordingly.
A registrant's financial statements, which are required to be filed within 3 months of the registrant's year end, show whether the registrant is compliant in managing their trust funds and their working capital requirements. Ms. Skrbic noted that while trust accounting can be opted out if the registrant agrees to provide a security to TICO, equivalent to one-sixth of their cash sales, Gala does not have this exemption.
The purpose of the trust fund is to ensure protection of consumer funds and as TICO has jurisdiction over that account, TICO can take steps to freeze the funds within the trust account if it considers there is risk to consumer funds.
Initial exhibits reviewed by Ms. Skrbic started with Gala's June 2013 registration renewal form (Exhibit 3, Tab 1) which registrants file on a regular basis in order to provide their updated information. She referred to the TICO Inspection Report of November 26, 2010 (Exhibit 3, Tab 10) in which the TICO inspector concluded that there was some risk associated with Gala's daily banking procedures.
In that report, the inspector noted the trust account was being used to process general business costs and the trust account was occasionally in an overdraft position. This inspection was followed by the TICO letter of December 22, 2010, which outlined the noted deficiencies and what was needed to correct these deficiencies.
On February 24, 2011, the Registrar issued a Notice of Proposal to Revoke Registration ("NOP") of Gala for failure to (i) maintain a trust account, (ii) to follow proper trust accounting procedures and (iii) to maintain a minimum working capital position. The Licence Appeal Tribunal hearing that followed in June 2011 led to a Consent Order and agreed upon Minutes of Settlement (Exhibit 3, Tab 1), in which Gala essentially undertook to submit monthly trust reconciliations, file annual financial statements on time, with full trust account position disclosure and to maintain minimum working capital.
On August 26, 2011, the Registrar sent Gala another request (Exhibit 3, Tab 4) to stop "making payments from the trust account for non-travel related services ... immediately". Gala was also then advised that failure to comply with trust accounting requirements could result in the Registrar taking administrative action against Gala, including a possible Notice of Proposal to Revoke Gala's registration.
By letter dated September 14, 2011 (Exhibit 3, Tab 5), TICO again advised Gala about issues with Gala's trust accounting procedures and specifically noted the trust account was over-drawn and payments from that account were still being made for non-related travel services.
Ms. Skrbic said that by the end of October 2011, bank statements showed Gala was still making payments to an insurance company and an alarm services company. In addition, customer deposit information was not provided (Exhibit 3, Tab 6) by Gala until October 31, 2011. TICO subsequently sent Gala another letter asking what steps were being taken to remedy the situation and failure to do so could lead to further administrative action.
Gala replied by letter dated December 2, 2011 to advise TICO a stop payment order had been given to Gala's bank and Gala hoped this would eliminate the payments being drawn by the insurance company from Gala's trust account.
Ms. Skrbic said that while Gala's next financial statements, dated March 31, 2012, showed Gala was compliant with the working capital requirement, there was a lack of information about the trust account position.
In August 2012, TICO wrote Gala to ask for an explanation about why the trust account appeared to be in a deficit position. When Gala's bookkeeper, Bob Szeto, replied saying it was an error (Exhibit 3, Tab 7), TICO asked for a trust account reconciliation and a copy of the bank statements. From the reply provided by Mr. Szeto, TICO noted there were no customer deposits received and the alarm company was still being paid from the trust account (Exhibit 3, Tab 8).
In the latter part of 2013, TICO conducted another inspection visit and subsequently issued letters to Gala on November 11 and December 18 to note that there were continuing trust accounting issues. TICO requested that Gala provide trust account reconciliations, trust account bank statements and written confirmation of the steps being taken to address the noted deficiencies (Exhibit 3, Tab 9).
During a telephone conversation between TICO and Mr. Wong (January 30, 2014), Mr. Wong reportedly told TICO that he did not know anything about trust reconciliations and he would have Mr. Szeto call TICO (Exhibit 3, Tab 2).
By this time it was Ms. Skrbic's conclusion that Gala was not doing what was required and on February 11, 2014, the Registrar issued an NOP to revoke Gala's registration.
Following TICO's receipt of Gala's March 31, 2014 financial statements and the TICO inspection visit report of May 26, 2014, TICO wrote Gala to advise that the same trust accounting deficiencies remained and Gala had until July 3rd to submit trust reconciliations and provide written confirmation of the steps being taken rectify the noted deficiencies (Exhibit 3, Tabs 12, 13, 14).
Ms. Skrbic said she believed that while both Mr. Wong and Mr. Szeto are knowledgeable, they are not doing what is required and Gala's registration should be revoked. Gala's sales are noted to have decreased and there is concern that consumer funds are at risk.
Mr. Wong's only cross-examination question was whether Ms. Skrbic still saw payments to the alarm company in the February-March 2014 bank statement. Ms. Skrbic replied that she did not.
Appellant's Evidence
Bob Szeto is Gala's bookkeeper and he acknowledged he did not take the concerns too seriously but said he eventually started to remedy the problems.
Mr. Szeto said they had difficulty switching the life insurance payments to another account and after unsuccessful efforts to do it through the insurance company directly, they went to their bank and instituted a stop-payment order.
Regarding the alarm company payments, Mr. Szeto said they had a small amount of payments left and let those payments run out to conclusion. He acknowledged the trust account was overdrawn and that it should not have been allowed to happen.
Mr. Szeto acknowledged that what he has done for trust accounting for all his clients has not been exactly right but what he has learned through this hearing, and Ms. Skribic's testimony has given him a better understanding of the process. He said that while he has also been given some more reasonable explanations by the TICO inspector, it takes time to make complete changes in accounting statements. One of the specific steps they have taken is to set up a bank deposit book to clearly show customer payments.
In cross-examination, Mr. Szeto confirmed he is Gala's bookkeeper and the person who records all expenses, sales and prepares the books for the accountant who does the financial statements.
Mr. Szeto is at Gala once a week and Mr. Wong gives him the information to input. He now uses Quickbooks accounting software and starts entries based on invoice notes he receives from Mr. Wong. He acknowledged the past trust account picture is not complete because not all receipts are recorded but that has changed with the deposit book procedure. He said Mr. Wong uses the deposit book to enter a charge invoice number and this is then matched up with payments received. Invoice numbers are manually recorded in a record book. There is very little cash received and credit card payments represent 95% of receipts. Gala does not accept or offer credit terms.
It was also learned that inbound tours from China generate monies for services purchased in Ontario and while they have not been recorded in the trust account, they should be treated as trust funds as they are to be paid to suppliers in Ontario.
Mr. Szeto said he understands that overhead expenses should not be paid from the trust account and while they have changed this practice, it has taken time to carry out the change.
Mr. Wong is the only signing authority and Mr. Szeto does not write any cheques or have access to internet banking for Gala. However, Mr. Szeto is the one who prepares the trust account reconciliation forms. He has also prepared the documents and forms which TICO has received and explained that Mr. Wong does not see what is sent in to TICO because “he does not understand”.
Closing Submissions
The Registrar's Counsel, Ms. Karas, submitted that the intention of the Travel Industry Act is to protect the travelling public financially and to provide confidence in their purchase of travel-related services.
TICO's position is that Gala's registration should be revoked as the company has failed to come into compliance over a number of years. There have been three inspections, multiple letters, one consent order as well as numerous offers of help on how to manage trust accounts.
Ms. Karas submitted that if there is a lack of care then TICO cannot help and this appears to be the case when a registrant does not seem to take trust accounting seriously. After four years of follow-up and the seriousness of a consent order, there should be compliance but this has not been the case. Trust account reconciliations cannot be considered accurate because not all monies received have been seen in the trust account and while both Mr. Szeto and Mr. Wong have said they are working with TICO, nothing specific has been seen. In this matter, Gala's past performance is seen as an indicator of its future conduct.
Ms. Karas said she understands Mr. Wong's claim there have been no consumer complaints but in her view, sales are cash and where money is deposited to the general account it is only a matter of time before money is misused and then there will be no money to pay suppliers.
Ms. Karas cited case law, to point out that the Registrar simply needs to show the Appellant's past and present conduct provides reasonable grounds for belief that they will not carry on business in accordance with the law and integrity and honesty - Ontario (Registrar of Alcohol and Gaming Commission) v. 751809 Ontario Inc. (Famous Flesh Gordon's) ("Flesh Gordon's").
In his closing, Mr. Wong acknowledged that there was not much to be said as TICO is correct in its statements.
Mr. Wong submitted that he has been in the travel industry for more than 20 years but the problems have not been deliberate and there have never been any customer funds at risk. He emphasized that there has never been any complaint against Gala.
Mr. Wong submitted they are working with TICO and he now has separate deposit books to have a proper record of customer payments and deposits. He said Gala is a small company and he is the one person who does both sales and record keeping. He has now hired a part-time person to do the record keeping and the 2014 bank statement shows the situation is “clean now”. He is intent to keep moving forward to make the required changes.
Ms. Karas made several points in reply, saying (1) it should not take four years to move in the required direction, (2) the issue with Gala has been the inter-mingling of funds, (3) she has not heard of specific corrective actions, and (4) there is no information about what training the new part-time person hired by Gala may have.
THE LAW
The Act provides in part as follows:
8.(1) An applicant that meets the prescribed requirements is entitled to registration or renewal of registration by the registrar unless,
(a) the applicant is not a corporation and,
(i) having regard to the applicant’s financial position or the financial position of an interested person in respect of the applicant, the applicant cannot reasonably be expected to be financially responsible in the conduct of business,
(ii) the past conduct of the applicant or of an interested person in respect of the applicant affords reasonable grounds for belief that the applicant will not carry on business in accordance with law and with integrity and honesty
By virtue of section 10 of the Act, the grounds for refusal to register or renew registrations are applicable to revocations. The onus of proof is on the Registrar to show that the registration of the Appellant should be suspended or revoked because it is not entitled to registration under section 8.
ANALYSIS
The Appellant and his bookkeeper both acknowledged there were problems with the trust accounting procedures. The evidence presented by Ms. Skribic was not contested and therefore it is seen as fact and not considered necessary to review in any detail.
Ms. Karas described the Registrar's position as one of concerns about the Appellant's financial responsibility, integrity, and ability to operate with honesty. She made a point of saying that it is the trust fund over which the Registrar has jurisdiction and the implication is that if a registrant does not operate the trust fund in compliance with the requirements, TICO would potentially not be able to recover consumer funds and ensure either reimbursement or supplier payments if a failure to pay occurred. The Registrar's responsibility is to avoid risk to the greatest degree possible.
Since the Appellant has acknowledged the trust accounting issues, the questions which this Tribunal believes it must deal with are whether the Appellant has displayed financial irresponsibility, lack of integrity and or dishonesty in its operations; or whether, for whatever reason, this registrant is failing, deliberately or not, to maintain accurate records while still operating with responsibility and honesty towards the consumer public it serves. Additionally, this Tribunal must consider the issue of financial risk and to what extent, if any, there may be risk to consumer funds.
Considering all of the evidence, and the acknowledgements of Mr. Szeto and Mr. Wong, the Tribunal finds it clear that the Appellant had failed to remedy the problems with its trust accounting procedures, which include the proper recording or consumer payments and corresponding payments to suppliers for the services for which those consumer payments were intended. Whether the Appellant acted with deliberate disregard or if there was an innocent failure to comprehend the requirements is not clear to this Tribunal.
For both Mr. Wong and Mr. Szeto, it was noted that English is not their first language, but it seemed their individual ability to comprehend the proceeding and to communicate in English was not at any time impeded. Neither one suggested that there was any language issue (there was never any request for a translator).
However, it is this Tribunal's observation, regarding the conduct and testimony replies, that both Mr. Szeto and Mr. Wong, in replies to examination questions and in submissions, were both very thoughtful in speaking.
The Tribunal also noted it was Mr. Szeto's testimony that he prepared all the material documents which were provided to TICO and that Mr. Wong did not review the documents because he would not understand their content. Mr. Szeto stated he now understood that the trust accounting he has done for his other clients has "not been exactly right".
To the benefit of the Appellant, the Tribunal notes Mr. Wong's statement that he has been in business for over 20 years and there has never been any complaint about or against Gala. As there was no evidence provided by the Registrar's counsel to counter Mr. Wong's claim, the Tribunal finds no suggestion of dishonesty in the registrant's past conduct.
Regarding the issue of financial responsibility, the Tribunal, in this specific matter, sees the issue as double-sided, i.e., (i) has Gala been financially responsible to its consumer customers and to its suppliers, and (ii) has Gala acted responsibly to TICO in providing the required financial trust account records.
On the first part, there is no evidence to suggest Gala has at any time been financially irresponsible towards its consumers and or suppliers. Therefore, the Tribunal finds there is no concern on that side of the issue of financial responsibility.
However, in failing to remedy the trust accounting concerns repeatedly raised by TICO over more than 4 years, Gala is found to have acted irresponsibly towards its compliance obligations. While there is testimony that steps such as a deposit book record and part-time administrative bookkeeping steps have been taken, these are only very recent and the Tribunal agrees that it has taken overly long.
Regarding the concern about integrity, the Tribunal interprets the absence of any consumer or supplier complaints against Gala as meaning that Gala conducts itself with integrity towards its customers and suppliers. However, that does not clarify its conduct for failure to remedy the trust accounting concerns repeatedly raised by TICO to Gala. This is seen to represent a lack of integrity towards TICO and Gala's compliance obligations.
In summary, the Tribunal finds no evidence to show the Appellant, in this specific matter, has acted without responsibility, integrity or honesty in its direct relations with its consumer customers and suppliers. Therefore, and on a balance of probability, the Tribunal is not able to conclude that Gala presents a risk on the points of s. 8(1)(i) financial responsibility and s. 8(1)(ii) acting in accordance with law and with integrity and honesty regarding its conduct towards customers and suppliers
But Gala is found to have acted without responsibility and integrity towards its obligations to comply with the Act and Regulations regarding trust account records and reporting.
Since there is uncontested testimony to show the Appellant has finally taken steps to understand and remedy the trust account concerns expressed by the Registrar, this Tribunal finds that there is not now sufficient or reasonable grounds for the Registrar to believe the Appellant will not carry on the business in accordance with law or with integrity and honesty (as referenced to "Flesh Gordon's").
However, with consideration to the evidence and the purpose and objective of the Travel Industry Act regarding trust accounts, the Tribunal concludes that modification to the Registrar’s proposal is appropriate. In these circumstances, a short suspension and a number of terms are needed to ensure future compliance.
DECISION
After considering all of the evidence and pursuant to the authority vested in the Tribunal under s. 50(2) of the Act, the Tribunal modifies the decision of the Registrar as follows:
- The registration of Gala Toronto Travel Centre Inc. will be suspended for 10 days and thereafter until such time as Gala provides a Trust Account management and operation plan to address the TICO compliance concerns, and which plan is approved by the Registrar;
- The Registrant shall submit to TICO its monthly trust reconciliation (a reconciliation showing total receipts from customers for travel services sold less payments for the related travel services compared to trust funds held in the Trust Account) for the six (6) months following the conclusion of its suspension period, or until such other time as the Registrar indicates. The Trust Reconciliations shall comply with the following requirements:
a) Each Trust Reconciliation is to be submitted within 30 days from the end of each month. For example, the Trust Reconciliation for August, 2014 is due September 30, 2014;
b) Each Trust Reconciliation shall include a list of consumer deposits on hand and a list of any pre-paid suppliers related to the moneys received from consumers, including inbound tours or travellers;
c) The Trust Reconciliation shall include a copy of the Travel Industry Act Trust bank account statement for the particular month.
The Registrant shall file any and all annual financial statements for each fiscal year prepared by a public accountant licensed under the Public Accountancy Act, 2004 and accompanied by a Review Engagement Report or an Audit Opinion as required by the Regulation within 3 months after the end of the fiscal year.
Each and every annual financial statement filed with TICO shall disclose the trust position at the end of the year. The statement with respect to the trust position shall include the balance in the Travel Industry Act Trust Account at the year end, plus any other balances that are included in the trust position.
The Registrant shall respond to TICO inquiries and requests in a timely manner.
In the event of a breach of any condition, the Registrar may determine to issue a Notice of Proposal to Revoke on the basis of non-compliance with one or more conditions.
LICENCE APPEAL TRIBUNAL
Simon Dann, Presiding Member
Released: July 28, 2014