Citation: R. v. Cheryl MacLeod 2017 ONSC 7837
Court File No. 16-5866
Date: 2017-10-30
SUPERIOR COURT OF JUSTICE
HER MAJESTY THE QUEEN
v.
CHERYL MACLEOD
R E A S O N S F O R J U D G M E N T
BEFORE THE HONOURABLE JUSTICE C. BRAID
on October 30, 2017 at HAMILTON, Ontario.
APPEARANCES:
W. Milko Counsel for the Crown
D. Burke Counsel for Cheryl MacLeod
MONDAY OCTOBER 30, 2017
R E A S O N S F O R J U D G M E N T
BRAID J. (Orally):
OVERVIEW
Cheryl MacLeod faces charges of fraud, uttering forged documents and theft arising out of her work as the owner and director of CTC Payroll Services, Inc., (which I shall refer to as CTC).
It is alleged that Cheryl MacLeod took more money from CTC’s clients than was required to be remitted to the Minister of Finance for Employer Health Tax (which I shall refer to as EHT). She remitted the proper amount to the government and kept the excess funds.
It is also alleged that Ms. MacLeod withdrew money from the client accounts and then failed to remit the money to the Canada Revenue Agency (the CRA).
Finally, it is alleged that Ms. MacLeod sent forged bank documents to a client in an attempt to conceal the failure to remit funds to CRA. The total loss on all of the charges is approximately $370,000.
Ms. MacLeod testified at trial. She agrees that the clients incurred losses. However, she denied any intent to defraud the clients.
FACTS
At trial, the evidence regarding the losses to CTC’s clients was led without serious challenge by the defence. The main issue for trial is whether Ms. MacLeod caused the losses and/or whether she intended to defraud the clients.
Having heard the evidence at trial, I make findings of fact as set out below.
FACTS REGARDING CTC PAYROLL SERVICE INC.
Cheryl MacLeod was the owner of CTC between 2001 and 2010. Companies would hire CTC to administer the payroll for their employees. Ms. MacLeod considered herself to be a payroll expert with 25 years of experience.
Each client company provided the following information to CTC for each pay period: information regarding their employees; the wages owed to the employees; and the required deductions and remittances.
CTC would invoice the client company and withdraw money from the client company’s bank account to cover the wages, remittances and a fee payable to CTC for the service. The fee was a small percentage of the total amount. The client funds would be deposited into the CTC trust account.
CTC was required to hold those funds in trust for the client company until the money was paid to the employees or to the appropriate government agency.
CTC paid the following out of their trust account on behalf of the clients:
Employee wages, which was paid directly to the employee either by direct deposit or cheque.
Funds to the Minister of Finance for the EHT.
Funds to the CRA for Income Tax, Employment Insurance, and Canada Pension Plan.
CTC had a general account and a trust account at CIBC. The bank records for these accounts were filed at trial.
During the relevant periods, provincial legislation required that EHT was payable by an employer once its total employee salaries exceeded $400,000. There was an exemption for the first $400,000. CTC remitted the appropriate amounts, taking into account the exemption. CTC did not remit any EHT until the company reached the $400,000 threshold.
However, for purposes of the transfer of money from the client accounts to CTC’s trust account, CTC calculated the EHT on all of the wages and did not take into account this exemption. This resulted in an over-deduction from the client bank account. CTC did not reconcile this over-deduction at the end of each year, but retained the funds from the client.
As the owner of CTC, Ms. MacLeod performed many of the tasks of the organization. She ran the payroll. She sometimes did the banking. Until 2009, she reconciled the trust account every month. Ms. MacLeod also owned a Molly Maid franchise, which operated out of the basement of the building where CTC was located. Ms. MacLeod also owned Forever Young Spa and Cherylynn International.
In April of 2009, Cheryl MacLeod advised clients that CTC would be discontinuing payroll services by the end of 2009. CTC sold its client list to ADP Payroll. CTC ceased doing business on December 31, 2009.
FACTS REGARDING LOSSES INCURRED BY CLIENTS OF CTC
1. A.J. Clarke and Associates
A.J. Clarke and Associates contracted with CTC to do their payroll services. When A.J. Clarke transitioned to a new payroll administrator in June of 2009, they discovered that CTC had been over-deducting Employer Health Taxes since 2001.
The proper amount of EHT was remitted to the government. However, CTC withdrew funds from A.J. Clarke’s account in an amount greater than what was remitted.
Courtney Legare worked in administration at A.J. Clarke. On July 28, 2009, Ms. Legare sent an e-mail to Cheryl MacLeod asking for a statement/summary of the EHT that CTC had remitted on behalf of A.J. Clarke to the government for 2009. A few days later, Ms. Legare sent a follow-up e-mail. On August 4, 2009, Ms. MacLeod e-mailed that she was still looking into it and would confirm within the next few days.
On August 10 and 13, 2009, Ms. Legare sent e-mails to follow-up on her request for the EHT statement. She reiterated that all she required was a statement showing the monthly amounts that had been remitted by CTC payroll on their behalf.
On August 13, 2009, Ms. MacLeod sent an e-mail to Ms. Legare stating “You have all the statements from EHT. That would be your proof of payment. You should have received a listing also from EHT indicating as such”. Ms. Legare considered this e-mail to be unresponsive because Ms. MacLeod did not provide the summary. Ms. Legare sought the involvement of Barry Clarke, president of the company.
On August 14 and 20, 2009, Mr. Clarke sent e-mails to Ms. MacLeod. He again requested a statement of the monthly amounts remitted by CTC for the company. He also telephoned Ms. MacLeod, but did not receive a response. On August 27, 2009, Mr. Clarke sent another letter requesting the statement.
On September 4, 2009, Ms. MacLeod e-mailed Mr. Clarke. She apologized for the delay in providing the company’s EHT summary for 2009 and stated that the balance owing was $4993.98. She did not provide a summary.
On September 18, 2009, a lawyer for A.J. Clarke sent a letter to Ms. MacLeod. The letter stated that, between 2001 and 2009, CTC received approximately $64,000 more from A.J. Clarke for EHT than was remitted to the Ministry by CTC on behalf of A.J. Clarke.
Courtney Legare prepared a spreadsheet for EHT for the years 2001 to 2008 inclusive. She listed the amount that was deducted from A.J. Clarke’s bank account by CTC for EHT. She also listed the amount of EHT that was remitted to the Minister of Finance. The spreadsheet showed that CTC had over-deducted $60,360.72 over the nine years.
On November 20, 2009, A.J. Clarke’s lawyer corresponded with Ms. MacLeod’s lawyer and enclosed Ms. Legare’s spreadsheet of calculations. A.J. Clarke and its representatives did not receive a response.
I find that CTC over-deducted Employer Health Taxes for the years 2001 to 2008, for a total loss to A.J. Clarke of $60,360.72.
2. VFT Canada Inc./Ruetgers Canada Inc.
VFT Canada Inc/Ruetgers Canada Inc. used CTC’s payroll services between 2003 and 2008. When they transitioned to a new payroll administrator, they discovered that CTC had over-deducted EHT.
Corrie Dietz was the HR manager at VFT. Ms. Dietz discovered that CTC had been making the proper remittances on behalf of VFT, but had been over-deducting from their account. Ms. Dietz examined the years from 2003 to 2008, and determined that there was an over-deduction for every year except 2004.
In March 2008, Ms. Dietz sent an e-mail directing that CTC remit, to CRA, the entire EHT deductions that had been taken from VFT for 2008. Ms. MacLeod e-mailed back and stated that she had not been able to work on this request as of yet. Ms. Dietz immediately responded and requested that the discrepancy be addressed before the new payroll was run.
Ms. Dietz was very persistent in addressing the EHT over-deductions. She believed that Ms. MacLeod used delay tactics and excuses in response. At some point, Ms. Dietz escalated the issue to Bob Gittus, the controller for VFT. Ms. MacLeod eventually paid back three years, but did not pay the EHT over-deductions for 2003 or 2008.
Between May 12 and August 6, 2008, Bob Gittus and Corrie Dietz sent four e-mails, including reconciliation calculations, for over-deductions of EHT for 2008. Ms. MacLeod did not respond to those e-mails and did not repay the amount.
On December 12, 2008, Mr. Gittus sent a letter to Ms. MacLeod notifying her that VFT was terminating their payroll agreement because of a breach of that agreement. He advised Ms. MacLeod that CTC had improperly deducted and failed to remit a total of $15,168.05 for 2003 and 2008.
VFT sued CTC Payroll Services Inc. in Small Claims Court. Eventually, VFT walked away from that action.
I find that CTC over-deducted Employer Health Taxes for the years 2003 and 2008, for a total loss to VFT of $15,163.37.
3. Voith Paper
Voith Paper was a client of CTC. In December 2008, the company decided to close its Hamilton Plant. Some of the employees were laid off and 58 of them received a lump sum severance payment. $979,299.00 was transferred from the Voith Paper to CTC’s trust account.
CTC prepared a payroll register for the severance pay to the 58 employees. The register was dated January 2, 2009. The register stated that the remittance due to CRA for this pay period was $264,667.70. In January 2009, 58 cheques were issued from CTC to the employees of Voith.
CTC remittance sheets were filed at trial. The remittance sheet for the period of December 22 to 31, 2008 stated that Voith’s remittance to CRA for that period was $15.16. The sheet for the remittance period of January 15 to 21, 2009 with the remittance due on January 24, 2009, includes an entry for Voith for remittance of $264,667.70. However, the remittance payment made at the bank did not include that amount. The Voith remittance was never made by CTC.
On May 28, 2010, CRA sent a letter to Voith Paper stating that Voith owed $264,534.08 for 2009. Voith determined that this amount almost matched the taxes owing on the CTC register for the severance pay of the 58 employees.
After receiving this letter from CRA, Suzanne Fournier made phone calls to CTC and left voicemail messages. She stated that she needed to speak to them urgently to clarify the situation. She also sent a fax because she was not getting a response to the phone calls. In the fax, she asked for proof of payment by CTC to CRA for this remittance. The fax was successfully sent. Ms. Fournier did not receive a response to the phone messages or the fax.
I find that CTC deducted funds from Voith’s account and then failed to remit those funds to CRA, for a total loss to Voith of $263,674.23.
4. Midtown
TCM Investments Limited operates as Midtown Carstar Collision Centre and is owned by Cathy Killinger and her husband. I shall refer to this company as Midtown. Midtown used CTC’s payroll services.
In November 2009, CTC withdrew funds from Midtown’s bank account and then failed to make two remittances to CRA on behalf of Midtown. Those remittances totaled $10,130.56.
In December 2009, CTC withdrew funds from Midtown’s bank account and then failed to make three remittances to CRA on behalf of Midtown. Those remittances totaled $15,227.13.
CRA sent a notice to Midtown that they owed money for the November and December remittances not made.
In January of 2010, Ms. Killinger spoke to Cheryl MacLeod and demanded proof of payment, including bank stamps, to prove that CTC had actually remitted the money to CRA on behalf of Midtown. Ms. MacLeod told Ms. Killinger that she was sending receipts for the payment.
On February 1, 2010, Cathy Killinger met with Marjana Sajan-Nikolic. Marjana was an employee of CTC until the end of December 2009. Marjana advised Cathy Killinger that the missing remittances were not done.
On February 9 and 10, 2010, Ms. Killinger received three documents by fax, that appear to be stamped bank remittances, for CTC remittances to CRA on behalf of Midtown for the missing remittances.
An investigation at the bank revealed that there is no bank record from the dates to line up with the transactions on the dates with two of the stamps. The date on the third stamp is illegible, so the records could not be checked for any specific date. Evidence from the assistant bank manager and two tellers at CIBC demonstrated that great care is put into the bank record-keeping and reconciliation at the end of each day. The assistant branch manager was able to investigate by ordering the bills from the specific teller for each day and to confirm that there were balanced entries. The assistant branch manager was unable to find any record of these transactions.
I find that CTC deducted funds from Midtown’s account and then failed to remit those funds to CRA, for a total loss to Midtown of $25,357.69. I will address the issue of whether the stamps were forged later in these reasons.
5. John Brown and John Cardillo
John Brown and John Cardillo were investment advisors who each had one employee. They used CTC’s payroll services.
In March of 2011, John Brown received a notice from CRA saying that he did not make a remittance in December of 2009. CTC withdrew funds out of his account sufficient to pay the employee and the remittance of $758.04 to CRA. CTC provided Mr. Brown with a register showing that the amount had been remitted. However, CTC did not make the remittance to CRA. Mr. Brown and his administrator made attempts to make contact with Cheryl MacLeod. They could not locate her.
In April of 2010, John Cardillo received a notice from CRA stating that he had not remitted money in December of 2009. CTC withdrew funds out of his account sufficient to pay the employee and the remittance of $742.16 to CRA. CTC provided Mr. Cardillo with a register showing that the amount had been remitted. However, CTC did not make the remittance to CRA. Mr. Cardillo tried to make contact with CTC, but could not locate Ms. MacLeod.
John Brown incurred losses of $758.04 and John Cardillo incurred losses of $742.16
6. Total Loss
The total loss on all of the charges is $366,056.21.
ANALYSIS
A) Guiding Principles
I am guided by the following principles:
i) Presumption of innocence: Every person charged with an offence is presumed to be innocent, unless and until the Crown has proven his or her guilt beyond a reasonable doubt. The presumption of innocence means that the accused started the trial with a clean slate. The presumption stays with him or her throughout the case. It is only defeated if and when Crown counsel satisfies the Court beyond a reasonable doubt that he or she is guilty of the crime charged.
ii) Burden of Proof: The person charged does not have to present evidence or prove anything in this case, in particular that she is innocent of the crimes charged. From the start to finish, it is the Crown who must prove the person charged guilty beyond a reasonable doubt.
iii) Reasonable Doubt: As referred to by the Supreme Court of Canada in R. v. Lifchus (1997), 118 C.C.C. (3rd) S.C.C. 1: a reasonable doubt is not a far-fetched or frivolous doubt. It is not a doubt based on sympathy. It is a doubt based on reason and common sense. It is important to remember, however, that it is nearly impossible to prove anything with absolute certainty. Crown Counsel is not required to do that. A reasonable doubt is one that logically arises from the evidence, or the lack of evidence.
iv) Absence of similar fact application: At the conclusion of the trial, the Crown stated that he did not intend to bring a similar fact application. The Crown and defence agree that there is a similar set of circumstances on all counts. The Court can use evidence and apply it across the counts to prove the necessary narrative and context, but not to establish propensity or bad character.
B) Testimony of the Accused
Ms. MacLeod gave evidence in this trial. I direct myself in accordance with the dicta set out by Mr. Justice Cory in the Supreme Court of Canada decision in R. v. W(D) (1991), 1991 93 (SCC), 63 C.C.C. (3rd) 397 S.C.C. at page 409:
i) First, if you believe the evidence of the accused, obviously you must acquit.
ii) Secondly, if you do not believe the testimony of the accused, but you are left in a reasonable doubt by it, you must acquit.
iii) Thirdly, even if you are not left in doubt by the evidence of the accused, you must ask yourself whether, on the basis of the evidence which you do accept, you are convinced beyond a reasonable doubt by that evidence of guilt of the accused.
As I stated earlier, there is no onus on the accused to prove anything in this case, but I am mindful that if the accused has raised a reasonable doubt, that ends the matter. Therefore, I propose to analyze the evidence based on the test in W(D).
The burden is always on the Crown to prove the case beyond a reasonable doubt. W(D) prohibits the trier of fact from concluding that the standard of proof has been met simply because a trier of fact prefers the evidence of Crown witnesses to that of the defence witnesses.
However, the Court must assess the evidence of the accused in the context of all the evidence and not in isolation: see R. v. Grant [2016] ONCA 639.
A) Do I believe the evidence of the accused?
I have carefully considered Ms. MacLeod’s evidence. She agrees that the clients incurred losses, although she does not admit the quantum. However, she denies any intent to defraud the clients.
I find that Ms. MacLeod’s evidence was self-serving, confusing and often made no sense. She was confrontational and indignant during cross-examination. Frequently, she could not answer a simple question without providing a lengthy dialogue about something that was not responsive to the actual question. On a number of occasions, the Crown had to ask Ms. MacLeod if she remembered the question that he had originally asked her.
Whenever she found an opportunity, Ms. MacLeod would boast about CTC’s excellent reputation, which she says gave the company more authority and permitted CTC to do things that no other business would ordinarily be allowed to do. This included unorthodox banking practices at CIBC and special arrangements with CRA.
However, Ms. MacLeod also acknowledged that CTC made many mistakes and that things were spiraling out of control at CTC in 2007 and 2008. She said that things were falling apart. She went in for surgery in March of 2009 and was back in April to negotiate the sale of the business to ADP.
I do not put much weight on Ms. MacLeod’s demeanour in the witness box. It is the content of her evidence that is the most troubling.
The following are some examples of portions of her evidence which make no sense and cause me to reject her evidence outright:
1. Evidence Regarding the Cindy Walker Thefts
In her evidence, Cheryl MacLeod agreed that the money that was withdrawn by CTC from the clients’ bank accounts was held in trust until it could be distributed to the employees and for government remittances. The only thing that should have been paid out of the trust account were client employee wages; remittances to the government on behalf of the client; and a small fee payable to CTC for the service.
Ms. MacLeod blamed the lack of funds in the trust account in 2009, to the theft by Cindy Walker in 2007. Ms. MacLeod repeatedly said that, if Cindy Walker had not embezzled money from the trust account none of this would have happened.
Ms. MacLeod stated that Cindy Walker stole money from CTC. She testified that she hired Leslie Day to review CTC’s accounts and determine how much money had been taken by Ms. Walker. At trial, Ms. MacLeod brought photocopies of cheques written on CTC’s general account payable to Cindy Walker. The cheques that had been filed total $22,078.78. Ms. MacLeod thought that Ms. Walker had taken more money than was reflected in those cheques, but was unable to provide any additional documentary evidence to support that proposition.
Ms. MacLeod also testified that Cindy Walker transferred $117,000 from CTC’s trust account to the general account. She did not provide any proof of this transaction. She later said that there was $423,000 missing from the trust account and that she thought that Cindy Walker was responsible.
Cindy Walker testified at trial. She began working as a receptionist at CTC in March of 2003. Her job duties changed in January of 2006 and she began processing payroll. Ms. Walker was fired in May of 2007 because she disclosed that she was being investigated for the theft of money at another job. Ms. MacLeod later discovered that Ms. Walker had stolen money from CTC by writing cheques to herself. As I said earlier, some cheques were filed at trial and were all drawn from the general account.
Ms. Walker was called as a defence witness and admitted writing cheques to herself from CTC’s general account. She used Ms. MacLeod’s signature stamp. On some of the cheques she wrote a comment that they were for petty cash. She admitted that she created the cheques, filed as an exhibit, and she cashed them. She stated that there may have been other times when she created cheques, but she does not remember all of them. She had a drug addiction at the time and used drugs while working at CTC. She does not know how much money she took.
Ms. Walker knew that CTC had a general and trust account. Clients’ money would be deposited into CTC’s trust account, to be held in trust for clients on their behalf. Ms. Walker agreed that there were only three ways that money would be taken of the trust account: 1) it was remitted to CRA or the Minister of Finance; 2) it was paid out as pay cheques or direct deposits to employees of the clients; or 3) a small percentage of the total payment was taken as the fee to CTC for the payroll service.
Ms. Walker denied taking money out of CTC’s trust account. She stated that it would be impossible for her to do that. She stated that the money that she took from CTC was from the general account and that it would not have been possible to steal money from the trust account without being detected.
As a witness, Ms. Walker was honest and forthcoming. She admitted having taken money from the general account and described how she was able to do so without being detected. She described how the trust account was structured and stated that she had no authority over that account.
Ms. Walker was not challenged on any of her evidence. Her evidence was internally consistent. It aligned with the documentary evidence and the evidence of other witnesses.
Ms. MacLeod testified that reconciling the banking and performing audit control were important to her. She reconciled the trust account at the end of each month, at least until 2009 when she was away from the business for surgery.
In the circumstances, it would make no sense for Cindy Walker to transfer money from the trust account to the general account. She was writing “petty cash” cheques to herself, all of which were less than $1000. If Ms. Walker had transferred $117,000 (or any other large sum of money) from the trust account, that would have raised immediate alarm bells. In addition, Ms. Walker stated that she did not have signing authority over the trust account. I accept that evidence.
Ms. MacLeod states that CTC was never the same after the theft of funds by Cindy Walker. She stated that the fact that CTC could not make payments out of the trust account in 2009 was a direct result of the theft by Cindy Walker in 2007.
In the spring of 2009, ADP Canada transferred $503,985 into CTC’s trust account. Ms. MacLeod stated that this was in error and the deposit should have gone to the general account. This was a down payment for the purchase of the client list from CTC. Ms. MacLeod also stated that she deposited $200,000 into the trust account that she received from a re-mortgaging of her home in September of 2009.
I do not accept that Cindy Walker took money from the trust account. Even if I had accepted Ms. MacLeod’s evidence that Cindy Walker was responsible for $423,000 in missing funds from CTC’s trust account, there were substantial funds being deposited into the trust account in 2009 that more than offset monies taken.
Scott McBride, a forensic accountant, examined CTC’s records regarding the Voith missing remittance. He concluded that, if CTC had made the remittance as required, the CTC trust account would have been overdrawn in July 2009 by more than $154,000.
Mr. McBride analysed the transactions that occurred in CTC’s trust account from January to July 2009. The withdrawals from the trust account included the following:
i) payment to Effort Trust, to pay off the mortgage on CTC’s business property;
ii) payment of City of Hamilton property taxes for CTC;
iii) payment to Upper James Toyota, for the purchase of Ms. MacLeod personal vehicle;
iv) transfer to TD Canada Trust where Ms. MacLeod did her personal banking and Molly Maid banking;
v) payment to Alexandria Brown International for Ms. MacLeod to attend a seminar in Los Angeles;
vi) payment to Forever Young, Ms. MacLeod’s spa business; and
vii) payment of charitable donations to Church of the Nazarene and Interval House.
I do not accept that Cindy Walker transferred money from the trust account to the general account. The evidence demonstrates that, in fact, Ms. MacLeod took money out of the trust account for her own use.
I do not accept that the theft of money by Ms. Walker in 2007 had any impact on the balance of the trust account in 2009. Ms. MacLeod’s evidence on this point defies common sense and does not raise a reasonable doubt.
2. Ms. MacLeod’s concerns about her clients
Ms. MacLeod repeatedly testified that she was concerned about her clients and wanted what was best for them. However, there were several instances when Ms. MacLeod failed to respond to concerns raised by CTC’s clients.
Tina Mae Traina-Smith worked for CTC as a receptionist for approximately two years ending at the beginning of 2008. Ms. Smith interacted with the clients, answered phones and passed on messages to Ms. MacLeod. Ms. Smith received numerous phone calls from clients who had problems with payroll or remittances. Ms. Smith gave messages to Ms. MacLeod personally. Many clients continued to call back and expressed frustration that they were not getting a phone call back from Ms. MacLeod. She agreed that Ms. MacLeod was busy.
VFT had to make repeated requests for information from Ms. MacLeod, beginning in early 2008. Corrie Dietz sent a number of e-mails with clear, direct instructions for CTC to pay the EHT overpayments to CRA immediately and to address the EHT discrepancy before the next payroll was run. Ms. MacLeod sent responses stating that she had been very busy. In an e-mail apologizing for her lack of response, she stated “Ì was with our project implementation team converting five new U.S. clients. I was multitasking on conference calls, responding to e-mails, meetings with clients, etc.” When she was asked about these explanations at trial, Ms. MacLeod admitted that her project implementation team was simply herself and her receptionist.
Corrie Dietz testified that she prepared a 2003 EHT summary, which was entered as an exhibit. Ms. Dietz was not challenged on that evidence. However, when this document was shown to Ms. MacLeod, she claimed to have created the document. She did not explain the circumstances of preparing the document.
The document clearly demonstrates that $8.138.33 was over-deducted from VFT for 2003. If Ms. MacLeod was able to calculate the over-deduction so easily, she has still not provided a reasonable explanation as to why she did not reimburse VFT for the 2003 or 2008 over-deductions.
A.J. Clarke had little success in getting responses from Ms. MacLeod beginning in July of 2009. Representatives of A.J. Clarke repeatedly sought an EHT statement for 2009 and then sought a response to Ms. Legare’s calculations regarding the over-deductions from 2001 or 2008. Ms. MacLeod did not respond to A.J. Clarke’s request for EHT statement. She did not explain why no response was provided for 2001 to 2008.
At trial, Ms. MacLeod appeared to agree that there were over-deductions of EHT. She did not explain why these over-deductions were not repaid to the client, other than to blame Ms. Walker.
In January of 2010, Ms. MacLeod did not answer Cathy Killinger’s inquiries about the nonpayment of remittances in November and December of 2009. Ms. Killinger attempted to contact Ms. MacLeod on several occasions and demanded proof that the remittances were made. Ms. MacLeod’s response was to fax the stamped bank remittances without providing any cover page of explanation. On Ms. MacLeod’s own evidence, those stamped documents were not proof that the remittances had been made because she said the bank had not processed them yet.
In her evidence, Ms. MacLeod boasted about the excellent reputation of CTC and how much she cared about her clients. Early in her evidence, Ms. MacLeod stated that her clients meant so much to her and that she sacrificed a lot to make sure everything was right for them. Ms. MacLeod stated that she sold the client list to ADP for $1.2 million, even though she could have sold the list to another company for more money. She chose ADP because it was so important for her to know the future of her clients’ payrolls would be well protected.
Although Ms. MacLeod states that she was concerned about protecting her clients, her actions demonstrated the opposite intention. When clients encountered discrepancies between 2008 and 2010, Ms. MacLeod was not responsive to their numerous phone calls, voicemail messages, e-mail messages and faxed letters. Even if Ms. MacLeod was busy or feeling overwhelmed, these were serious issues being raised by clients regarding the nonpayment or over-deduction of trust funds.
I find that Ms. MacLeod deliberately avoided answering inquires from clients regarding missing funds in order to conceal the fraud.
3. Evidence about client agreements to over-deduct EHT
CTC over-deducted EHT for A.J. Clarke and VFT. Ms. MacLeod testified that the clients agreed to the over-deductions. She appeared to state that the clients agreed that CTC would hold the money in trust, just in case it was needed in the future to balance out other payments.
In March of 2008, Corrie Dietz of VFT requested an immediate reconciliation of the EHT overpayment and requested that the money be paid to CRA. In the e-mail sent March 6, 2008, Ms. MacLeod stated the following: “ As a payroll expert for more than 25 years, it is normal for the payroll register and remittances not to balance for the purpose of EHT until the annual returns are filed. Businesses have three options when it comes to EHT and your company’s option is to balance the exemption at year end”.
This response by Ms. MacLeod was entirely unresponsive to Ms. Dietz’s concerns. I find that this was a deliberate attempt by Ms. MacLeod to defer the reconciliation of EHT until the year-end process. Unfortunately for VFT, the reconciliation never occurred at the end of the year and VFT never received its overpayment for 2008. In addition, Ms. MacLeod’s statement appears to be factually untrue, as there was no evidence that there were reconciliations for the exemption at year-end for previous years.
The evidence of the clients was clear: they did not know about the over-deductions until 2008 and 2009. Once they discovered this had been occurring on an annual basis, they made attempts to get the money back. They were not challenged on this evidence.
This is an example of defence counsel breaching the rule in Browne v Dunn (1893), 6 R. 87(H.L.(Eng.)). Defence counsel did not put the proposition to the witnesses who testified on behalf of those companies. Namely, he did not suggest that the clients agreed to have CTC over-deduct and then hold onto their money. It is not necessary, however, for me to make an adverse inference, because the evidence of the witnesses is clear: they did not know about the over-deductions. They could not have agreed to the over-deductions if they did not know about them.
Ms. MacLeod’s evidence on this point defies common sense. There was no written agreement or statement to the client outlining the amount of money held in trust by CTC as a result of these over-deductions. There is no evidence that CTC reconciled the overpayment of EHT and paid back the client or notified the client at the end of each year. More importantly, there was no money in the trust account to repay these over-deductions.
I find that Ms. MacLeod deliberately over-deducted the EHT and/or deliberately withheld the over-deducted amounts once it was brought to her attention. She retained the money for herself.
4. Evidence regarding the stamped remittances for Midtown
Ms. MacLeod acknowledged that she faxed the stamped remittances to Cathy Killinger at Midtown. She also acknowledged that the funds for those remittances had not been debited from CTC’s trust account. She denied that the stamped remittances were fraudulent and denied that there had been a bank error. Instead, her explanation was that the bank had stamped the remittances to be processed later. When the bank attempted to process the remittances, there was insufficient funds in the trust account or the account was frozen. It was Ms. MacLeod’s explanation that the bank would simply hold those remittances to be processed at a later point in time. She could not answer how long the bank would wait to process the remittance.
Ms. MacLeod also testified that, when Marjana Sajan-Nikolic left on January 22, 2010, she told Ms. MacLeod about payments that had not gone through, some of which were remittances for Midtown. Ms. MacLeod did not explain why, if she knew the remittances had not gone through, she still sent those stamped remittances to Ms. Killinger in February as proof that the remittances had been made.
Marjana Sagan-Nikolic was a payroll administrator at CTC for two or three years. Between September and December 2009, Ms. MacLeod and Ms. Sajan-Nikolic were the only individuals working at CTC. Ms. Sajan-Nikolic stopped working for CTC at the end of December 2009.
Ms. Sajan-Nikolic did payroll at Molly Maid for less than a month in January of 2010. During that time, she received a call from Cathy Killinger, who was concerned about money that had not been remitted to CRA. Ms. Sajan-Nikolic said she would investigate. She pulled out a binder of records, and saw that the remittance was not done on time. She told Ms. MacLeod that based on the records it looked like Midtown’s remittances were not made. Ms. MacLeod told her that when she got the money, she would pay it when she can. Ms. Sajan-Nikolic’s evidence was not challenged in cross-examination on this point.
Ms. Sajan-Nikolic’s evidence was credible. She acknowledged when she could not remember certain events, however, she was very clear in her evidence regarding her conversation with Cheryl MacLeod about the discussion regarding Midtown.
Ms. MacLeod’s explanation is that the bank stamped the remittances and held onto them to be processed later. This explanation defies common sense. It is not disputed that these transactions were not processed through CTC’s trust account.
Defence counsel did not put Ms. MacLeod’s explanation regarding remittances processed later to any of the bank witnesses or to Ms. Sajan-Nikolic. Even though this was a breach of the rule in Browne and Dunn, I do not need to draw any adverse inference from the failure to ask the question. The versions put forward by the banking witnesses are very different than the evidence of Ms. MacLeod. The evidence of the banking witnesses demonstrate that Ms. MacLeod’s explanation of events could not occur because each teller reconciled their transactions at the end of each day. Common sense would suggest that, even if a teller stamped a remittance to be processed later and then found that there were insufficient funds in the account, these transactions would then be posted as NSF or “not sufficient funds”. There is no corresponding NSF transaction for any of those dates in question.
Ms. MacLeod testified that, on one of the dates, there was insufficient funds in the account so the teller held the payment to be processed later. On another date, she stated that the account was frozen. However, other transactions were posted to the account on that date, so the account was not frozen as she suggests. When confronted with the fact that other transactions were processed that day, Ms. MacLeod tried to explain that there was a difference between electronic versus paper transactions. This defies common sense. If an account is frozen, no transactions would be processed for the account.
I find that Ms. MacLeod deliberately failed to remit the funds to the CRA and retained the money for herself. She forged the bank stamps and then sent the documents to Ms. Killinger in an attempt to conceal the non-remittances.
5. Evidence regarding Brown and Cardillo non-remittances
Ms. MacLeod testified that she discovered the non-remittances for Brown and Cardillo in January of 2010. She stated that Ms. Sajan-Nikolic gave her a list of funds that were not process by the bank. Ms. MacLeod stated that the bank took each bill for the remittance, stamped it, and processed it later. When the bank tried to process the payment there was no money in the account. Ms. MacLeod testified that this is how the Brown and Cardillo remittances were not made. I have already explained earlier in these reasons why I reject this explanation.
Ms. MacLeod says that she attempted to remedy the non-remittances by sending a fax to CRA requesting a transfer from another client’s account where there was an overpayment. In support of her position on this point, Ms. MacLeod presented a document that she says she faxed to CRA in January 2010. However, Ms. MacLeod did not provide a fax confirmation page to establish that the document was actually sent.
Ms. MacLeod admitted that, as of January 2010, CTC was no longer in business and had no authority over any client’s CRA accounts. Despite this admission, she testified that she attempted to transfer funds from another client account into the Brown and Cardillo accounts to cover the non-remittances.
It is not clear what authority, if any, Ms. MacLeod thought she might have had to direct that funds overpaid from one client should be transferred to another client’s account. If there was an excess balance on one client’s account, presumably this was money that came from the client and was not CTC’s money. Even if there was an overpayment in another client’s account at CRA, surely CTC did not have the authority to direct that money to another account.
I do not accept Ms. MacLeod’s evidence regarding the fax. It does not make sense that she would send such a fax and she has not provided confirmation that it was sent. There is no evidence of any response to the fax. The Brown and Cardillo CRA accounts never received the outstanding remittances that should have been sent by CTC.
6. Evidence regarding the nonpayment of the Voith remittance
Leslie Day was an employee of CTC. Ms. MacLeod testified that it was Leslie Day who made an error in failing to remit Voith’s funds to the CRA. She further testified that Ms. Day fraudulently altered CTC’s records in order to cover up the error. She denied that Ms. Day ever told her that there was a non-payment for a Voith remittance.
Leslie Day testified at trial. In August of 2007, she began working as an unpaid co-op student at CTC. After eight weeks, she was hired as a full-time bookkeeper for CTC. Her job was to perform data entry.
At the end of 2008 or beginning of 2009, Ms. MacLeod ran a final payroll for Voith Paper that included severances and bonuses because it was the last pay period. Voith Paper was closing their offices in Hamilton.
Ms. Day prepared a spreadsheet to include the remittances of tax on behalf of Voith. Ms. Day stated that Ms. MacLeod took the spreadsheet, changed the sheet and removed the remittance of approximately $260,000 payable for Voith. Ms. Day was concerned because she knew the funds had to be remitted. Ms. Day asked Ms. MacLeod, “Are we not paying Voith?” Ms. MacLeod said “No”. Ms Day asked why. Ms. MacLeod answered “Don’t worry about it, we will pay it later”. She did not explain any further.
Another remittance was due January 24, 2009. Ms. Day put the Voith remittance on the spreadsheet and sent the document to Ms. MacLeod. The amount was not paid. Ms. Day had a further conversation with Ms. MacLeod about not paying the Voith remittance and Ms. MacLeod told her not to worry about it.
Ms. Day testified that there were other occasions when she put the Voith remittance on the spreadsheet, but Ms. MacLeod would always take it off.
Ms. Day stated that there was tension between them because she felt Ms. MacLeod was doing some things that Ms. Day was uncomfortable with. She felt conflicted about leaving because this was her first job and she did not have a job to go to. In June of 2009, Ms. Day spoke to a representative of ADP. Because of that conversation she believed that Ms. MacLeod was using her name without her permission. Ms. Day quit.
Ms. Day was not seriously challenged on her evidence regarding the conversations about Voith with Ms. MacLeod. Further, defence Counsel breached the rule in Browne and Dunn by failing to suggest to Ms. Day that she fraudulently changed documents to protect her own error. However, I need not draw an adverse inference from the breach. It is clear that Ms. Day`s version is diametrically opposed to the one put forward by Ms. MacLeod. It was Ms. Day who testified that Ms. MacLeod changed remittances to remove the Voith payment, not that she had forged documents to protect her own error.
Ms. Day`s evidence was clear and articulate. I observed her testify and I find that she was credible. She did not embellish or exaggerate facts. I accept her evidence in its entirety.
During cross-examination, Ms. MacLeod was asked about the reconciliation of the trust account that she must have done in April 2009 upon returning from surgery. The Crown suggested that this reconciliation would have immediately caused her to detect the nonpayment of the Voith remittance. Ms. MacLeod stated that she did not perform a reconciliation in the spring of 2009 because her files were taken, which she reported to the police in June. She initially claimed that the records were stolen. She then changed her evidence and denied that the records were taken, but said that they were missing.
Ms. MacLeod’s evidence regarding the Voith non-remittance simply makes no sense. I do not accept that Ms. Day fraudulently altered documents in order to cover up an error of non-remittance. If Ms. Day had made an error in a non-remittance, the more logical reaction would be for Ms. Day to notify her employer that an error had been made so it could be quickly remedied.
It is troublesome that the funds were transferred from Voith’s account and should have been held in trust at CTC. However, by the end of July 2009, those funds were not in the account.
I find that Ms. MacLeod deliberately failed to remit $263,674.23 to CRA on Voith’s behalf. When Ms. Day attempted to rectify the non-remittance, Ms. MacLeod removed that amount and did not remit it.
Conclusions regarding Ms. MacLeod’s evidence
These are some of the inconsistencies and problems that arise in Ms. MacLeod’s evidence. Her evidence conflicts with documentary evidence and credible viva voce evidence of other witnesses. Her explanations defy common sense. I find that Ms. MacLeod’s explanation and version of events is improbable and I reject her evidence outright.
B) If I do not believe the evidence of the accused, am I left in a doubt by it?
For the reasons set out above, I do not believe Ms. MacLeod’s evidence. In addition, when considering the evidence as a whole, her evidence does not raise a reasonable doubt as to guilt.
C) On the evidence that I do accept, am I convinced beyond a reasonable doubt of the guilt of the accused?
The reasons set out above go into significant detail regarding the evidence on each count. I do not propose to repeat that analysis. On the evidence that I do accept, I am convinced beyond a reasonable doubt on all of the charges. Ms. MacLeod took advantage of her role as owner of CTC to intentionally defraud clients of funds that were provided to CTC in trust. She then took steps to conceal the fraud and theft of those funds. I make the following findings in relation to each count:
i) Count 1 A.J. Clarke: I find that Cheryl MacLeod defrauded A.J. Clarke by over- deducting Employer Health Taxes for the years 2001 to 2008, for a total loss to A.J. Clarke of $60,360.72
ii) Count 2 VFT: I find that Cheryl MacLeod defrauded VFT by over-deducting Employer Health Taxes for the years 2003 and 2008 for a total loss to VFT of $15,163.37.
iii) Counts 3 and 4 Voith Paper: I find that Cheryl MacLeod defrauded Voith Paper by deducting funds from Voith’s account and then failing to remit those funds to CRA for a total loss of $263,674.23.
I also find that Cheryl MacLeod stole money, the property of Voith Paper, by deducting funds from the Voith’s account and then failing to remit those funds to CRA, for a total loss of $263,674.23.
iv) Count 5 Midtown: I find that Cheryl MacLeod defrauded Midtown by deducting funds from Midtown’s account and then failing to remit those funds to CRA, for a total loss of $25,357.69.
v) Count 6 utter forged documents: Ms. Killinger received three documents from Ms. MacLeod by fax. These documents appear to be stamped bank receipts for the missing Midtown remittances.
Two tellers and other bank representatives testified that stamps on the copies are not correct. The sizing is wrong, the stamps are smudged and the dates are not aligned. They stated that the CIBC teller stamps would not have created such a stamp. I do not put much weight on the appearance of the stamps themselves.
However, the fact that there is no CIBC bank evidence of those transactions, including in the bank records of CTC, together with all the other evidence surrounding these documents demonstrate that the stamps are forged.
I find that Cheryl MacLeod used forged documents, namely three copies of altered CIBC bank receipts, which were provided to Cathy Killinger as if they were genuine.
vi) Counts 7 and 8 John Brown: I find that Cheryl MacLeod defrauded John Brown by deducting funds from his account and then failing to remit those funds to CRA, for a total loss of $758.04. I also find that Cheryl MacLeod stole that money.
vii) Counts 9 and 10 John Cardillo: I find that Cheryl MacLeod defrauded John Cardillo by deducting funds from his account and then failing to remit those funds to CRA, for a total loss of $742.16. I also find that Cheryl Macleod stole that money.
CONCLUSION
In the result, I find that the Crown has proven beyond a reasonable doubt that Ms. MacLeod committed the offences as charged. Accordingly, I find Ms. MacLeod guilty on all counts.