ADDENDUM TO Winnipeg Regional Health Authority - Audit Services Bethania and Pembina Place Mennonite PCHs FINAL Audit

Report dated February 19, 2013

The WRHA Management reply which was incorporated into the Final Audit Report necessitates further clarification and response from the Board of both PCHs. The headings used in the Final Audit Report will be used in this Addendum for purposes of identification. A PCH Board Response has been provided for each WRHA Reply to provide necessary clarification.

B: Senior Management Compensation and Other Employee Benefits a. CEO Compensation PCH BOARD REPLY: Conflict of Interest The Board has entrusted the CEO to conduct the business of the organization in the manner consistent with the overall ends of the Board and within the limitations set out by the Executive Limitations. As the only employee of the Board, the CEO is expected to provide advice regarding the overall structure of the organization, including options for the structure of the CEO contract. In respect of the CEO contract, the Board is fully aware that the CEO acts in two capacities - on one hand as representative of the organization and on the other as representative of himself. This occurs out of necessity and is inherent in every CEO contract negotiation. The situation here is not unique and an external consultant is often an unnecessary expense. The Executive Committee of the Board determined the new contract terms on behalf of the Board, not the CEO. The new arrangement for provision of CEO services did not award the CEO significantly increased benefits as the WRHA Reply states. In fact, it resulted in a reduction of costs to the PCHs. The CEO is entitled to a pre-retirement allowance only once and only at the time he retires. The April 6, 2012 contract with the CEO capped the pre-retirement allowance payable to the CEO as of July 31, 2012. Despite his continued service as CEO, no additional pre-retirement allowance is or will be accumulated or payable to the current CEO. This represents an annual savings, as long as the CEO remains Bethania Group's CEO, for not only the Bethania Group, but also to Manitoba Health, which provides a portion of the payment for the CEO's services to Bethania Group through Service Purchase Agreements (SPAs) with the PCHs. The CEO is also entitled to a pension under the Healthcare Employees Pension Plan (HEPP). The pension fund constitutes monies held in trust for eligible members of the Plan. Pension trust monies are a part of an employee's compensation paid at some permissible later date in accordance with the relevant Plan. The pension trust fund does not belong to the Bethania
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Group, the WRHA or Manitoba Health. The new arrangement for the provision of CEO services did not provide the CEO with any greater pension benefit than that to which he was already entitled. In fact, the April 6, 2012 agreement with the CEO permitted the cessation of employer contributions. This represents a significant annual savings to the Bethania Group, and consequently Manitoba Health. As at July 31, 2012, the expected annual savings for the upcoming year was determined by the Bethania Group to be approximately $14,238. This savings would continue on a yearly basis as long as the CEO remains in Bethania Group's employ. The Board of Bethania has been aware, since the CEO's contract of March 2009, of the CEO's intention to retire under HEPP in or about July 2012. Given the ongoing savings, it made practical business sense to the Board to negotiate the terms of the 2012 contract with the CEO. A directive given under The Regional Health Authorities Act (Act) should only be given in accordance with the direction making authority granted under the Act. It is not clear to the Board whether the WRHA complied with the provisions of Section 29.1 of the Act, and particularly with Section 29.1(5) which requires consultation and accommodation of the position of a health corporation on the matter. Furthermore, a direction given to a health corporation may relate only to certain matters that have a region-wide impact and may not relate to aspects for which the regional health authority does not provide funds. The "wage freeze directive" was provided to the Bethania Group as an attachment to a funding allocation letter addressed to the CEO from the WRHA's CFO. The "wage freeze directive" states that Non-union Executive/Senior Management & Equivalent "are to have their salaries frozen, which means there will be no steps on scale, inflationary adjustments or salary adjustments, unless specifically approved by the WRHA and MH (Manitoba Health). Further MH has instructed the WRHA to use all the mechanisms at its disposal to ensure this directive is followed, including "claw back" of the value of any applied increase to this category of staff." We understand that this "directive" has been in place since April 2009. The Board raises an issue regarding this directive in view of the statement in the WRHA Reply that the CEO was awarded a salary in excess of what is permitted to other PCH senior executives during this time of "salary freeze". We note that the salary freeze is only in regard to executive positions and not in respect of unionized employees, who have continued to receive annual raises since 2009. The Board entered into its March 2009 agreement with the CEO prior to the WRHA wage freeze being imposed in April 2009. The March 2009 agreement provided for minimal annual increases to the CEO. However, the Board has not provided such increases since 2009 because of WRHA's Funding Letters. As a result of the reduction in benefit expenses related to the CEO due to his contract change, the Board provided an increase in pay under the CEO's new 2012 contract equal to 3% or $4,800 per year. This resulted in the compensation given to him, which includes benefits, in actual dollars being less than the amount paid under his 2009 contract. Under the new 2012 CEO contract the amount allocated to WRHA, and consequently Manitoba Health, was approximately $520/month less than that allocated previously; although WRHA auditors indicated that Bethania Group should adjust our current allocation to be the same as it was prior to the contract change. Given there was reduction in total compensation, and no additional amount being paid through public funds (or otherwise), the Board did not consider its 2012 contract to be in violation of WRHA's wage freeze, particularly in view of the limits prescribed by the Act.

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The CEO did not request a salary increase. The Board determined it would be appropriate to provide additional pay to the CEO in view of reduced benefits being paid under the 2012 contract. a) CEO Compensation Through the Service Purchase Agreement (SPA), the WRHA purchases services from Bethania Group. The SPA imposes contractual obligations on both parties. In the WRHA Reply, several provisions of the SPA are quoted. It is the Board's position that the PCHs have not breached any of the provisions of the SPA, including those specifically quoted. The WRHA states that "PCH failed to discuss the arrangement for the provision of CEO services with the funder of those services, the WRHA". The SPA does not require the PCH Health Corporation to have discussed the new arrangement with its CEO with WRHA. None of the provisions quoted impose such an obligation. The SPA states clearly that the PCH Health Corporation is an independent and autonomous entity. As such, the Bethania Group entered into an agreement to change certain contract terms with its CEO on April 5, 2012. Furthermore, Section 21.2 of the SPA states that the "PCH Health Corporation retains the sole right to appoint, evaluate, and terminate its ED / CEO and all staff". Bethania Group's current CEO was appointed in 2009 and he continued in that capacity. (Alleged) Contravention of Bill 6 The CEO has done a commendable job since 2009 for Bethania Group and the PCHs. When the CEO started in 2009 the PCHs were running deficits and were in a significant negative equity position. This is no longer the case. Care provided to the PCHs' residents has been exemplary and the faith-based mission of the Bethania Group has been and continues to be achieved. At a meeting of the Executive Committee of the Board on April 5, 2012, the CEO and the three Executives on the Committee, negotiated and concluded the basic terms of the CEO's 2012 employment contract. The By-laws of the PCHs authorize the Executive Committee to transact the business of the Board between board meetings and to report such actions to the Board. The Executive Committee made an agreement in April 2012 with their CEO that they believed was binding. The Executive Committee was of the view that they were authorized to act on behalf of the Board and did so knowing that there would be no issue when they reported it for two reasons: 1. the Board unanimously wished the CEO to continue as CEO; and 2. as a result of the change in the CEO's agreement, the cost to the Bethania Group and its PCHs would be less than it was in prior years. The Board has the authority under the SPA and its By-laws to appoint a CEO. The CEO was appointed in 2009. The change did not involve a new appointment of a CEO and therefore the Executive Committee believed it had authority to bind the Board. The Supreme Court of Canada has held that there is a presumption in law that a statute does not retroactively interfere with vested rights. A vested right exists if it is tangible and if it is constituted at the time of the commencement of the new legislation. The Bethania Group, its

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PCHs and its CEO believed, in good faith, that Section 51.5 of the Act did not have any application given the timing of the new agreement. On review, the Board acknowledges that its documentation in regard to the negotiation and conclusion of its 2012 CEO contract is not absolutely clear. The Executive Committee Minutes of April 5, 2012 did not reference the in camera session where the agreement was reached with the CEO. Under Roberts Rules of Order, Minutes can be corrected at any time. The Executive Committee will be amending its Minutes. The Board Minutes of June 21, 2012 included a motion to ratify the CEO contract that was agreed upon by the Board Executive Committee on April 5, 2012. The term "ratify" was incorrectly used and the Board will be amending its Minutes. Given the fact that there was no change in CEO, and the new 2012 CEO contract resulted in a lower cost, the Executive Committee believed it had the authority to negotiate and conclude the new contract, and that no specific mandate or approval from the Board was required. The new 2012 CEO agreement was reached prior to any knowledge of Bill 6 and prior to the enactment of Section 51.5 of the Act. It is Bethania's position that Section 51.5 does not apply to its 2012 CEO contract as the rights of the CEO and Bethania Housing vested prior to the legislation coming into effect on June 14, 2012. WRHA Jurisdiction The Board disputes the application of Section 51.5(4) of the Act for the reasons set out above. There is a presumption in law that a statute does not retroactively interfere with vested rights. The CEO provides services to Bethania Group's seven entities, not just its two PCHs. The Executive Committee of the Board considered a number of factors in deciding which entity should be the contracting party. The change of employer on the CEO contract was for the main purpose of simplifying allocation of costs to Bethania Group's seven entities, as Bethania Housing is considered to be Bethania Group's administrative entity. WRHA Access to Relevant Documentation The PCHs are technically not in the possession or control of Bethania Housing's 2012 CEO contract. However, it is acknowledged that there should be an agreement as between Bethania Housing and its PCHs as to the provision of CEO services and the Board shall attend to this. The Board would reiterate that in spirit of cooperation and transparency, the PCHs provided a copy of Bethania Housing's 2012 CEO contract to the WRHA auditors. The Board acknowledges its obligation under the SPA to provide information related to the provision of Services, for the assessment purposes permitted under Section 17.1 of the SPA. The PCHs, as private entities, have been transparent and accountable for the use of public funds in accordance with the requirements of its SPA with the WRHA. c. Parenting Leave Policy PCH BOARD REPLY: The situation involved a change for the individual in issue from a union position to a non-union position. The Board confirms that the maternity leave top-up with respect to this particular individual is provided through existing in-globe funding. This is unlike union staff where, based on the negotiated benefit the Government has agreed to with the applicable unions, the WRHA provides additional funding for the benefit of unionized staff. The Board believes it has the authority to determine the benefits provided to the staff and understands that should funding not
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be specially provided, there is no expectation for special funding. Having said this, a policy eliminating the maternity leave top-up benefit for non-unionized staff is being developed and will be implemented on behalf of the Board. F: Conflict of Interest PCH BOARD REPLY: Payments to the CEO's Brother The Board has considered the law and practices relating to conflicts of interest, including perceived conflicts of interest, and does not agree that the practices and policies which the Board has implemented "fly in the face of" such recognized law and practices. In fact, the Board believes they are in adherence with recognized law and practices. The PCHs acted in compliance with proper procedure and the Board determined the PCHs were receiving good value for the fees paid. Provided that appropriate practices are followed based on the policies in place, the discontinuance of such services is unwarranted.

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