1 2 3 4 TORONTO COMPUTER LEASING INQUIRY 5 6 7 8 ******************** 9 10 11 BEFORE: THE HONOURABLE MADAM JUSTICE DENISE BELLAMY, 12 COMMISSIONER 13 14 15 16 17 Held at: East York Civic Centre 18 850 Coxwell Avenue 19 Toronto, Ontario 20 M4C 5R1 21 22 ******************** 23 24 25 June 23rd, 2003

2
  1                        APPEARANCES
  2  Ronald Manes   (np)     )Commission Counsel 
  3  Patrick Moore  (np)     )
  4  Daina Groskaufmanis     ) 
  5  Linda Rothstein         )City of Toronto 
  6  Lily Harmer    (np)     )
  7  Robert Centa    (np)    )
  8  Gordon Capern  (np)     )
  9  David Moore             )MFP 
 10  Fraser Berrill  (np)    ) 
 11  Ken Jones      (np)     ) 
 12  Raj Anand      (np)     )Lana Viinamae
 13  Bay Ryley               )
 14  William Anderson        )Wanda Liczyk
 15  Valerie Dyer    (np)    )Dell Computers
 16  Jennifer Lynch   (np)   )
 17  Edward Greenspan (np)   )Jeff Lyons
 18  Todd White     (np)     )
 19  Hugh MacKenzie          )Jim Andrew
 20  Jennifer Searle (np)    )
 21  Brian Heller   (np)     )Ball Hsu and Associates
 22  Melissa Kronick (np)    )CUPE
 23  Bryan McPhadden  (np)   )Brendan Power
 24  
 25  Joyce Ihamaki           )Registrar

1 TABLE OF CONTENTS 2 Page 3 4 Exhibits 4 5 6 Al Shultz, Sworn 7 Christine Cowell, Sworn 8 Examination In-Chief By 9 Ms. Daina Groskaufmanis 7 10 Cross-Examination by 11 Ms. Bay Ryley 192 12 Cross-Examination by 13 Mr. Hugh Mackenzie 204 14 15 Certificate of Transcript 232 16 17 18 19 20 21 22 23 24 25

1 EXHIBITS 2 No. Description Page 3 4 45 Bound book of documents 5 entitled Al Shultz. 6 Tabs 1-28. 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

1 --- Upon commencing at 10:00 a.m. 2 3 REGISTRAR: The Inquiry is now in session. 4 Please be seated. 5 MADAM COMMISSIONER: Good morning. 6 MS. DAINA GROSKAUFMANIS: Good morning. 7 MADAM COMMISSIONER: It's an interesting 8 format today. 9 MS. DAINA GROSKAUFMANIS: Madam Commissioner, 10 we have two (2) witnesses today. 11 MADAM COMMISSIONER: Two (2) at the same time, 12 you mean. 13 MS. DAINA GROSKAUFMANIS: Two (2) at the same 14 time. 15 MADAM COMMISSIONER: We've often had two (2), 16 in fact, you seem to have six (6) or eight (8), but, two (2) 17 at the same time, is a first. 18 MS. DAINA GROSKAUFMANIS: This morning, we'll 19 be hearing from Al Schultz and from Chris Cowell. 20 21 CHRISTINE COWELL, Sworn; 22 AL SHULTZ, Sworn; 23 24 MS. DAINA GROSKAUFMANIS: Good morning, Madam 25 Commissioner.

1 Before we begin, if I could just enter as the 2 next Exhibit, which I understand is Exhibit 45, a Book of 3 Documents for today's witnesses. 4 Right now it's Tabs 1 through 28. 5 MADAM COMMISSIONER: Thank you. 6 7 --- EXHIBIT NO. 45: Bound book of documents entitled 8 Al Shultz. Tabs 1-28. 9 10 MS. DAINA GROSKAUFMANIS: Madam Commissioner, 11 what I'm hoping to address today, deals with the SAP system, 12 which is the accounting and financial management system 13 that's used by the City of Toronto. 14 Both Mr. Shultz and Ms. Cowell, are familiar 15 with that system and I'm hoping that they'll both be able to 16 help this Commission understand how these MFP leases were 17 accounted for, from a strictly accounting perspective. 18 Council for MFP has provided us with a number 19 of other documents. Some of which -- many of which I expect 20 are relevant to this part of the transaction and to the 21 evidence that I was hoping we could hear today. 22 Mr. Shultz was certainly involved in other 23 parts of the MFP leases and insofar as the questions are 24 outside of the scope of SAP and of the accounting for it, we 25 expect that while he may be able to answer some of those

1 questions today, he may very well be returning to answer them 2 in some more depth. 3 In fact, I expect that he will be returning to 4 answer them in some more depth. What I was hoping simply 5 today to do, was to lay the groundwork, so that we start 6 using the proper terminology when we're dealing with the 7 finance system and we start understanding how these 8 transactions were accounted for. 9 10 EXAMINATION IN-CHIEF BY MS. DAINA GROSKAUFMANIS: 11 Q: Good morning, Ms. Cowell and Mr. Schultz. 12 MR. AL SHULTZ: Good morning. 13 Q: Ms. Cowell, I understand that you're the 14 Manager of Financial Accounting Systems and Policy, is that 15 right? 16 MS. CHRISTINE COWELL: Yes, that's correct. 17 Q: And you've held that position since July 18 of 1998? 19 MS. CHRISTINE COWELL: That's correct. . 20 Q: Could you just tell me briefly what you're 21 responsible for and what your job entails? 22 MS. CHRISTINE COWELL: My section reports in 23 accounting services in the finance department and we look 24 after the financial aspects of the SAP system and that is to 25 create users, the authorization user access and to end users

1 and interfaces and all that other kind of stuff. 2 Q: Okay. And prior to holding the position 3 that you currently hold, I understand that you worked for the 4 former City of Etobicoke? 5 MS. CHRISTINE COWELL: That's correct. 6 Q: As the Budget Manager? 7 MS. CHRISTINE COWELL: Yes. 8 Q: And you are a CMA? 9 MS. CHRISTINE COWELL: That's correct. 10 Q: Mr. Shultz, I understand that you -- 11 MADAM COMMISSIONER: By CMA you mean? 12 MS. CHRISTINE COWELL: Certified Management 13 Accountant. 14 MADAM COMMISSIONER: Thank you. 15 16 CONTINUED BY MS. DAINA GROSKAUFMANIS: 17 Q: Mr. Schultz, I understand that you are the 18 former Director of Accounting Services for the City of 19 Toronto? 20 MR. AL SHULTZ: That's correct. 21 Q: And that you retired from this position on 22 April the 30th, 2003? 23 MR. AL SHULTZ: That is correct. 24 Q: And when did you -- when did you take on 25 the position as Director of Accounting Services?

1 MR. AL SHULTZ: I took it on in about April of 2 1998, I was the acting Director, from January 1st until that 3 time. 4 Q: And prior to that, you worked for the 5 former City of North York, I understand? 6 MR. AL SHULTZ: That's correct. 7 Q: And what was your position there? 8 MR. AL SHULTZ: I was the Deputy Treasurer. 9 Q: And how -- when did you commence working 10 for the former City of North York? 11 MR. AL SHULTZ: 1975. 12 Q: And are you a CA, sir? 13 MR. AL SHULTZ: That's correct, I'm a CA. 14 Q: If I could ask you to turn up Tab 1 in the 15 Book of Documents that's before you. 16 17 (BRIEF PAUSE) 18 19 MS. DAINA GROSKAUFMANIS: Madam Commissioner, 20 what I intend to do, at least for the first part, is just 21 start to go through some of the background to SAP so we have 22 a better understanding of the kind of system that we're 23 dealing with. 24 25 CONTINUED BY MS. DAINA GROSKAUFMANIS:

1 Q: Mr. Shultz, Ms. Cowell, I understand that 2 when the C -- the City of Toronto amalgamated, there were 3 seven (7) different financial systems and that SAP was 4 selected in 1998 to be the accounting system for the City of 5 Toronto, is that right? 6 MR. AL SHULTZ: That's correct. 7 Q: Was that selected through a competitive 8 process? 9 MR. AL SHULTZ: Yes, it was. It was an RFQ 10 process. 11 Q: And it provides not just the City's 12 financial systems but also the HR and payroll side, right? 13 MR. AL SHULTZ: That is correct. 14 Q: On that -- on that -- the overview slide, 15 as well, which is Page 2 of Tab 1, it stated that: 16 "It was very difficult to get consolidated 17 financial data because it was spread over 18 seven (7) different systems." 19 Why does that matter? 20 MR. AL SHULTZ: Well, for a manager to manage 21 their budget, it would have been very difficult to -- to get 22 a consolidated number on an ongoing basis because the 23 information would be in each system. So if you -- if I 24 entered stuff in the North York system, only those people 25 with access to the North York system could see it on a

1 regular basis; same with the Metro system, only those with 2 access to the Metro system could look at that information 3 online. 4 Q: So how were managers managing their 5 budgets prior to having a consolidated financial system? 6 MR. AL SHULTZ: What we did was take one of 7 the systems as sort of a host system and on a monthly basis, 8 journal balances of each account from each of the separate 9 systems, the other six (6) systems into that host system and 10 then the monthly variance reports from that host system. 11 Q: Okay. Looking over, then, at Page 3 of 12 Tab 1, I understand that first there was a consolidation of 13 East York, York and Scarborough into the North York system. 14 Is that right? 15 MR. AL SHULTZ: That's correct. 16 Q: So that would have left North York, the 17 former City of Toronto, Metro and Etobicoke running as 18 systems, right? 19 MR. AL SHULTZ: That's correct. 20 Q: Okay and then the -- you state that the 21 phase-in of the consolidated financial system commenced 22 January 1999? 23 MR. AL SHULTZ: That's correct. 24 Q: And that -- 25 MR. AL SHULTZ: The --

1 Q: Sorry. Go ahead. 2 MR. AL SHULTZ: Okay. Yes, the first working 3 day of January 1999 we commenced the implementation. 4 Q: Okay and that's the implementation to get 5 SAP up and running, right? 6 MR. AL SHULTZ: That's correct. 7 Q: Before we -- I don't need -- I don't need 8 a treatise on SAP but just because we've heard that name 9 batted around a fair bit, maybe we should just understand 10 what it is. Is SAP sort of an off-the-shelf financial system 11 like Microsoft Money? 12 MR. AL SHULTZ: No, it is not. It's a system 13 that you have to design for the specific installation that is 14 implementing it. So there's a significant degree of 15 configuration and rule setting that are equivalent to the 16 business practices of the organization. 17 Q: And who manufactures SAP? 18 MR. AL SHULTZ: The company is a German 19 company. 20 Q: Okay. 21 MR. AL SHULTZ: But -- but has a proprietary 22 ownership of the software. 23 Q: Okay and I know this may seem -- SAP 24 doesn't stand for anything? SAP is SAP, right? 25 MS. CHRISTINE COWELL: It stands for Solutions

1 Applications Products -- 2 Q: Okay. 3 MS. CHRISTINE COWELL: -- of data processing. 4 Q: And we always call it SAP, right? 5 MS. CHRISTINE COWELL: Right. 6 Q: On Page 4 of Tab 1, it's stated that: 7 "It was necessary to phase in the system in 8 two (2) ways. First to replace the 9 existing financial systems that were being 10 used by the former municipalities and 11 secondly, to implement the different 12 modules within the system." 13 Can one of you explain to me what a module is? 14 MR. AL SHULTZ: I'll attest to that. 15 MS. CHRISTINE COWELL: A module is a component 16 of the software that looks after a particular function. So, 17 for example, Accounts Payable module would be the part that 18 looks after the vendors and the recording of the invoices 19 against the vendors and then the subsequent payment of those 20 invoices; that would be a module. 21 Q: Okay. And on page 6, just jumping ahead a 22 little bit, I understand that there's a listing of the 23 modules, financial accounting, controlling, materials 24 management, budgeting and funds management, is that right? 25 MS. CHRISTINE COWELL: That's correct.

1 Q: Okay. We'll come back to that -- we'll 2 come back and I'll get you to explain to some extent what the 3 different modules are. 4 On page 5, you state that: 5 "On June the 20th, '99 SAP went live in 6 Etobicoke, East York, York, North York and 7 Scarborough." 8 Right? 9 MR. AL SCHULTZ: That is correct. 10 Q: That's six (6) months after you started 11 the implementation? 12 MR. AL SCHULTZ: That's correct. 13 Q: Just so I understand the scope of this, 14 when you say, you started implementation on the first 15 business day of January 1999, what does that -- what does 16 that mean? 17 MR. AL SCHULTZ: That was the day that the 18 project team got together in the project office and began to 19 discuss the configuration necessary to develop the 20 implementation process. 21 Q: But, SAP isn't an off-the-shelf 22 application, right? 23 MR. AL SCHULTZ: That's correct. 24 Q: So there really wasn't any kind of a 25 system, except in sort of a bare conceptual sense, before the

1 first day of business in January 1999? 2 MR. AL SCHULTZ: With one (1) exception, what 3 the contract with SAP entailed, was that we would use the SAP 4 system from Etobicoke and it was -- well we tried to 5 implement about an 85 percent fit of that system. 6 So, we did have the skeleton and it changing 7 that skeleton to the New City's business processes. 8 Q: And I understand that Metro and Toronto 9 went live on SAP on August the 28th, '99? 10 MR. AL SCHULTZ: That is correct. 11 Q: Okay. So, am I correct to understand that 12 by the end of August of '99, you could run consolidated 13 financial statements for the new corporation -- for the 14 corporation of the City of Toronto, for the New City? 15 MR. AL SCHULTZ: From SAP, that's correct. 16 Q: Okay. Let me just understand then, and 17 perhaps you can explain for us, what kind of -- what this 18 implementation entailed and sort of the pace of it. 19 If you started with only a skeleton at the 20 beginning of January of 1999 and eight (8) months later, 21 you've got an operating financial system, is that a fast 22 implementation? 23 MR. AL SCHULTZ: That's an extremely fast 24 implementation. I've been advised that Montreal has just 25 gone through a similar amalgamation process. Their schedule

1 for implementation is in the neighbourhood of five (5) years. 2 I think the standard is a three (3) to five 3 (5) year window for an operation as large as the City of 4 Toronto. 5 Q: And you did it in eight (8) months? 6 MR. AL SCHULTZ: We did it in eight (8) 7 months. 8 Q: Why so fast? 9 MR. AL SCHULTZ: It was the Y2K -- was the 10 primary driver. We would normally probably have selected one 11 (1) of the systems to use until we were able to migrate to a 12 new system. And the problem is with Y2K, we didn't have a 13 Y2K compliant system to use. 14 So, we had to select a system that was Y2K 15 compliant and implement it. 16 Q: Just so that I can understand then, how 17 this migration of the information occurred. 18 You can run new financial -- you can run 19 consolidated financial statements at the end of August of 20 1999 for the New City of Toronto. 21 What happened to all the data that existed in 22 the old systems that were being run from the former 23 municipalities and Metro? 24 MR. AL SCHULTZ: The detailed data remained in 25 those former systems. What we brought over was any active

1 purchase orders because we need the commitment. 2 And also the balances in all the accounts. So 3 whatever your balance in a certain cost centre, we would 4 bring that over, but, not the details. 5 Q: I want to talk to you a little bit about 6 the modules, just so I can understand what each of them are 7 in -- fairly simply. 8 Am I correct that one (1) module is financial 9 accounting, including accounts payable and accounts 10 receivable and general ledger? 11 MS. CHRISTINE COWELL: Yes. 12 Q: Okay. I'm looking at page 6. The second 13 module that's listed as a bullet, is controlling cost centres 14 and capital projects. What is that? 15 MS. CHRISTINE COWELL: Well, cost centres were 16 used for what we call the operating budget. So that's the 17 yearly budget for the municipality. Capital projects were 18 used to record capital projects. What they are is, 19 essentially, a place to allocate costs so that you can 20 subsequently report on it. 21 So, for example, if we wanted to find out how 22 much it cost the City for Accounting Services, then 23 Accounting Services could be a cost centre. If you want to 24 go into lower detail, like for example, the section I work in 25 to support the system, that would be a cost centre and

1 Accounting Services would be what we would call a cost centre 2 group which is grouping them together for a higher level of 3 reporting. 4 So cost centres and capital projects are where 5 transactions are recorded at the lowest level of detail. 6 Q: Okay. Let's stay on -- let's stay on the 7 cost centre side for a little while and just make sure we've 8 got the right terminology down. Your section is Accounting 9 Services and Policy, is that right? 10 MS. CHRISTINE COWELL: Accounting Systems. 11 Q: Accounting Systems and Policy. So could 12 that be a cost centre? 13 MS. CHRISTINE COWELL: Yeah. 14 Q: Okay and could -- but your -- your section 15 is part of Accounting Services, right? 16 MS. CHRISTINE COWELL: That's correct. 17 Q: Could Accounting Services also be a cost 18 centre? 19 MS. CHRISTINE COWELL: Not when you've already 20 taken it down that low. 21 Q: Okay. 22 MS. CHRISTINE COWELL: The cost centres all 23 have to sit at the same level. So, for example, we could 24 have the Systems section as a cost centre. We would have 25 Accounts Payable as a cost centre and then Accounting -- like

1 General Ledger Accounting as a cost centre, then you would 2 have to group those three (3) together to make a, what's 3 called a cost centre group, Accounting Services. 4 Q: Okay and you could report at the cost 5 centre level? Right? 6 MS. CHRISTINE COWELL: That's correct. 7 Q: And you could roll those -- a number of 8 cost centres in together and they would be a cost centre 9 group? 10 MS. CHRISTINE COWELL: That's correct. 11 Q: Okay. 12 13 (BRIEF PAUSE) 14 15 Q: If those cost centres are grouped 16 together, can they also be called a program or is that 17 something different? 18 MS. CHRISTINE COWELL: That's generally the 19 terminology that the City of Toronto uses. As far as the SAP 20 system goes, there's no real program, per se. It's just a 21 cost centre group but the way the City decided to structure 22 the cost centres and the cost centre groups, we have cost 23 centres rolling up to -- well, it depends on a department, 24 how -- how large -- how large it is that eventually they'll 25 roll up to a program and then a department.

1 Q: Okay and you can report out at each of 2 those levels? 3 MS. CHRISTINE COWELL: Yes, normally what you 4 would do is -- like, if you were the Commissioner of Finance 5 or CFO, you would run your report at the Finance Department 6 level. 7 Q: Hmm hmm. 8 MS. CHRISTINE COWELL: And then you could, 9 what's called drill down to Accounting Services and then to 10 Accounts Payable, for example. 11 Q: Okay. Are cost centres the lowest level 12 at which you can track costs? 13 MS. CHRISTINE COWELL: That's correct. 14 Q: Just while we're here, because we've heard 15 this term batted around a little bit, I'd like to talk to you 16 about what a non-program account is. Before I do, let me 17 just make sure I understand what a program is. A grouping of 18 cost centres in SAP is called a cost centre grouping, right? 19 MS. CHRISTINE COWELL: That's correct. 20 Q: But that -- it's also called a program and 21 that's what -- how the City refers to it? 22 MS. CHRISTINE COWELL: Yeah. A program would 23 be, like, for example, I think at Finance, Accounting 24 Services is a program. 25 Q: Okay but it's also a grouping of cost

1 centres? 2 MS. CHRISTINE COWELL: That's right. 3 Q: So the two (2) terms are used somewhat 4 interchangeably? 5 MS. CHRISTINE COWELL: Well, most people call 6 it a program -- cost centre group, because otherwise you 7 don't know what you're talking about. 8 Q: Okay. So you -- from a Systems point of 9 view, you call it a cost centre group? 10 MS. CHRISTINE COWELL: Yeah. 11 Q: But everyone else calls it a program? 12 MS. CHRISTINE COWELL: That's correct. 13 Q: Okay. All right, fair enough. So if we 14 understand that a program is a group of cost centres, what's 15 a non-program? 16 MR. AL SHULTZ: I guess a non-program is -- 17 can still be a program. There's a bit of confusion there. 18 The -- the idea of a program is specifically related to a 19 department -- 20 Q: Okay -- 21 MR. AL SHULTZ: -- and so that our 22 terminology, that's kind of where you're going for. So a 23 non-program is -- are those costs that are not specifically 24 allocated to a department and they'd be more of a corporate 25 nature.

1 Q: Okay. Give me some examples of what are 2 non-program costs? 3 MR. AL SHULTZ: The best examples are debt 4 charges. Some of the employee benefit costs, like sick leave 5 and the leasing costs of the computers. 6 Q: Okay. And they were costs that are shared 7 across the corporation -- spread across the corporation? 8 MR. AL SCHULTZ: Not necessarily spread -- 9 they're not allocated to anybody at this point in time. So, 10 they're more of a corporate charge, rather than an allocation 11 to departments. 12 Q: Okay. Going back to the different modules 13 for a second. Materials management, purchasing inventory 14 management, material requirements, planning, sales and 15 distribution. What are we talking about? 16 MS. CHRISTINE COWELL: Okay, materials 17 management is basically where you're going to create a 18 purchasing document that subsequently will lead to a payment. 19 Inventory management is the City has, for 20 example, automotive parts that we put in inventory so that 21 it's like stock, so we don't have to wait to get the parts 22 delivered, and stuff like that. 23 So, there's an inventory module, component in 24 SAP that we're using to track that type of inventory. 25 Materials requirements, planning, basically is re-order

1 point. 2 So, if the inventory drops to a certain level, 3 it will automatically trigger that you need to order more and 4 sales and distribution is like a billing component through 5 SAP. 6 So the inventory and materials requirements, 7 planning and sales and distribution is just a small 8 component; it's not that significant in the City, compared to 9 the purchasing component. 10 Because that's where departments would create 11 either a purchase requisition or what we call a departmental 12 purchase order, to initiate the procurement of goods or 13 services. 14 Q: I'm going to come back to departmental 15 purchase orders -- purchase requisitions and brand new 16 contract release orders, when we start looking more 17 specifically at the MFP transaction. 18 MS. CHRISTINE COWELL: Okay. 19 Q: Very briefly, budgeting is exactly what it 20 sounds like, it's a means of budgeting? 21 MS. CHRISTINE COWELL: Yes. 22 Q: Okay. And what's funds management? 23 MS. CHRISTINE COWELL: Funds management is the 24 part in SAP that, if you wanted to, you could control -- have 25 the system actually control spending against basically fund

1 centres and commitment items. 2 That's where the funds are controlled. 3 Commitment items are equated to, like a general ledger 4 account, for example, salaries or stationary, something like 5 that. So, you can control it, if you wanted to limit 6 spending on equipment for example. You could control that 7 equipment. 8 A fund centre is similar to a cost centre, in 9 terms of it's the lowest level that you would control the 10 funds. It can be mapped to a cost centre, so a cost centre, 11 couldn't exceed the total in that fund centre, like the 12 equivalent. 13 But, you can also use the cost centre group to 14 a fund centre, so that, for example, all of Accounting 15 Services may have a budget and it doesn't matter whether the 16 system spends more than accounts payable, as long as its not 17 exceeded in total. 18 Q: I'm going to take you back a little bit, 19 just -- 20 MS. CHRISTINE COWELL: Okay. 21 Q: -- because I think you gave us more 22 information than we're getting right now. 23 Funds management simply put, is a means by 24 which the system can stop the posting of entries and I take 25 it, at some point, stop the payment of invoices, is that fair

1 enough? 2 MS. CHRISTINE COWELL: Yes. That's what it's 3 designed to do. 4 Q: All right. And I think what you were 5 saying, if I understood you correctly, is that you can 6 trigger those kind of stops, we'll talk in a minute about 7 what kind of stops they are, you can trigger those stops at 8 different levels, whether it's by -- at a low level, what we 9 were calling cost centres, or whether it goes up one (1) 10 level up to a group of cost centres, or a program and so on 11 and so forth, right? 12 You can decide where you're going to -- who is 13 going to limit -- how you're going to limit the funding 14 whether it's by a single cost centre or whether it just has 15 to fit with the overall cost centre grouping. Is that fair? 16 MS. CHRISTINE COWELL: Yes. 17 Q: Okay. I want to stop here for a little 18 bit and without getting into too much detail, I want to 19 understand about how the system can stop you -- the system, 20 SAP, stops you from spending over -- going over budget? 21 Stopping you from going over budget? 22 MS. CHRISTINE COWELL: Okay. 23 Q: Okay. 24 MS. CHRISTINE COWELL: If, for example, you 25 have equipment and let's say the budget is ten thousand

1 dollars ($10,000). 2 Q: Okay. 3 MS. CHRISTINE COWELL: If you tried to 4 purchase something that was twelve thousand dollars 5 ($12,000), you would get an error message and you would not 6 be able to save that purchase order if you had it set up to 7 have an error message, at that point. 8 Q: Okay. 9 MADAM COMMISSIONER: What is it you wouldn't 10 be able to do? Sorry, I just didn't hear what you said. 11 MS. CHRISTINE COWELL: You wouldn't be able to 12 save the purchase order. 13 MADAM COMMISSIONER: Save it? 14 MS. CHRISTINE COWELL: Yeah. You wouldn't be 15 able to create it. So it -- 16 MADAM COMMISSIONER: Oh. 17 MS. CHRISTINE COWELL: -- would stop you 18 from -- 19 MADAM COMMISSIONER: Okay. 20 21 CONTINUED BY MS. DAINA GROSKAUFMANIS: 22 Q: So -- so that I c -- someone -- so let's 23 say I am a clerk. I am sitting in my office and I want to 24 now create a purchase order for equipment for twelve thousand 25 dollars ($12,000). That's what I -- that's what I've been

1 instructed to do by my manager. 2 MS. CHRISTINE COWELL: Right. 3 Q: So I would go on the system and I'd try to 4 create a purchase order for twelve thousand dollars ($12,000) 5 for equipment on SAP. If there is fund -- if there is funds 6 control, such as a budget for equipment is only ten thousand 7 dollars ($10,000), I'm going to get some kind of an error 8 message, right? 9 MS. CHRISTINE COWELL: Yes, if the system is 10 configured to do that. Yes. 11 Q: Okay. Well, then, let's talk a little bit 12 about how the system is configured and I appreciate we've 13 probably over-simplified what -- what someone does but -- 14 MS. CHRISTINE COWELL: Right. 15 Q: -- let's stick with a ten thousand dollar 16 ($10,000) equipment example where the budget -- or sorry, the 17 twelve thousand dollar ($12,000) equipment example where the 18 budget is ten thousand dollars ($10,000). If I'm a clerk and 19 I'm trying to enter the purchase order to -- to buy that 20 twelve thousand dollars ($12,000) worth of equipment, what 21 kind of an error message am I going to get? 22 MS. CHRISTINE COWELL: Well currently you 23 would get a warning message. 24 MADAM COMMISSIONER: A what message? 25 MS. CHRISTINE COWELL: A warning.

1 MADAM COMMISSIONER: Warning. 2 MS. CHRISTINE COWELL: Because we don't have 3 it set to error at that level of detail. 4 5 CONTINUED BY MS. DAINA GROSKAUFMANIS: 6 Q: And what does the warning level do? 7 MS. CHRISTINE COWELL: It's gives you, 8 basically, a message and then you can just hit continue and 9 continue to save. 10 Q: So if I am the Clerk and I am entering -- 11 I am entering that twelve thousand dollars ($12,000) purchase 12 on the system where there's only a ten thousand dollar 13 ($10,000) budget for equipment, I'm going to get a warning 14 message, right? 15 MS. CHRISTINE COWELL: That's right. 16 Q: And I can simply override or continue? 17 MS. CHRISTINE COWELL: That's right. 18 Q: I don't need my manager's approval to do 19 that? 20 MS. CHRISTINE COWELL: No. 21 Q: I -- in fact, I don't need anybody's 22 approval to do that? 23 MS. CHRISTINE COWELL: No. 24 Q: It won't stop me from spending more than 25 the budgeted amount?

1 MS. CHRISTINE COWELL: No. 2 Q: Why not? Why wasn't this system set up to 3 actually stop you from overspending your budget? 4 MS. CHRISTINE COWELL: It mostly has to do 5 with the size of the budget of the City of Toronto. The 6 dollars is significant and to -- for example, if it was the 7 Commissioner of Works and Emergency Services, I don't know 8 how much their budget is but it's huge. 9 To say to the Commissioner that you can spend 10 ten (10) -- two thousand dollars ($2,000) more for this piece 11 of equipment, let's say it was snow removal equipment, it 12 wouldn't make any sense to have those kinds of controls in 13 place because they have the capacity to overspend more than 14 two thousand dollars ($2,000). 15 Q: Sorry, Mr. Shultz, you were going to say 16 something? 17 MR. AL SHULTZ: If I can just add to that. I 18 think, again, because of the -- the size of the organization 19 the -- and the complexity of the different departments, it's 20 very difficult to establish the same level across the 21 corporation as to where that firm control would be whether 22 you're putting it at a department level, a program level or 23 bring it down to an activity level. 24 So those decisions were not made and it was up 25 to managers to manage within their budgets to the variance

1 reports that go on a quarterly basis. 2 MADAM COMMISSIONER: Just so I understand, if 3 we were talking about $20 million or $200 million, would your 4 answers be different, or are you where you are because we're 5 talking about two thousand dollars ($2,000)? 6 MR. AL SHULTZ: I think at this time -- sorry? 7 MADAM COMMISSIONER: I don't know, I'm just 8 trying to get a sense of it. 9 MR. AL SHULTZ: I think the control is more 10 the variance report timing rather than the financial system 11 reporting. 12 MS. DAINA GROSKAUFMANIS: So -- 13 MR. AL SHULTZ: So, it wouldn't matter. 14 MADAM COMMISSIONER: Okay. Thank you. 15 16 CONTINUED BY MS. DAINA GROSKAUFMANIS: 17 Q: So, it doesn't matter -- it basically -- 18 you can -- on the system the accounting system, will let you 19 overspend your budget. 20 You can simply override that warning message, 21 you can overspend, the system isn't stopping you, right? 22 MR. AL SHULTZ: That's correct. 23 Q: And we'll get into the kinds of reports 24 that are created, but, we've heard about variance reports. 25 Perhaps you can just -- just give me a simple definition of a

1 variance report, or explain to me, what it is? 2 MR. AL SHULTZ: A variance report and it can 3 be at any of the levels we've talked about before, is a 4 report that is issued to the person responsible for that 5 budget, that gives the expenditures to date. 6 Or for a quarter or for any specific period -- 7 the expenditures versus budget and then the variances, the 8 difference between the actual and the budget, either 9 favourable or unfavourable. 10 Q: Okay. Let me just see then that I've got 11 this right. 12 The system will let you overspend, or 13 overspend your budget, simply by overriding the warning. 14 But, on the quarterly basis, whoever is responsible for that 15 budget, will get a variance report, which will actually show 16 you whether you're over budget, under budget, and what your 17 expenses are, against your budgeted amount, right? 18 MR. AL SHULTZ: They actually get the report 19 on a monthly basis -- 20 Q: All right -- 21 MR. AL SHULTZ: -- on a quarterly basis, they 22 report out to the budget committee. 23 Q: Okay. 24 MR. AL SHULTZ: And that's where I'm going 25 with the quarterly variance report.

1 Q: Okay. Were you going to say something Ms. 2 Cowell? 3 MS. CHRISTINE COWELL: The reports are 4 available online. So, if they have access to the system, 5 they can run them anytime that they want to run them. 6 Q: So, a Manager doesn't have to wait until 7 month end to run a report? 8 MS. CHRISTINE COWELL: No. 9 Q: She or he can run them whenever they want 10 to, to see how they're doing, budget against actual 11 expenditures? 12 MS. CHRISTINE COWELL: That's correct. And if 13 the system was set up to error, it would be a hard error for 14 everyone. So, basically you couldn't take a report to 15 Council and come back and still overspend. 16 Like you would have to physically do something 17 in the system to allocate more budget or whatever. 18 Q: Okay. I'm not sure that I understand 19 that. Let's maybe just step back a bit. What's a hard 20 error? 21 MS. CHRISTINE COWELL: Sorry, a hard error 22 means that the system will stop you. You cannot continue. 23 Q: Full stop. 24 MS. CHRISTINE COWELL: That's right. 25 Q: Okay. And when you said, it's not

1 sufficient simply to go to Council, you'd have to actually 2 change the system, what did you mean by that? 3 MS. CHRISTINE COWELL: Well, you'd have to go 4 in and adjust either the budget to allow extra room to be 5 able to spend that extra two thousand (2,000) or whatever. 6 Like it's not a case of the Clerk wouldn't be 7 able to save it, but, a Manager would be able to. It's 8 either a hard error, or it's not. 9 Q: Okay. Let me just make sure that I've got 10 that clear. 11 If you get a hard error, someone -- there's no 12 way that a manager can, for example, just simply override. 13 You'd actually have to change the budgeted amount that SAP 14 recognizes as the budget? 15 MS. CHRISTINE COWELL: That's correct. 16 MR. AL SHULTZ: And to do that, you'd need to 17 report to Council, get Council approval, and then you'd also 18 have to identify where those funds were going to come from, 19 whether it was another program in that department or whether 20 you take it from another program corporately. 21 Q: Okay. And I take it that this decision 22 about warnings and hard errors and how that was going to -- 23 how the budget was going to be managed, were decisions that 24 were made when SAP was implemented, right? 25 MR. AL SHULTZ: That's correct.

1 MADAM COMMISSIONER: When it was what, sorry? 2 MS. DAINA GROSKAUFMANIS: When SAP was 3 implemented. 4 MADAM COMMISSIONER: Implemented. Okay. 5 6 CONTINUED BY MS. DAINA GROSKAUFMANIS: 7 Q: Who made those decisions about hard 8 errors, warnings, reporting to Council being over budget, 9 managing things only by way of variance report? 10 MR. AL SHULTZ: Each of those would have been 11 various people. The establishment of the configuration of 12 the system was basically the project team in consultation 13 with the directors from the various areas. 14 The others would be corporate decision that 15 I'm -- the variance reports would be the budget process and I 16 wasn't party to those decisions. 17 Q: Moving on to page 7 and the beginning of 18 eight (8). You've just summarized how different phases of 19 SAP were rolled out. So we've already heard that by the end 20 of August of '99, what you had was consolidated financial 21 statements with the elements that you required for 22 consolidated financial statements, that being the purchasing 23 section, inventory, accounts payable, general ledger and 24 capital orders, right? 25 MR. AL SHULTZ: That's correct.

1 Q: Okay. And Phase 2, which was finished in 2 mid-December or 1999 included accounts receivable, converting 3 capital to project -- sorry, and converting capital to 4 project systems. Could you just explain to me what -- what 5 you mean when you say, was converting capital to project 6 systems? 7 MR. AL SHULTZ: When we first implemented, we 8 used a capital tracking of -- of capital projects on 9 something called internal orders. What we found is, we used 10 it, that we could only track expenditures and budgets at one 11 (1) level and it would have to be a at a high level. 12 For some departments they wanted to track 13 expenditures at a lower level or a sub-project level. So by 14 going to the project system module, we were able to track 15 expenditures in budget at a lower level. 16 Q: Okay. I'm not -- I don't think I 17 understand what you mean, but I might understand if you give 18 me an example. 19 MR. AL SHULTZ: Okay. If we -- I guess the 20 best thing, again, is if we look at works, seems to be the 21 easiest way to -- to look at projects. If you've got 22 something like the -- the Don Valley, and you're re- 23 constructing it, the project would be the Don Valley Re- 24 construction. 25 But as you took each interchange, so if you

1 take from, say, Don Mills to the -- to Bloor Street as a sub 2 project, then you would want to track your expenditures and 3 budget at the lower level rather than at the -- the higher 4 level for the entire project. 5 Q: Could you also track, for example, by 6 different components of the project? So for example, you 7 could track road resurfacing, you could track lighting, you 8 could track gravel? 9 MR. AL SHULTZ: If you would want to put a sub 10 project at that level, yes. 11 Q: Okay. So if I understand correctly, 12 before -- before when you were simply working on a capital 13 projects, then you were just tracking the entire Don Valley 14 Project. What the project system let's you do is to break it 15 down into different sub projects or sub groups? 16 MR. AL SHULTZ: That's correct. 17 Q: Okay. And moving onto page 8, Phase 3 18 included salary cost planning and budget preparation. And 19 that went live at the end of September of 2000, right? 20 MR. AL SHULTZ: That's correct. 21 Q: Okay. The second bullet on page 8 talks 22 about training, and I want -- I want to ask you some 23 questions about that. You state that the department's were 24 trained during late '99 and early 2000 using the system of 25 procurement and this permitted departments to enter and

1 approve online departmental purchase orders, purchase 2 requisitions and contract release orders. 3 I want to talk to you first about how the 4 training worked and what -- what you actually did. 5 MS. CHRISTINE COWELL: Okay. The training for 6 the initial implementation was done by the project team. 7 There were trainers that were City staff and they essentially 8 were -- it was a train the trainer concept. So the trainers 9 were trained and they in turn trained the end users at the 10 City. 11 With the roll out of procurements, it was done 12 in a department by department basis. So what we would so is, 13 for example, if we were rolling out to the Finance 14 Department, we might pick Accounting Services. And we would 15 train the people within Accounting Services that would be 16 creators of purchasing documents in the system, within that 17 section. So we could control them to just create in that -- 18 that group. 19 Q: Hmm hmm. 20 MS. CHRISTINE COWELL: And then we would also 21 train what we called approvers. So any purchasing document 22 that's created must have an approver and then it could go 23 through the rest of the procurement cycle. 24 What happened initially at the beginning was, 25 all purchase requisitions and purchase order requests were

1 done on paper, and that paper was sent to Central Purchasing 2 where it was entered into the system. 3 So in December we started rolling that out to 4 departments so that they could enter it into the system. And 5 then there were certain value amounts that went through 6 certain stages. So for example, a department could spent up 7 to seventy-five hundred dollars ($7,500). And if it's larger 8 than that, then it would have to go to Central Purchasing. 9 Q: Okay. Let me just to back, just to the -- 10 on the training side, first. You talked about creators and 11 approvers? 12 MS. CHRISTINE COWELL: Yes. 13 Q: What's a creator? 14 MS. CHRISTINE COWELL: A creator is someone 15 who would -- it would -- each department could decide what 16 level of person could be a creator within SAP, but it was an 17 SAP user that had the authorizations to create a purchase 18 requisition or a departmental purchase order that has less 19 than seventy--five hundred (7,500) or do what's called a 20 contract release order. 21 Q: These are -- this is essentially clerical 22 staff, right? 23 MS. CHRISTINE COWELL: In most cases, yes. 24 Q: Okay. And they're the people, simply put, 25 they're the ones who are creating documents, entering

1 documents on to SAP, inputting stuff into the system, right? 2 MS. CHRISTINE COWELL: That's correct. 3 Q: Okay. What's a approver? 4 MS. CHRISTINE COWELL: An approver is a higher 5 level person that would have the authority to approve a 6 purchase. 7 Q: Okay. So let's -- let's again do this by 8 way of example. If there is a creator, a clerical person 9 whose actually creating let's say a contract release order, 10 that contract release order, someone's got to approve it, 11 right? 12 MS. CHRISTINE COWELL: Yes, that is correct. 13 Q: And that's the approver? 14 MS. CHRISTINE COWELL: That's correct. 15 Q: Okay. If a creator is generally a 16 clerical position, whose an approver? What kind of a person 17 is an approver? 18 MS. CHRISTINE COWELL: Well, each department 19 decided at what level they wanted those approvers. So for 20 example, in Finance, a manager could be an approver. 21 Q: Okay. Could you be -- was it likely that 22 anyone lower than a manager is an approver? 23 MS. CHRISTINE COWELL: No, I don't think there 24 are any cases of that. 25 Q: How about higher than a manager level?

1 MS. CHRISTINE COWELL: Yes, it could be higher 2 as well. 3 Q: All right. We've already heard from a 4 number of witnesses from Purchasing, but I just want to make 5 sure that we're getting the terms right, before we start 6 looking at the actual MFP documents. 7 And I want -- I want to clearly understand 8 what a departmental purchase order is, what a purchase 9 requisition is and what a contract release order is. And -- 10 and keep in mind, we've already heard, to a certain extent, 11 from -- from Purchasing. 12 What's a departmental purchase order? 13 MR. AL SHULTZ: A departmental purchase order 14 is a purchase order that is the department has the authority 15 to -- to fully do the entire procurement process. It has a 16 limit of seventy-five hundred dollars ($7,500), including all 17 taxes, and it does not need Central Purchasing to be involved 18 in it. 19 Q: Okay. So a department, if they want to 20 buy less than seventy-five hundred dollars ($7,500) worth of 21 office furniture, they want to -- they want to buy that, they 22 issue a departmental purchase order, right? 23 MR. AL SCHULTZ: For the most part. Assuming 24 they don't have a -- a contract out there with a -- a vendor 25 specifically for that purpose.

1 Q: Okay. What's a purchase requisition? 2 MR. AL SHULTZ: A purchase requisition is sort 3 of the initiate -- document that initiates a purchase. And 4 it's the departments request to Purchasing, to procure an 5 item. So it's -- it's sort of a -- a request to purchase 6 something. 7 Q: Okay. So would it -- would it be used if 8 the item was greater than seventy-five hundred dollars 9 ($7,500)? 10 MR. AL SHULTZ: In all cases, yes. 11 Q: Okay. So if I was -- if I was the manager 12 of a department and I wanted to buy ten thousand dollars 13 ($10,000) worth of road salt, I would -- and I wanted 14 Purchasing to initiate that -- that process, to buy that road 15 salt, I would do so with a purchase requisition, right? 16 MR. AL SHULTZ: That's correct. Again, 17 assuming there's no contract in place. 18 Q: Okay. So what's a contract release order? 19 MR. AL SHULTZ: A contract release order is 20 essentially a purchase order. When we have an open contract 21 or a contract order, it is for a multitude of items or a 22 multitude of quantities of a specific item that will not be 23 purchased all at one (1) time. 24 And so that order is -- is issued for a 25 specific dollar to a specific company in the contract release

1 orders are issued against that contract to reduce the funds 2 available in that contract. 3 Q: Okay. Let's back up and do that one (1) 4 again. 5 MR. AL SHULTZ: All right. 6 Q: And again, it might be simpler -- I'm 7 trying to stay away from the leasing examples, until we get 8 to those pages. 9 Give me one (1) examples of a -- where a 10 contract release order would be used. 11 MR. AL SHULTZ: I guess back to Works again, 12 for the winter, you would issue an order for a certain 13 quality of sand and salt. 14 And you may not want it all delivered at one 15 (1) time. So you would issue contract release orders or 16 mini-purchase orders against that contract for the sand and 17 the salt, as you require delivery of it. 18 And -- that's probably a good example. 19 Q: Let me see if I've got this right -- and 20 you can explain to me -- you can confirm if this is the way 21 it actually works. 22 If Joe's Road Salt has a contract with the 23 City to supply a million dollars worth of salt and sand for 24 the City, they would have a contract for the City, right? 25 MR. AL SHULTZ: That's correct.

1 Q: And Works want to buy road salt over a 2 period of time, starting in -- let's by optimistic -- 3 December and they're going to continue buying it through 4 April. 5 They would -- they would issue contract 6 release orders against that million dollars, drawing it down, 7 is that right? 8 MR. AL SHULTZ: That is correct. 9 Q: Okay. So a contract -- just so we 10 understand all of the distinctions then, a departmental 11 purchase order is when the department wants to buy something 12 outright for less than seventy five hundred dollars ($7,500), 13 and there's no existing contract in place with the City? 14 MR. AL SHULTZ: That is correct. 15 Q: Okay. And a purchase requisition is when 16 a department wants to buy something outright for more than 17 seventy five hundred dollars ($7,500), and it's the document 18 that starts the purchasing process? 19 It's the department notice to purchasing, go 20 buy this for me? 21 MR. AL SHULTZ: That's correct. 22 Q: And a contract release order, is what a 23 department issues when it wants to draw down on an existing 24 contract? 25 MR. AL SHULTZ: That is correct.

1 Q: Okay. 2 3 (BRIEF PAUSE) 4 5 Q: Page 9, I take it, is just a summary to 6 give us some sense of the scope of the SAP system and the 7 whole accounting process with the City of Toronto. 8 And I realize these numbers are big, but, I 9 asked you to put them in there for a purpose, so that we have 10 some idea about the scope of what we're dealing with. 11 Five hundred and ten thousand (510,000) 12 invoices a year, two hundred and ten thousand (210,000) 13 cheques a year. 14 Forty thousand (40,000) cost centres, eight 15 six hundred (8,600) capital projects, forty three hundred 16 (4,300) vendors -- 17 MADAM COMMISSIONER: Thousand -- 18 19 CONTINUED BY MS. DAINA GROSKAUFMANIS: 20 Q: -- thousand -- extra zero there (43,000), 21 which MFP would just be one (1) right? 22 MR. AL SHULTZ: That's correct. 23 Q: And what SAP did was create one (1) system 24 to track the financial data across the City? 25 MR. AL SHULTZ: That is correct.

1 Q: Let me -- let me turn you to page 10. 2 We've already covered some of this, in part, when we were 3 talking about errors and financial controls. 4 The first bullet says, that only certain users 5 are given access to the system. Who has access? 6 MR. AL SHULTZ: A number of individuals and 7 departments for different purposes. They would be identified 8 by the department for specific purposes. 9 Q: Okay. So, let's start, not everybody has 10 access to SAP, right? 11 MR. AL SHULTZ: That's correct. 12 Q: Would everyone -- for the people who do 13 have access, that's a smaller group that all -- it's a 14 smaller sub-set of all City of Toronto employees. Did they 15 have access to all functions? 16 MR. AL SHULTZ: No, they did not. They have 17 access to those functions that are specific to their job. 18 Q: Okay. 19 20 (BRIEF PAUSE) 21 22 Q: Can anybody create documents and create 23 entires in SAP? 24 MR. AL SHULTZ: No, they cannot. Again, it's 25 users that are -- have been designated for those specific

1 purposes by the department, who have been specifically 2 trained for those purposes. 3 Q: What about reviewing running reports or 4 being able to review expenditures against budgets or even 5 being able to review budgets. Can everybody do that? 6 MR. AL SHULTZ: No, that is restricted both by 7 the program and by the individual and again, it's the 8 departments that identify those individuals that should have 9 access for those purposes. 10 Q: So we've heard, for example, from other 11 witnesses, when asked about what they could look at and if 12 they could actually look at the system and see, for example, 13 what the value of the computer leases were electronically. 14 If they were outside of the Contract 15 Management Office, should -- would they necessarily have been 16 able to sign on to SAP and see what the value of -- of what 17 the City's commitments were to MFP? Could they look at that 18 on the system? 19 MR. AL SHULTZ: Generally not. If they didn't 20 have access to the procurement process, you know, they -- 21 they could not sign on and look at it. 22 Q: Okay. So someone, for example, in the 23 Legal Department, would they be able to sign on and take a 24 look at what the value of the computer leases were? 25 MR. AL SHULTZ: Not unless they were

1 specifically assigned to procurement, I would expect them not 2 to have access. 3 Q: The third bullet on Page 10 says that: 4 "Invoice payments above prescribed limits 5 require online approval by the Accounts 6 Payable manager or the supervisor." 7 What's that mean? 8 MR. AL SHULTZ: As the invoices are entered 9 into the system, there's a threshold above which the Accounts 10 Payable Clerk can only park it or put it on hold pending the 11 manager or supervisor going and reviewing the document and 12 approving it for processing. 13 Q: Invoices for the -- that are for payments 14 that are due by the City of Toronto -- 15 MR. AL SHULTZ: That's correct. 16 Q: Do they go to the Department or do they go 17 to someone in Finance? 18 MR. AL SHULTZ: The request is for them to be 19 directed to the Accounting Services, Accounts Payable 20 section; that is more or less what happens. Sometimes 21 invoices do get sent directly to departments. 22 Q: But they're supposed to go directly to 23 Accounting Services? 24 MR. AL SHULTZ: That's correct. 25 Q: And if the department receives an invoice,

1 I take it they're supposed to send it to Accounting Services? 2 MR. AL SHULTZ: That's correct. What the 3 normal process is, it goes to Accounting Services, it's then 4 sent to the department for approval and comes back to 5 Accounts Services, so this allows Accounting Services to 6 track the invoice. If it goes to the department, the 7 department again approves it and sends it to Accounting 8 Services for payment. 9 Q: Okay. So I don't think much turns on it. 10 In the ideal world, the vendor who is owed money by the City 11 of Toronto sends their invoice to Accounting Services, 12 Accounting Services tracks it and I take it they track it 13 through some method on the SAP, send it to the department for 14 approval. The department must approve the invoice and then 15 it's sent back to Accounting Services for actual payment? 16 MR. AL SHULTZ: That's correct. 17 Q: Okay. 18 MADAM COMMISSIONER: Do you agree with that, 19 Ms. Cowell? 20 MS. CHRISTINE COWELL: Yes. 21 MADAM COMMISSIONER: Okay. I thought -- I 22 thought I saw a hesitation and -- 23 MS. CHRISTINE COWELL: No. 24 MADAM COMMISSIONER: -- you have to be 25 careful. I'm watching. Okay.

1 MS. DAINA GROSKAUFMANIS: You know if Mr. 2 Shultz gets it wrong, you just jump right in. 3 MADAM COMMISSIONER: And vice versa. 4 5 CONTINUED BY MS. DAINA GROSKAUFMANIS: 6 Q: The last bullet on Page 10 says: 7 "Duplicate invoice checking." 8 What's that? 9 MR. AL SHULTZ: There's a procedure in the 10 system that compares an invoice number and amount and vendor 11 against future payments. So if there was a payment for, say, 12 Grand and Toy with Invoice 123 for twenty-five dollars ($25), 13 it should only be able to be processed once and the second 14 time a warning comes up and says thou shalt not do this. 15 Q: Okay. Does the warning actually say thou? 16 MR. AL SHULTZ: No, it doesn't. 17 Q: Okay and Page 11 talks about the 18 segregation of duties. That the same person who enters an 19 invoice can't pay cheques and the same person who creates 20 vendors doesn't have access to make invoices and make 21 payments. I take it this is just -- this is just a due 22 diligence check to ensure that there's -- to prevent -- to 23 prevent fraud and theft? 24 MR. AL SHULTZ: That's correct. 25 Q: Okay. Page 12 we start talking about the

1 kinds of reports and I think we've already talked a little 2 bit about monthly variance reports but I just want to make 3 sure that we've got them all down, or that we understand how 4 these reports are created, who sees them and what their 5 purpose is. 6 The first bullet is the monthly variance 7 report. It's the one (1) that we've already -- that we've 8 already talked about, that tracks expenditures against 9 budget, right? 10 MR. AL SHULTZ: That's correct. 11 Q: Okay. And they are available online and 12 are delivered in hard copies to departments. Ms. Cowell, is 13 this where you're saying that any -- a manager can create 14 this report on their -- on his or her own? 15 MS. CHRISTINE COWELL: Yes. If they have 16 access to SAP, if they have a user ID, they can run these 17 reports online, as well. 18 Q: Okay. And delivered in hard copy, I take 19 it, that's -- that's exactly what it says. Somebody's 20 getting a piece of paper or a series of pieces of paper if 21 they're not creating their own reports? 22 MR. AL SHULTZ: That's correct. 23 Q: Okay. We haven't yet talked about the 24 computer leases, but I -- I do want to understand a little 25 bit where the monthly variance reports for computer leases

1 were sent. Do you know? 2 MR. AL SHULTZ: No, I don't, specifically, no. 3 Q: Okay. 4 MS. CHRISTINE COWELL: I don't know. 5 Q: Okay. Do you know who would have had 6 access to create those reports online? 7 MR. AL SHULTZ: The only individual I know, 8 and it's a future witness, is Ken Colley and he was the 9 person responsible in Accounting Services, for those 10 accounts. 11 Q: Okay. So Mr. Colley is the one who would 12 actually be able to -- or we hope would be able to answer the 13 question about who received the monthly variance reports for 14 the computer leases? 15 MR. AL SHULTZ: That's correct. 16 Q: Okay. The second bullet is the analysis 17 of contract value report. What is that? 18 MR. AL SHULTZ: It is a report that -- that 19 compares the expenditures against contracts, against the -- 20 the actual value of the contract. It was something that was 21 sort of an exception report previously, but as procedures in 22 the City were changed to address some of the issues that 23 we're facing, this report became a -- a monthly report that 24 was issued to departments. 25 Q: Okay. When you say it was an exceptional

1 report, before, what do you mean? 2 MR. AL SHULTZ: It originally reported once a 3 contract was overspent. So that as long as a contract was 4 within the limits of the contract, there had been no error 5 message. That has now been changed that at an 80 percent of 6 the contract value your message, or a warning messages start 7 to occur. 8 Q: And prior -- the bullet here says that 9 this report started to be sent out in early 2003 to 10 departments. Who -- did this kind of a report exist, though, 11 before early 2003? 12 MR. AL SHULTZ: Yes, it did. It was a report 13 which was primarily used by the purchasing area. 14 Q: So if, for example, and this is -- I'm 15 sure this is a hotly contested point, but if the value of the 16 contract with MFP was $43 million, this report would have 17 been -- if this kind of report had existed, a department 18 would have received notice, or some kind of a report, that 19 indicated that they were at 80 percent of the -- the contract 20 value, right? 21 MR. AL SHULTZ: Assuming that contract release 22 orders were issued against the contract, that's correct. 23 Q: Okay. And we'll get to the contract 24 release orders in a moment. 25 And the third bullet point on page 12 is the

1 commitment analysis of purchasing documents. What is that? 2 MR. AL SHULTZ: It's a similar report to the 3 previous one (1), except it actually gives you full detail of 4 all the purchasing documents related to that contract. So 5 the first one (1) is -- is a report that's a high level, the 6 second one (1) is a detailed report. 7 Q: Okay. All right. Just before -- at Tab 8 2, I've asked you to start -- to printout some of the screens 9 that deal with the MFP computer leases. But before we -- 10 before we get there, I just want to make sure that, on a -- 11 sort of on an overview, and on a general sense, I've got this 12 right. 13 And I'm particularly concerned, about the 14 training that was given to people and the timing of the roll 15 out of SAP. People were being trained, I think you said, 16 from late 1999 to early 2000? 17 MS. CHRISTINE COWELL: That's correct. 18 Q: And do you know who specifically would 19 have received training in the IT area -- in the IT area, at 20 all? 21 MS. CHRISTINE COWELL: Not off the top of my 22 head. We have a policy, I guess, to deliver training before 23 we give access, though. 24 Q: And so given that the beginning of these 25 computer contracts is coinciding at the same time as SAP is

1 being implemented and people are being trained, is that fair 2 to say? 3 MS. CHRISTINE COWELL: Yes. 4 Q: Okay. All right. Let's just start then 5 with the specific MFP documents that start at Tab 2. 6 7 (BRIEF PAUSE) 8 9 Q: I understand that the first four (4) pages 10 of Tab 2, what I'm going to call the first four (4) slides or 11 the first four (4) screens, deal with the setup of the 12 contract in the SAP system, before we get there, if I could 13 just ask you to turn up the document that is at Tab 28, and 14 it's document 12995, Madam Commissioner. 15 16 (BRIEF PAUSE) 17 18 Q: The title on this document is "Purchasing 19 Requisition". Just remind me again, what is this document 20 for? 21 MR. AL SHULTZ: This is a request from INT to 22 have a contract issued to MFP for computer leasing. 23 Q: But, I thought you told me before that a 24 purchase requisition is what is the notice to the purchasing 25 department to -- that sort of is the trigger, to go get this

1 thing for me, go buy this thing for me? 2 MR. AL SHULTZ: I think also when there's an 3 RFP or RFQ issued, they'll use a purchase requisition to 4 indicate to purchasing the RFP has been awarded -- 5 Q: Okay -- 6 MR. AL SHULTZ: -- and this is who we want to 7 issue it again. 8 Q: Okay. Can you tell by looking at this 9 purchase requisition who created it? I see, for example, 10 that in the upper right-hand corner, under departmental 11 approval, it says, Jim Andrew, Exec. Director, and then there 12 is his signature. 13 Would that be then the creator of this 14 purchasing requisition? 15 MR. AL SHULTZ: Not necessarily. That would 16 indicate the approval of the requisition, but, not 17 necessarily the individual who created the information on the 18 document. 19 Q: Someone else could have written it up? 20 MR. AL SHULTZ: That's correct. 21 Q: But, he had to be the one (1) who approved 22 it? 23 MR. AL SHULTZ: That's correct. 24 Q: All right. Can you help me, why this 25 purchasing requisition is dated September the 15th, 2000,

1 that date is on the right-hand side in the departmental 2 approval box? 3 MR. AL SHULTZ: I couldn't answer that. 4 Q: Okay. In the description that is on the 5 left-hand side of this page, it says: 6 "Open contract for five (5) years 7 commencing June 1, 2000 to December 31, 8 2005 for the cost of leasing hardware, 9 software, scanners, printers and cost 10 excludes GST and PST." 11 And then I can't quite read the columns, 12 because it looks like there must have been a sticky note 13 there, but, at the bottom of the page, it says: 14 "Forty million dollars ($40,000,000)." 15 Help me understand what I'm reading here. 16 What is this? 17 MR. AL SHULTZ: It's a request for a $40 18 million contract, excluding taxes, for the cost of leasing of 19 hardware, software, scanners and printers. 20 Q: Okay. Did this create -- let me try this 21 another way. 22 The example I gave earlier, about the contract 23 with a company who supplied road salt -- 24 MR. AL SHULTZ: Yeah. 25 Q: -- for the winter months. Did this create

1 a similar type of contract? 2 MR. AL SHULTZ: This is a request to 3 Purchasing to create that contract. 4 Q: Okay. So it's a similar kind of contract 5 where Purchasing would create a contract against which 6 amounts could be drawn down, right? 7 MR. AL SHULTZ: That's correct. 8 Q: Okay and they were drawn down using 9 contract -- they should have been drawn down using contract 10 release orders, right? 11 MR. AL SHULTZ: That's correct. 12 Q: Okay. What's the value of the contract 13 that was created? 14 MS. CHRISTINE COWELL: In SAP? 15 Q: Yeah. 16 MS. CHRISTINE COWELL: It's $40 million. 17 Q: I see us slipping back to -- maybe we can 18 look at the SAP slides and this -- this might help us 19 understand what's there and you've already told me that the 20 first four (4) slides essentially should be -- should be read 21 together because these are the slides that create -- that 22 show the contract that's created, right? 23 MS. CHRISTINE COWELL: Hmm hmm. 24 Q: I'm going to take you through each slide 25 and I just want to make sure that we understand some of the

1 terms that are on them so we understand what was created. 2 Looking at the slides that is at Tab 2 of the 3 first page. Where it says agreement and there's a number 4 47003589. What is that? 5 MR. AL SHULTZ: That's the contract order for 6 the specific purpose of leasing the hardware and software. 7 Q: Okay. So the contract with MFP is given 8 that unique identifier? 9 MR. AL SHULTZ: That's correct. 10 Q: Does the system assign that? 11 MR. AL SHULTZ: The system assigns that, 12 that's correct. 13 Q: All right and below that, there's a 14 vendor, 3006535. 15 MR. AL SHULTZ: That's the vendor number for 16 MFP. 17 Q: Okay. 18 MR. AL SHULTZ: Again, system generated. 19 Q: So David Moore is Counsel for 3006535? 20 MR. AL SHULTZ: That's correct. 21 Q: Okay. Agreement type WK. What does that 22 mean? 23 MR. AL SHULTZ: That just represents the -- 24 the transaction code for the -- the contract order. 25 Q: Okay. Agreement date 9/26/2000. What is

1 that? 2 MR. AL SHULTZ: That's the date that this is 3 document was created in our -- in SAP. 4 Q: All right and currency CAD, I think that's 5 pretty obvious and where it says, at the top of the page, 6 Blocked MFP Financial Services. What does that mean? 7 MR. AL SHULTZ: The blocked represents a stop 8 that we've got on the system to prevent any payments going to 9 MFP without a due process and review and so there can be no 10 inadvertent payments made. 11 Q: Okay and do you know when payments were 12 blocked to MFP? 13 MR. AL SHULTZ: I'm not sure. I think it was 14 the summer of 2001. 15 Q: When leasing was frozen? 16 MR. AL SHULTZ: That's correct. 17 Q: Are there other circumstances where 18 payments to a vendor can be blocked? 19 MR. AL SHULTZ: There's a number of 20 circumstances. One of the -- the number we've got in the 21 system is when we brought in the seven (7) systems, we would 22 have duplicate suppliers for each municipality. When we were 23 in a hurry to implement, we brought in all the vendor codes 24 that we had. So we had sometimes somebody like Grand and Toy 25 seven (7) times, so we would block six (6) of them so we'd

1 only operate with -- with one (1) of them. 2 Another case is where the Receiver General, in 3 where the funds have to go to the Receiver General rather 4 than the Corporation. 5 Q: With this garnishment? 6 MR. AL SHULTZ: Garnishments and sometimes in 7 the case of bankruptcy where it has to go to the Trustee, you 8 would block the original vendor from payment, you would allow 9 the processing of documents because you're still doing 10 business with them but you'd want the payment to go 11 elsewhere. 12 Q: Okay. So it's way just so that the -- so 13 you can't, sort of, easily knock pay -- someone can't, at a 14 low level, knock payments out and -- 15 MR. AL SHULTZ: That's correct. 16 Q: -- deal with stuff? Okay. All right. 17 Looking at the -- at the chart that is in the center of the 18 page, the grey chart. Where it says mater -- MTL group, is 19 that material group? 20 MR. AL SHULTZ: That's correct. 21 Q: 3412; what is that? 22 MR. AL SHULTZ: I believe that's computer 23 equipment. 24 Q: All right and not just computer leasing? 25 MR. AL SHULTZ: That's correct.

1 Q: Let's turn over then to the second slide 2 and we see some of the same information being duplicated. 3 For example, the agreement and the vendor number and the 4 agreement type. Company code, City. What does that mean? 5 MR. AL SHULTZ: That's the -- we've got a -- a 6 single company code for the -- the City purposes. We've also 7 Toronto Police Services using SAP and they have a -- another 8 company code for their purposes. So this represents the -- 9 the City's company. 10 Q: All right. 11 MR. AL SHULTZ: Or -- or chart of accounts. 12 Q: Okay. Let's take a look at the first grey 13 box marked, "Administrative Fields". Agreement date, we've 14 already heard about that. That's the date that this 15 agreement was entered on the SAP system, right? 16 MR. AL SHULTZ: That's correct. 17 Q: Okay. Validity start is the same date. 18 Is it always the same date, when -- does the agreement date 19 and the validity start date always the same? 20 MR. AL SHULTZ: No, it would depend on the 21 contract. And I guess the -- the timing of a -- of entering 22 the contract into SAP. 23 Q: Okay. So you could have started a 24 contract earlier than you entered it into the system. And I 25 suppose by subverse, you could enter a contract into the

1 system but it's not set to start until some future date, 2 right? 3 MR. AL SHULTZ: Right. I would think that the 4 latter would occur more frequently. 5 Q: Okay. And the validity end, 12/31/2005? 6 That's the date when the agreement -- when this contract 7 comes to an end, right? 8 MR. AL SHULTZ: That's correct. 9 Q: And is the person whose entering this, are 10 they taking all that information off the purchase requisition 11 we already looked at, at Tab 27? 12 MR. AL SHULTZ: That's correct. 13 Q: Okay. The second grey box is titled, 14 "Terms of Delivery and Payment". Payment terms, ZB-30. What 15 does that mean? 16 MR. AL SHULTZ: That indicates that payment is 17 due thirty (30) days after invoice date. 18 Q: Okay. 19 MR. AL SHULTZ: And it's the default. 20 Q: All right. Target value, $40 million. Is 21 that the information that came from the purchase requisition 22 we already looked at? 23 MR. AL SHULTZ: That's correct. 24 Q: What is a target value? 25 MR. AL SHULTZ: A target value is the total

1 amount of the contract order. So it's the -- the maximum 2 amount to be spent against that contract. 3 Q: Okay. So the contract shouldn't exceed 4 $40 million, right? 5 MR. AL SHULTZ: That's correct. 6 Q: Okay. And that's the information that 7 came from the purchase requisition? 8 MR. AL SHULTZ: That's correct. 9 Q: That was approved by Mr. Andrew? 10 MR. AL SHULTZ: That's correct. 11 Q: Okay. In the third grey box on that page, 12 where it says, reference data, our reference 34069901735, 13 what's that? 14 MR. AL SHULTZ: That's the number that was 15 assigned to the RFQ. 16 Q: Okay. And turning over, then, to page 3, 17 this appears to be the information that's taken straight off 18 that purchase requisition we already looked at. Oh, I 19 apologize, I think I -- 20 MADAM COMMISSIONER: Sorry, just before you 21 get there. At the bottom of page 2, there is a whole pile of 22 information. Would that appear on an SAP, or is that 23 something that's just been added onto this slide? 24 MS. Daina GROSKAUFMANIS: Are you referring to 25 the type written --

1 MADAM COMMISSIONER: Contract, yes. Validity 2 period from, blah, blah. 3 MS. Daina GROSKAUFMANIS: I'm sorry, Madam 4 Commissioner, I meant to clear that up with Ms. Cowell. 5 Ms. Cowell, how did the -- the descriptions that are at the 6 bottom of these slides get there? 7 MS. CHRISTINE COWELL: I -- I actually typed 8 them in. This is a Word document so I did a screen print and 9 then pasted it into Word. And then tried to explain some of 10 the feel. 11 MS. Daina GROSKAUFMANIS: I apologize, I meant 12 to clear that up. Thank you, Madam Commissioner. 13 I think I also, before, told you that the 14 purchase requisition was at Tab 27. It's actually at Tab 28. 15 16 CONTINUED BY MS. Daina GROSKAUFMANIS: 17 Q: So looking then at the third slide, at Tab 18 2, this appears to be pretty much the information that was on 19 the purchase requisition we already looked at, at Tab 28, 20 Document 12995, right? You have to say yes or no. 21 MR. AL SHULTZ: Yes. 22 Q: It's hard for the Court Reporter to hear 23 nodding. 24 I just have one (1) question here about this 25 information. Where it says, department contact, Line Marks,

1 and then it lists a phone number. Whose a department 2 contact? Or what -- what is a department contact? 3 MR. AL SHULTZ: When that's sent to a -- a 4 supplier, it's informing the supplier that when they want to 5 contact the department, that's the individual they should 6 contact, regarding this purchase. 7 Q: Okay. You said that when this information 8 is sent to the supplier. What did you mean by that? 9 MR. AL SHULTZ: Well, when the -- the purchase 10 order or the contract order is issued to the supplier. It 11 displays the terms and conditions with the vendor and the 12 City. And what this is informing the vendor, is the terms of 13 the contract and the contacts for the contract. 14 Q: If I could ask you to -- 15 MADAM COMMISSIONER: Vendor -- sorry, it tells 16 the vendor or the supplier? Or is that the same? 17 MR. AL SHULTZ: Same thing. 18 MADAM COMMISSIONER: Same. All right. 19 20 CONTINUED BY MS. DAINA GROSKAUFMANIS: 21 Q: If I could ask you turn up the document 22 that's at Tab 15, it's document 29452. 23 24 (BRIEF PAUSE) 25

1 Q: And perhaps you can help me with this. I 2 see some of the same language that's on the document at Tab 3 28, the purchase requisition and the same language that was 4 in the first four (4) slides that we've looked at, from the 5 SAP system, that's on this document, that we're looking at, 6 at Tab 15. 7 What is this document at Tab 15? 8 MR. AL SHULTZ: This document is the contract 9 -- it's essentially the four (4) slides that we looked at 10 previously. When you print them out, you get this document. 11 Q: And where does this -- where does the 12 document -- 13 MADAM COMMISSIONER: When you print what out? 14 MR. AL SHULTZ: When we looked at the screens 15 previously, they're the screens on the system and so you're 16 looking at those screens on line. 17 MADAM COMMISSIONER: Right. 18 MR. AL SHULTZ: When you print those screens 19 and you print a document, this is the document that's 20 created. 21 MADAM COMMISSIONER: And what is it -- 22 MR. AL SHULTZ: From those screens. 23 MADAM COMMISSIONER: -- but, what would you 24 have to print in order to get this document? What would you 25 have printed?

1 MR. AL SHULTZ: What those four (4) screens 2 were, were the creation of this document, so, it sort of, 3 step one (1) to four (4), of the creation. So, it was a 4 document and you just went through the screens to create it 5 and you print it out and you get this document. 6 MADAM COMMISSIONER: Okay. At Tab 15. You 7 would get then the first four (4) pages that we've already 8 looked at under Tab 2, plus you would get the contract, or 9 this document under Tab 15. 10 MR. AL SHULTZ: If you printed it, you'd get 11 the document that you're looking at under Tab 15. The others 12 are screen prints. 13 MADAM COMMISSIONER: Oh. 14 15 CONTINUED BY MS. DAINA GROSKAUFMANIS: 16 Q: Let me see if I can -- let me try this in 17 a little bit of a different way. The first slides that we 18 looked at Tab 2, that's when to put it very simply, you're 19 sitting at your computer, you've signed into SAP, and you're 20 creating a contract, right? 21 MR. AL SHULTZ: That's correct. 22 Q: So, you're going through each box, you 23 have the purchase requisition in one (1) hand, that 24 handwritten document that's at Tab 28, that was approved by 25 Mr. Andrew, and someone, a clerical -- a real person, is

1 going through box by box, putting in the agreement number, 2 putting in the vendor number, putting in the agreement start 3 date, putting in the target value, putting in those details, 4 that you get from the purchase requisition, right? 5 MR. AL SHULTZ: That's correct. 6 MS. CHRISTINE COWELL: Except for the 7 agreement number, it's system generated. 8 Q: Good point. 9 MS. CHRISTINE COWELL: They don't enter that 10 number. 11 Q: But, they're inputting -- they're data 12 in-putters? 13 MS. CHRISTINE COWELL: Yes. 14 Q: Once they input all the data that we've 15 seen at those first four (4) slides that are at Tab 2, and I 16 realize I'm about to oversimplify this. 17 If I then hit print, is the document that's at 18 Tab 15, the one (1) that gets printed? 19 MS. CHRISTINE COWELL: Yes, that's correct. 20 Q: Okay. So, now I've printed this document 21 that's at Tab 15, who does it go to and what's it for? 22 MR. AL SHULTZ: It goes to the vendor and it 23 basically informs the vendor of the contract. 24 Q: All right. So, this document that's at 25 Tab 15, would have been sent by the City of Toronto to MFP?

1 MR. AL SHULTZ: That's correct. 2 Q: Okay. When you say, that it informs MFP 3 of the contract, I'm a bit confused, because we've already 4 heard here and we've certainly seen entered in evidence and I 5 don't think there is any dispute that MFP has a master lease 6 agreement, a contract, and a program agreement, with the City 7 of Toronto. 8 That's not what this is? 9 MR. AL SHULTZ: No, what this allows the 10 vendor to do, it includes the contract number -- 11 Q: Hmm hmm. 12 MR. AL SHULTZ: -- which is the 47 number at 13 the top, that's the number that we would expect to see on 14 invoices, so that it would be referencing this document for 15 the process -- for our ability -- to be able to track the 16 payments against the contract. 17 Q: So MFP when they're billing the City has 18 to include the contract number that's at the upper right-hand 19 side, 47003589, right? 20 MR. AL SHULTZ: That's correct. 21 Q: Okay. Let's take a look at the middle of 22 the page below the two (2) boxes where it says: 23 "This contract is subject to the terms and 24 conditions specified herein to cover the 25 cost of leasing compter --"

1 I assume that's computer. 2 "-- equipment, hardware, software, 3 scanners, printers and associated equipment 4 for the period ending December 31st, 2005." 5 And then in bold: 6 "Total amount of this contract order not to 7 exceed 40 million, including all taxes and 8 charges, without further authorization." 9 Does this mean that the contract, from a 10 Purchasing perspective, had a value of $40 million? 11 MR. AL SHULTZ: That's correct. That's what 12 that says. 13 Q: And that the value of the goods or 14 services that were associated with this contract were not to 15 exceed $40 million? 16 MR. AL SHULTZ: That's correct. 17 Q: And this was sent to MFP? 18 MR. AL SHULTZ: That's correct. 19 MR. DAVID MOORE: Well, does the witness 20 actually know this was sent to MFP? 21 MS. DAINA GROSKAUFMANIS: That was my next 22 question. 23 MR. DAVID MOORE: Well -- 24 MADAM COMMISSIONER: How do you know that, Mr. 25 Shultz?

1 MR. AL SHULTZ: That's what normally happens. 2 It's not something -- I didn't physically send it, so. 3 MADAM COMMISSIONER: Okay. 4 5 CONTINUED BY MS. DAINA GROSKAUFMANIS: 6 Q: But that -- that's the regular procedure? 7 MR. AL SHULTZ: That's the regular procedure. 8 Q: What if MFP disagreed with what was here? 9 What if they said, no, no, no, wait. It's not $40 million, 10 it's 43 million or it's 80 million or it's $1 billion? What 11 are they supposed to do or what is any vendor supposed to do? 12 MR. AL SHULTZ: They would contract the -- 13 contact the people responsible for the contract. 14 Q: Okay. 15 MR. DAVID MOORE: Well, Commissioner, I really 16 -- I'll try to deal with this evidence as best I can but I -- 17 I was not anticipating that in the, kind of, abstract 18 description of the SAP process, that we'd be getting into 19 this type of evidence. 20 MS. DAINA GROSKAUFMANIS: This is Mr. -- this 21 is a document that Mr. Moore put in. 22 MR. DAVID MOORE: Well, that -- that's fine. 23 I put in some documents on Friday afternoon, scrambling to 24 try to figure out what might be germane to describing the SAP 25 process as opposed to this type of evidence.

1 MADAM COMMISSIONER: Okay. Well, then I think 2 what this witness is saying is, generally, what would happen 3 is once you get to this point and you have a number, you 4 would push print and some -- whoever is pushing print would 5 arrange somehow, and you're not explaining to us and maybe 6 you can do that a bit more, generally, who -- that this would 7 go to the vendor so that they now have the contract number 8 that they now use on all of their invoices to the City. Is 9 that -- 10 MR. AL SHULTZ: That's correct. 11 MADAM COMMISSIONER: Yeah, okay. So who -- 12 who would be the one to send this Tab 15 or anything that was 13 like -- any time you pushed print, who generally is the 14 person who sends that to the vendor? 15 MR. AL SHULTZ: It would be somebody in 16 Purchasing. 17 MADAM COMMISSIONER: Okay. 18 19 CONTINUED BY MS. DAINA GROSKAUFMANIS: 20 Q: Can we tell by looking at this or looking 21 at the SAP screens who that person -- who that person is? 22 MR. AL SHULTZ: No, you can not. 23 MS. DAINA GROSKAUFMANIS: Madam Commissioner, 24 it's my intention I should go on to a little bit of a 25 different area of evidence, still talking about SAP and the

1 -- and the MFP leases but this may be a good time for our 2 break. 3 MADAM COMMISSIONER: Okay. 4 5 (BRIEF PAUSE) 6 7 MADAM COMMISSIONER: All right. We'll come 8 back at quarter to. 9 THE REGISTRAR: The Inquiry will recess until 10 11:45. 11 12 --- Upon recessing at 11:25 a.m. 13 --- Upon resuming at 11:45 a.m. 14 15 THE REGISTRAR: The Inquiry will resume. 16 Please be seated. 17 MADAM COMMISSIONER: Okay. Now, just before 18 we leave the -- you were moving onto another area, Ms. 19 Groskaufmanis? 20 MS. DAINA GROSKAUFMANIS: I -- I had one (1) 21 question -- 22 MADAM COMMISSIONER: Oh, okay. 23 MS. DAINA GROSKAUFMANIS: -- that came up. 24 MADAM COMMISSIONER: All right. 25 MS. DAINA GROSKAUFMANIS: And then -- and then

1 I would have moved onto the other area. 2 MADAM COMMISSIONER: All right. Let's see 3 what your one (1) question is. 4 MS. DAINA GROSKAUFMANIS: Okay. 5 6 CONTINUED BY MR. DAINA GROSKAUFMANIS: 7 Q: One (1) -- one (1) discrepancy I just 8 noticed, and perhaps you can help us understand this. If we 9 look at the purchase requisition, which is at Tab 28, 12995, 10 in handwriting it says, cost excludes GST and PST. 11 And if I turn back to Tab 2, page 3, the bold 12 line in the center says, 13 "Total amount of this contract not to 14 exceed $40 million, including all taxes and 15 charges." 16 So what happened? 17 MR. AL SHULTZ: That's inconsistent. I don't 18 know what happened. Obviously, when it was entered into the 19 system, the person putting it in the system made that change. 20 Q: Just prior to the break, we were also 21 talking about the document that's at Tab 15, 29452. And I 22 believe you said that it was the practice to send this to the 23 vendor. That's right? 24 MR. AL SHULTZ: That's correct. 25 Q: But you couldn't actually say whether it

1 was, in fact, sent or not? 2 MR. AL SHULTZ: That's also correct. 3 Q: Other than looking at the document that's 4 at Tab 15, is there -- is there another means or another 5 place where a vendor could find out what the contract number 6 is, the number they're supposed to put on all their invoices? 7 MR. AL SHULTZ: Probably by a phone call to 8 either the department or Purchasing. 9 Q: Okay. All right. 10 MADAM COMMISSIONER: Mr. Moore, is that -- is 11 this an issue as to whether or not -- 12 MR. DAVID MOORE: I -- 13 MADAM COMMISSIONER: -- MFP received -- 14 MR. DAVID MOORE: -- I'm not -- 15 MADAM COMMISSIONER: -- received Tab 15? 16 MR. DAVID MOORE: I'm not sure, frankly, 17 whether it is. I can't recall what the evidence has been on 18 that point, or how specific the evidence has been. It -- it 19 may be that it was received, I was just making some inquiries 20 over the break. 21 MADAM COMMISSIONER: Okay. 22 MR. DAVID MOORE: Of course, it's a date well 23 after virtually all the contracts had been entered into. So 24 I think as at that point, there had been -- well, I forget 25 the number, but well in excess of -- of $43 million of

1 contracts that are already been entered into. 2 So I'm not sure that it matters a whole lot. 3 But to answer your question, I'm not sure. 4 MADAM COMMISSIONER: Okay. I -- now that you 5 mention that, I seem to remember Mr. Pagano talking about 6 that and saying, it came to him long after the fact, that 7 does happen on occasion, they just need something for their 8 files. 9 MR. DAVID MOORE: Yes. 10 MADAM COMMISSIONER: Okay. But I hear what 11 you're saying, in any event, it was long after the expense of 12 $40 million. 13 MR. DAVID MOORE: That's right. 14 MADAM COMMISSIONER: Okay. 15 16 CONTINUED BY MS. DAINA GROSKAUFMANIS: 17 Q: All right. Let's move onto to a new area, 18 or a little bit of a new area. And if I could ask you to 19 turn up the document that's at page 5 of Tab 2? And much of 20 the information that we've already looked at, is duplicated 21 again on this -- on this screen and I don't intend to go over 22 it again. 23 What I'm most interested in is the grey box in 24 the centre that's called, "Processing Statistics". And there 25 are two (2) values here, target value 40 million, net value

1 $25,150,110.60. 2 Just remind me again, what's the target value? 3 MR. AL SHULTZ: The target value is the total 4 value of the contract amount not to be exceeded. 5 Q: Okay. So what's net value? 6 MR. AL SHULTZ: The net value of the 7 25,150,000 and change represents the contract release orders 8 that were charged against this contract. 9 Q: All right. Let me try to understand, 10 then, a little bit more of what -- what we're dealing with 11 here. You've already told me, a contract release order is 12 the document that's created by a department that draws down 13 against the contract amount, right? 14 MR. AL SHULTZ: That's correct. 15 Q: Okay. And is a contract release order the 16 same as an invoice? Or, how do you -- how do you determine 17 what's the right contract release order value is? 18 MR. AL SHULTZ: A contract release order 19 should be equivalent to a purchase order. Or, like, in -- in 20 an instance where you've got a contract -- 21 Q: Okay? 22 MR. AL SHULTZ: -- the -- the contract release 23 order is really the commitment of funds against that contract 24 to the value of the contract release order. So in that 25 instance, it acts like a purchase order.

1 Q: Okay. Let me try another way, by way of 2 example. And I'll -- I'll try to keep the numbers fairly 3 simple. The City of Toronto let's say, entered into a lease 4 schedule with MFP, where they put computer hardware and 5 software on lease. 6 The value of that equipment was, let's say for 7 point of argument, $10 million and it was going to be 8 payments of, again keeping it simple, $2 million a year, for 9 five (5) years. 10 Okay? How much is the contract release order 11 for? 12 MR. AL SHULTZ: $10 million. 13 Q: The full amount of the commitment? 14 MR. AL SHULTZ: The full amount of the 15 commitment. 16 Q: And it's not simply the amount of the 17 first invoice? 18 MR. AL SHULTZ: No, you would show delivery 19 dates over the term of the release order. 20 Q: Okay. And the delivery dates would be the 21 different dates the invoices would be due? 22 MR. AL SHULTZ: That's correct. 23 Q: Then help me understand how the net -- you 24 know -- it's not how the net values showing on SAP is just 25 over $25 million?

1 MR. AL SHULTZ: In this instance, the release 2 orders were issued against invoices. So it was at the time 3 the invoices were received that the contract release orders 4 were drawn up. 5 Q: Okay. Perhaps this will make a little bit 6 more sense, if we actually look at each contract release 7 order, that was issued against the total contract amount. 8 And that starts on page 6, the following page. 9 10 (BRIEF PAUSE) 11 12 Q: And we've got a lot of information here. 13 First of all, tell me what I'm looking at, at page 6,7 and 8. 14 What are all those? 15 MR. AL SHULTZ: Page 6, 7 and 8 is detailing 16 all the contract release orders that were issued or created 17 against this contract. 18 So, at the end of page 8, you'll see the 19 twenty-five one-fifty. 20 Q: Okay. So let's look at the first one (1), 21 on page 6, reading across the very first line: 22 "C code, City plant CSM" 23 And then it says: 24 "Purchase order 8007571. What's that?" 25 MR. AL SHULTZ: That's the contract release

1 order number. 2 Q: All right. The order date 09/28/2000, 3 what is that? 4 MR. AL SHULTZ: That's the date it's entered 5 in the system. 6 Q: Okay. And jumping over to the far right 7 column, $4,543,062, what is that? 8 MR. AL SHULTZ: That is the value -- total 9 value of that contract release order, net of taxes. 10 Q: So that -- forgetting about what actually 11 happened, what that -- what the contract release order should 12 be telling us is that total commitment, the total amount that 13 the City is obliged to pay to MFP, the contract they've 14 entered into, right? 15 MR. AL SHULTZ: That's right. 16 Q: It's not a single invoice or a group of 17 invoices? 18 MR. AL SHULTZ: It shouldn't be. In this 19 case, I'm not sure. 20 MADAM COMMISSIONER: That would be helpful to 21 me to explain that. Because when I think of a contract, I'm 22 thinking in my head of one (1) big contract. 23 But, we know from the documents, that there -- 24 some of them have different numbers; for example, the master 25 lease documents. I don't know if this is connected to that,

1 or not connected to it. 2 MS. DAINA GROSKAUFMANIS: I don't think it is 3 and perhaps we can try to -- 4 MADAM COMMISSIONER: Because I -- all right. 5 Never mind. Go ahead. 6 MS. DAINA GROSKAUFMANIS: Maybe we can try to 7 do this in another -- 8 MADAM COMMISSIONER: Let me just -- because I 9 know you're doing this to make sure that I'm not being 10 confused here. 11 So, when this says, four million, the 4.5 12 million on this and the contract release order, the number 13 that we have here, would be for, $40 million amount, is that 14 right? No? 15 MR. AL SHULTZ: No -- 16 MADAM COMMISSIONER: It allows you to go up to 17 40 million? 18 MR. AL SHULTZ: Yes, the contract order is 19 there for $40 million. 20 MADAM COMMISSIONER: Okay, the contract order 21 is there for $40 million. The contract release order says 22 pay up 4.5 on this 40, is that right? 23 MR. AL SHULTZ: We're committing 4.5 against 24 the 40. If it was done prior to an invoice being issued. 25 It's really taking the $40 million and saying okay, we've

1 already committed to 4.5 of it, so that leaves a balance. 2 MS. DAINA GROSKAUFMANIS: Let me try this, 3 perhaps, by way of -- 4 MADAM COMMISSIONER: So this isn't that you've 5 got an invoice from MFP for 4.5 million? 6 MR. AL SHULTZ: In -- sorry. 7 MADAM COMMISSIONER: Is this that you've got 8 an invoice from MFP for 4.5 million? 9 MR. AL SHULTZ: In this instance, that's what 10 happened, yes. 11 MS. DAINA GROSKAUFMANIS: Perhaps the easiest 12 way to do this is there's -- there's some issues here about 13 what should have happened and what, in fact -- 14 MADAM COMMISSIONER: I see. 15 MS. DAINA GROSKAUFMANIS: -- did happen. So, 16 perhaps, let me -- let's jump away from these leases for a 17 moment and make sure that we understand how contract release 18 orders should have worked and we'll go back to the neutral 19 example of the road salt. 20 MADAM COMMISSIONER: Okay. 21 22 CONTINUED BY MS. DAINA GROSKAUFMANIS: 23 Q: We have the $1 million road salt contract 24 order. That's the total upper limit of what you can spend on 25 road salt. Fair enough?

1 MR. AL SHULTZ: That's correct. 2 Q: Okay. Now, if I am a department and I now 3 want to actually draw down that $1 million by taking a 4 shipment of road salt, I would issue a contract release order 5 to the road salt -- a contract release order, let's say, for 6 one hundred thousand dollars ($100,000). 7 MR. AL SHULTZ: That's correct. 8 MADAM COMMISSIONER: Yes. 9 10 CONTINUED BY MS. DAINA GROSKAUFMANIS: 11 Q: That means that I've committed to the 12 company and I've committed on the SAP system that I've now -- 13 I've committed to purchase one hundred (100) -- one hundred 14 thousand dollars ($100,000) worth of road salt. 15 MR. AL SHULTZ: That's correct. 16 Q: The invoices would come sometime -- 17 MADAM COMMISSIONER: I thought -- I thought 18 you would have committed to purchase $1 million worth of -- 19 MS. DAINA GROSKAUFMANIS: That's the target 20 value of the whole amount of the contract but I'm drawing 21 down in one hundred thousand dollar ($100,000) increments. 22 MADAM COMMISSIONER: Okay. 23 24 CONTINUED BY MS. DAINA GROSKAUFMANIS: 25 Q: I've now -- I'm drawing down in one

1 hundred thousand dollar ($100,000) increment. That could 2 come as three (3) different invoices at some future date, 3 right? 4 MR. AL SHULTZ: That's correct. 5 Q: So the contract release order is just the 6 commitment to buy road salt in a certain quantity? 7 MR. AL SHULTZ: That's correct. 8 Q: The $100 million number is the -- the 9 absolute -- the top value what Council has authorized you to 10 spend. You can't spend more than $1 million on road salt, 11 right? 12 MR. AL SHULTZ: That's correct. 13 Q: I can spend less than that, but I can't 14 spend more without getting Council authority? 15 MR. AL SHULTZ: That is correct. 16 Q: One hundred thousand dollars ($100,000) is 17 the -- my first initial commitment to the company. I have 18 ordered one hundred thousand dollars ($100,000) worth of road 19 salt? 20 MR. AL SHULTZ: Yes. 21 Q: And I -- my contract release order 22 signifies to the system that I have no committed to the 23 company that I will pay them one hundred thousand dollars 24 ($100,000)? If I -- 25 MR. AL SHULTZ: Upon delivery of the goods,

1 yes. 2 Q: Okay. 3 MS. CHRISTINE COWELL: If I could just sort of 4 expand that example. With salt, for example, you've ordered 5 it for the winter which would be the -- the $1 million. In 6 December, you're not going to take delivery of all that salt, 7 probably because you don't have a place to store it. So you 8 would take delivery of the salt that you expect to use, let's 9 say, in December and it may need to come in three (3) dump 10 trucks. 11 So you might get an invoice for each dump 12 truck. So you create your CRO for the total order that's 13 being delivered but then you would have these three (3), sort 14 of, installments, if you would, of the delivery. Does that 15 make it clear? 16 MADAM COMMISSIONER: Yes. Yeah, that's 17 helpful. 18 MS. CHRISTINE COWELL: Okay. 19 MADAM COMMISSIONER: Thank you. 20 21 CONTINUED BY MS. DAINA GROSKAUFMANIS: 22 Q: Now, let's try this with the -- before we 23 start going into what actually happened, let's start talking 24 about computer leases and what was the thing that should have 25 happened. We know that the City of Toronto entered into a

1 series of lease schedules and program agreements with MFP? 2 MR. AL SHULTZ: That's correct. 3 Q: And when it -- when it signed up those 4 lease schedules or program agreements, the City of Toronto 5 committed to a stream of payments over a period of three (3) 6 or five (5) years? 7 MR. AL SHULTZ: That's correct. 8 Q: Would the contract release order that 9 should have been put -- input into the SAP system at the time 10 that each lease schedule was signed, before there's any 11 invoice, would it have -- what would have been the right 12 amount of the contract release order? 13 MR. AL SHULTZ: The right amount of the 14 contract release order would be the value of the agreements 15 with MFP. 16 Q: And then each -- each invoice would have 17 been -- like the -- like the -- it would have been like the 18 delivery of the salt? Each invoice would have been like the 19 delivery of the salt. So each year, or each quarter, 20 whatever the payment stream is, that' show your drawing down 21 against that contract release order? 22 MR. AL SHULTZ: That's correct. 23 Q: So the purpose of the contract release 24 order is to give notice or to clear it on the system what the 25 entire commitment, financial commitment is, against this --

1 this contract order at the top. The -- the upper target 2 limit, right? 3 MR. AL SHULTZ: That is correct. 4 Q: Okay. That's how it's supposed to work in 5 the ideal world? 6 MR. AL SHULTZ: Yes. 7 Q: Okay. And we know, even without looking 8 at all these contract release orders, that it didn't work 9 that way, in fact, because the contract release orders 10 against the MFP contract only totalled $25 million or so? 11 MR. AL SHULTZ: That is correct. 12 Q: And we know that the City of -- that 13 the -- the obligation, the complete financial obligation for 14 the City of Toronto well exceeds $25 million? 15 MR. AL SHULTZ: That is my understanding, yes. 16 Q: Okay. And it -- and, in fact, it's in the 17 range of somewhere around $80 million. If it had been -- if 18 this had been properly put in, the total net value would have 19 been in the range of around 80 or $85 million, I can't quite 20 remember what it is? 21 MR. AL SHULTZ: Whatever the value of the 22 commitment is, yes. 23 Q: Basically, the entire stream of payments 24 for all -- all of the payments due to MFP until the