CFS still receiving revenue from programs linked to secret bank account

Summary report of audit reveals CFS receives revenue from travelcuts

CFS still receiving revenue from programs linked to secret bank account

The Canadian Federation of Students (CFS) is still connected to travelcuts, the travel agency it used to co-own, by way of a secret bank account that was revealed in a summary report of an audit released this summer. The CFS issues International Student Identity Cards (ISIC) and also receives revenue from the Summer Work Abroad Program (SWAP).

The original purpose of the bank account was to pay off debt from travelcuts — which the CFS sold to Merit Travel Group in 2009 — but it was also used for unauthorized transactions.

“Today Merit has a services agreement with the CFS-S, which is the Canadian Federation of Student Services, to operate the SWAP program, the Summer Work Abroad Program, and to be an alternative issuer of ISIC cards through our travel business,” a spokesperson for Merit told The Varsity.

The business of ISICs

In the summary report of the audit, there are 27 transactions listed as “International Student Identity Card applicant,” with the total sum of money from those transactions amounting to $584.

According to the CFS budget from 2001–2002, the federation received around $1.1 million in revenue from travelcuts between 1999 and 2000.

The CFS has not released the full report of the audit, meaning that any information on where the money came from or where it went is unknown.

According to the audited CFS financial statement of the 2013 fiscal year, the CFS recorded a loss of $37,506 from “ISIC income.”

In the 2016 fiscal year, the CFS had a net loss of $96,366.73 from the cost of selling ISICs.

In Canada, the CFS owns the license for distributing ISICs, but travelcuts, under Merit’s services agreement, can also sell the cards.

“Today, however, the majority of ISIC cards are distributed as a benefit of membership so the program doesn’t generate profit,” CFS National Treasurer Peyton Veitch told The Varsity via email.

Veitch detailed that the ISIC is a free benefit of membership in the CFS, but $20 for everyone else. The individual amounts from the 27 ISIC transactions in the secret bank account varied among $20, $21.50, and $43.

According to a draft report from a 2016 UTSU ad hoc committee on the CFS, in 2014­–2015, the CFS received revenue of $120,000 from the sale of ISICs.

“But what is the point of an ISIC? In theory, the cards grant access to student discounts, but most student discounts are available to anyone with a valid student ID; there are few, if any, discounts available only to students who have ISICs,” the draft report reads. “In short, the value of ISICs is overstated, principally by the CFS (which is, again, a partial owner of the for-­profit travel agency that issues ISICs).”

Veitch added, “The Federation also receives around $5,000 each year related to promoting Merit Travel through SWAP.”

U of T professor Richard Powers, whose areas of expertise include business and corporate law, wrote to The Varsity that “student governing organizations often own and run services for students – printing centres, pubs, housing co-ops – nothing sinister about that.”

Powers did question what happens to the profits from CFS businesses. “They should be going back into improvements in the services, or into other student-related activities and services – not into someone’s pockets,” he said.

Selling travelcuts

The spokesperson for Merit said that “the interesting thing about the deal was… we did not buy the shares of the travelcuts business. We bought the assets of the travelcuts business.”

In a share deal, the buyer acquires 100 per cent of the company’s shares, meaning that it takes on any and all pre-existing liabilities.

In an asset deal, the buyer can pick and choose the parts of the company that they want to purchase, which means that they do not have to take on any unwanted liabilities.

“In order not to be responsible for the liabilities (debts, etc.) you just buy assets–the liabilities remain with the seller,” said Powers.

UTSU Vice-President Internal Daman Singh wrote in an email to The Varsity that in principle, there’s nothing wrong with a student organization like the CFS securing discounted goods and services for students.

“However, the CFS mismanaged Travel CUTS into bankruptcy, and now the CFS seems to be a partial owner of a for-profit travel agency. The whole arrangement is very strange, and the members of the CFS know very little about it,” Singh wrote. travelcuts went into receivership in October 2009, when it was bought by Merit Travel, after incurring severe debt.

Former CFS-owned company linked to secret bank account

Audit of hidden account discloses original purpose to pay off debt for travelcuts

Former CFS-owned company linked to secret bank account

On May 31, the Canadian Federation of Students (CFS) released an audit of a hidden bank account discovered by members of its “at-large executive” in 2014.

The summary report of the audit revealed that the original purpose of the account was to pay off debts for travelcuts —then known as Canadian University Travel Service — a travel agency that was majority-owned by the CFS at the time.

travelcuts and the CFS

travelcuts was founded by CFS predecessors as a low-budget travel agency for students. When the CFS was created, it took over running the company until it was eventually sold in 2009.

travelcuts “was created to be a service, first and foremost, and a revenue stream, second,” states the CFS’ National Executive Report (NEP) from their 2009 Annual General Meeting.

Although the company was originally created for student travel, due to its low-budget model, it soon attracted a larger market and substantially grew its revenue. In 2001, while it was entirely under CFS ownership, travelcuts reported sales of nearly $220 million.

However, due to its inability to continue selling cheap tickets, the advent of the internet travel services, and the 2008 economic downturn, the company soon experienced financial troubles and the CFS began the process of establishing a business partnership.

In July 2009, the CFS opened an account with CIBC in order to help travelcuts manage its debt. This account would eventually go on to be used for unauthorized transactions between 2010 and 2014.

On July 14, 2009, the federation deposited $1.6 million into the account as a loan “to facilitate the receivership and sale process as Travel CUTS was experiencing cash-flow problems. The loan was repaid in full by Travel CUTS to [CFS-Services],” wrote CFS Treasurer Peyton Veitch in an email to The Varsity.

In October 2009, the CFS sold the company to Merit Travel Group Inc., and the last authorized use of the account was on May 6, 2010, two months before the unauthorized transactions began.

Hidden bank account audit

Although the summary of the audit does not go into details of its unauthorized transactions, it does give some explanations of the travelcuts-related uses.

According to a source close to the CFS, the CIBC account was used by the federation to deposit travelcuts money and withdraw it later with interest.

The summary audit supports this statement, showing that after the CFS deposited the $1.6 million into the account for travelcuts’ debt, “the sum was returned to the CFS-S, apparently with some interest,” which amounted to $368.22.

Lawsuit against the CFS and travelcuts

In 1996, the CFS-S, the Association of Student Councils Canada (ASCC), and travelcuts were sued by a number of student unions in Canada.

The lawsuit alleged that the CFS-S had illegally given itself assets from the ASCC, which included those of travelcuts.

The student unions involved were the University Students’ Council of the University of Western Ontario, the University of Alberta Students’ Union, the Alma Mater Society of the University of British Columbia, and the Alma Mater Society of Queen’s University.

After a decade-long battle, the lawsuit was settled out of court in 2006, with the CFS-S agreeing to hand over 24 per cent of the company to the plaintiffs and other non-CFS schools that were members of the now-defunct ACSS. The minority shares would be used to create a non-profit corporation, and the CFS would retain a 76 per cent control of the company.

According to an email from a spokesperson for Merit Travel Group, “Prior to October 2009, TravelCUTS was wholly owned by the CFS and operated by the CFS-S (Canadian Federation of Student Services). They (The CFS) held total responsibility to run TravelCUTS. Everything from staffing, finance, supplier negotiation and product sourcing and marketing was the responsibility of the CFS and the CFS-S.”

Response to the audit

Though there is information on the organization’s ties to travelcuts in the summary report, there is little information about the unauthorized uses of the account because the CFS has elected not to release the full audit.

“The full report on the forensic review is not a public document as it contains confidential information pertaining to human resources. This is equivalent to how student unions do not typically disclose sensitive HR matters to members at annual general meetings,” stated Veitch.

“Members of the national executive have a fiduciary responsibility to act in the best interest of the organization and knowingly placing the Federation in a position of legal liability would be acting contrary to this obligation,” he continued.

UTSU President Mathias Memmel commented that the CFS should release the full report even if they are not legally obligated to do so. “The CFS has ethical and political obligations beyond what the law requires,” he stated.

Veitch acknowledged that there was an “unacceptable” misuse of the account and has condemned those involved.

“Those who were responsible for utilizing the account debased and demeaned both the name and reputation of the Federation. Their actions have damaged the organization they served, and as a result they’ve been held accountable and are no longer employed by the Federation,” he said.

In response to the UTSU’s indication that it wishes to leave the CFS, Veitch commented that there were many benefits to remaining with the organization, which “has won a 50% increase to the Canada Student Grants program, $90 million in new funding for Indigenous students, and legislation requiring universities in Ontario to implement standalone sexual violence policies.”

Ultimately, said Veitch, the decision “rests with students through a democratic vote, not by decree from the UTSU’s president.”