Report to the Minister on the Resignation of the

CEO of British Columbia Lottery Corporation

Internal Audit & Advisory Services
Ministry of Finance

July 2014
Table of Contents
Section Page No.

Abbreviations ............................................................................................. i
Introduction ............................................................................................... 1
Purpose, Scope and Objectives .............................................................. 2
Approach ................................................................................................... 4
Comments and Recommendations ......................................................... 5
1.0 Conflict of Interest and Confidentiality ................................................... 5
2.0 Employment Termination Process .......................................................... 7
3.0 Post-Employment Restrictions ................................................................ 9
Appendix A Summary of Recommendations ..................................... 10



Report to the Minister on the Resignation of the CEO of BCLC i
Abbreviations
BC British Columbia
BCLC British Columbia Lottery Corporation
CEO Chief Executive Officer
CGC Community Gaming Centre
GPEB Gaming Policy and Enforcement Branch
government Government of British Columbia


Report to the Minister on the Resignation of the CEO of BCLC 1
Introduction
British Columbia Lottery Corporation (BCLC) is a Crown
corporation with responsibility for the conduct and management of
commercial gaming in British Columbia (BC), including casino
gaming.
On January 29, 2014, Michael Graydon, Chief Executive Officer
(CEO) of BCLC advised the BCLC Board of Directors that he was
resigning effective March 31, 2014 to accept a position in the
private sector. His resignation was accepted by the BCLC Board
who subsequently established February 4 as his last day at work.
It was publically announced on February 7 that Michael Graydon
had accepted the position of President at PV Hospitality ULC, a
newly formed company, affiliated with Paragon Gaming Inc.,
360 VOX Corporation and Dundee Corporation, effective
February 11. Mr. Graydons first priority was announced as being
the oversight and operations of a new urban resort to be located
adjacent to BC Place in Vancouver, BC.
Paragon Gaming is the operator of the Edgewater Casino in
Vancouver and has been in negotiation since the spring of 2009,
with the City of Vancouver and BC Pavilion Corporation, to move
the casino to a permanent location and develop an urban resort.
Edgewater Casinos current location has always been regarded as
temporary.
Internal Audit & Advisory Services was asked to review the
circumstances regarding the exit of BCLCs CEO to a BCLC
gaming service provider to determine if there was a conflict of
interest or a breach of confidentiality.


2 Report to the Minister on the Resignation of the CEO of BCLC
Purpose, Scope and Objectives
This review evaluated and, as appropriate, made recommendations
with respect to the following:
whether Michael Graydon was in a conflict of interest as
CEO of BCLC while in negotiation for employment with a
gaming service provider;
whether there was a breach of confidentiality with respect to
information held by Michael Graydon as CEO of BCLC; and
other matters identified during the course of the review.
The review evaluated conflict of interest as defined by BCLC in
their Standards of Ethical Business Conduct for BCLC
Employees. The Standards apply to all BCLC employees and
contain the following Conflict of Interest guidelines:
An apparent conflict of interest exists when there is a
reasonable apprehension, which reasonable well-informed
persons could properly have, that a conflict of interest exists.
This applies even when no conflict is found to actually exist.
A real conflict of interest denotes a situation in which you
have knowledge of a private economic interest that is
sufficient to influence the exercise of your duties and
responsibilities as an employee of BCLC.
BCLC employees must avoid any situation or
decision-making in which there is a real or apparent conflict
of interest or an apprehension of bias.
BCLC employees must disclose any circumstances that
could be perceived as a real or an apparent conflict of
interest.
In addition, the guidelines include a section on outside employment,
business interests and other activities which states that:
BCLC employees must not accept a position as an officer or
director of an organization that has a relationship with BCLC
unless that interest has been fully disclosed and addressed
to BCLCs satisfaction.
A copy of the Standards can be found at:
http://corporate.bclc.com/content/dam/bclc/corporate/documents/so
ebc-for-employees.pdf

Report to the Minister on the Resignation of the CEO of BCLC 3
The review also noted that the Gaming Policy and Enforcement
Branch (GPEB) have statutory responsibilities pursuant to the
Gaming Control Act. These responsibilities extend to the regulation
of gaming in BC, including the operations of BCLC, and
maintenance of a registry of gaming service providers and gaming
workers. An April 16, 2007 directive to BCLC from the General
Manager of GPEB states that BCLC employees are required as a
condition of registration to disclose to the General Manager without
delay any new involvement or interest by the employee in the
gaming or horseracing industry in any capacity. GPEB were
advised of Michael Graydons resignation on January 30.
The review did not encompass an evaluation of compliance with
GPEB policies and directives as this is more appropriately a role for
GPEB.


4 Report to the Minister on the Resignation of the CEO of BCLC
Approach
The approach included:
conducting interviews with Michael Graydon, key executive
and staff across BCLC as well as related stakeholders;
reviewing and analyzing electronic and physical files
including telephone records, emails and calendars;
reviewing casino correspondence and contracts;
reviewing and analyzing employment practices, contracts
and policies;
reviewing and analyzing other key documentation; and
researching other jurisdictions and comparable
organizations.

Report to the Minister on the Resignation of the CEO of BCLC 5
Comments and Recommendations
1.0 Conflict of Interest and Confidentiality
BCLC standards of conduct requires employees to avoid real or
apparent conflict of interests, and requires individuals to report
them promptly so the conflict can be addressed.
BCLC is a Crown corporation, owned by the province, with
responsibility for the conduct and management of commercial
gaming in BC. BCLC sets and oversees operating standards, as
well as policies and procedures for all lottery and gaming in BC,
including BCs casinos and community gaming centres (CGCs).
Service providers are contracted by BCLC to provide gaming
facilities on behalf of the corporation, and BCLC manages its
service providers according to their unique business demands such
as site location, host local government terms and/or local market
conditions. Games and equipment for gaming service providers
are provided by BCLC.
Michael Graydon was employed as CEO of BCLC until
February 4, 2014. As CEO, Mr. Graydon had limited involvement in
the day-to-day operations of casinos and CGCs but was the person
ultimately responsible for the oversight and management of
commercial gaming and would be in a position to be able to
influence BCLC interactions and approvals regarding their service
providers. Further, in his role as CEO, Mr. Graydon had access to
government, service provider and stakeholder information including
strategies and performance results. As CEO, Mr. Graydon would,
and did appropriately have a role in facilitating strategic and high
priority initiatives such as the Edgewater Casino relocation and the
proposed Surrey Casino development.
In December 2013 and January 2014, Michael Graydon was in
employment discussions with Paragon Gaming which culminated in
him resigning from BCLC and accepting a position with PV
Hospitality ULC, a company affiliated with Paragon Gaming.
Given BCLCs conflict of interest guidelines and the above
information, it is our opinion that Michael Graydon was in a conflict
of interest that was not disclosed. As an individual, Mr. Graydon
would have a private economic interest in his prospective
employment with an affiliate of Paragon Gaming. This interest
could be considered significant enough to at least establish a
reasonable apprehension that it would influence the duties and
responsibilities of a CEO of BCLC.

6 Report to the Minister on the Resignation of the CEO of BCLC
Had Mr. Graydon advised the Board of Directors of this conflict
earlier than January 29, 2014, it is possible that steps to address it
could have been taken.
BCLC manages service providers according to their unique
business demands such as site location, host local government
terms and local market conditions. The review, while finding some
differences in BCLCs handling of service providers, found no
evidence of Paragon Gaming or Edgewater Casino receiving
preferential treatment.
Casino service providers interviewed expressed some concern that
Michael Graydons knowledge could provide an advantage in the
development and expansion of future gaming facilities. Interviews
and a review of electronic and physical records indicated no
evidence of removal or inappropriate use of confidential
information. Further, as a condition of his employment with BCLC,
Michael Graydon signed a confidentiality agreement requiring his
commitment not to disclose confidential or proprietary information
garnered through his employment. The obligation under this
agreement extends indefinitely beyond his term of employment.

Report to the Minister on the Resignation of the CEO of BCLC 7
2.0 Employment Termination Process
Employers must have robust processes in place to ensure
information and assets are properly managed and safeguarded
when employees are leaving the organization. While no loss of
information or assets during Michael Graydons exit from BCLC
was observed, opportunities were identified for improvement in the
control of information access.
Michael Graydons letter of resignation provided notice until
March 31; however, it was the decision of the Board of Directors to
pay Mr. Graydon out to March 31 and have him leave immediately
given he was going to a company affiliated to a casino service
provider.
Final payment made to Michael Graydon upon his departure
included two months severance, accrued vacation pay due and
salary holdback to March 31. While at the time of Michael
Graydons departure the holdback targets had not yet been
reached, they were on schedule to being achieved and a pro rata
amount for the fiscal year worked was already earned. BCLC has
since advised that the required performance targets have been
met.
BCLC advised that the departure processes conducted for
Michael Graydons exit followed BCLCs normal employee
departure practices. Mr. Graydon was allowed to retain his mobile
devices, as other executive staff have been allowed to do when
leaving BCLC. When a device is transferred to a departing
employee, any outstanding contract obligation is also transferred
relieving BCLC of the related expenses.
BCLCs Information Security policy requires that remote access to
information systems be terminated within one business day after an
employees departure; however, Michael Graydons BCLC system
accesses were not terminated until 10 days later.
Outgoing emails were sent via his BCLC email account on
February 5 and 6 demonstrating that the access and information
had not been properly secured. BCLC was unable to demonstrate
that the mobile devices were adequately cleansed of data;
however, there was no evidence of confidential information being
inappropriately used. Had Mr. Graydons server access been
immediately terminated, and the devices been retained by BCLC,
these issues would have been avoided.
Resignation Terms
& Conditions
Information &
Systems Access

8 Report to the Minister on the Resignation of the CEO of BCLC
On February 7, 2014, BCLC incorporated additional controls into
their exit procedures. Notification of exit processes, including
deactivation of physical and system accesses, are now the
responsibility of Human Resources rather than the exiting
employees manager. Having a single point of responsibility for exit
notifications reflects governments recommended practice and
encourages a more consistent application of the process.
Recommendations:
(1)
BCLC should ensure it has a robust, consistently applied
exit process that includes timely removal of access to
corporate systems and information.
(2)
BCLC should develop policy and procedures regarding
mobile devices when an employee leaves the organization.

Report to the Minister on the Resignation of the CEO of BCLC 9
3.0 Post-Employment Restrictions
Michael Graydons BCLC employment contract did not include any
post-employment restrictions which would have prevented him from
accepting employment with a company involved in gaming in BC.
BCLC did have a no-contact provision added to Michael Graydons
resignation settlement requiring him to not contact BCLC for
90 days following his departure, which was subsequently extended
until this review was completed. While Mr. Graydon breached this
provision by having contact with BCLC staff after February 4, the
contacts related to inconsequential matters. BCLC, through legal
counsel, reminded Mr. Graydon of the no-contact provision in a
letter dated February 12 and sent an email to all BCLC staff
informing them of this provision. No evidence was found of any
subsequent contact.
A survey of other BC Crown corporations shows that
post-employment restrictions are not commonly used for executives
or key staff. BC Public Service Executives are subject to a
cooling-off term of one year after employment ends, limiting their
employment with outside entities. Post-employment clauses used
in other jurisdictions range from six months to one year, and limit an
individual from being employed by organizations with which they
had significant dealings.
Restrictions in employment contracts such as non-compete or
non-solicitation clauses help to safeguard public interests by
ensuring that individuals charged with management and oversight
in key industries are not seen to benefit from knowledge or
confidential information acquired through their employment to the
detriment of the industry or public. Such restrictions must be
drafted in a manner that is reasonable and not overly broad to
ensure they can withstand any legal challenge.
Recommendation:
(3)
Government should develop guidelines for
post-employment restrictions for appropriate staff of
Ministries, Crown corporations and Agencies.

10 Report to the Minister on the Resignation of the CEO of BCLC
Appendix A Summary of Recommendations
1
BCLC should ensure it has a robust, consistently applied exit process that
includes timely removal of access to corporate systems and information.
2
BCLC should develop policy and procedures regarding mobile devices when an
employee leaves the organization.
3
Government should develop guidelines for post-employment restrictions for
appropriate staff of Ministries, Crown corporations and Agencies