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ANALYSIS: Post-KPMG questions remain unanswered

Councillors Durley and Accursi before the start of KPMG's presentation at E. L. Crossley high school on November 29. VOICE PHOTO

In rescinding promise to hold public Q&A session, Councillor Gary Accursi said he “could think of no other questions.” Here are just a few.

BY VOICE STAFF

Prior even to reading KPMG’s reports, at its last meeting of 2017 Pelham Town Council voted unanimously to reverse its earlier commitment to hold a Town Hall-style meeting, at which residents could ask questions of KPMG, Town staff, and Town Council.

Councillor Gary Accursi, who tabled the motion to stymie further inquiry, said, “I can think of no other questions that could come forward.”

In the weeks since KPMG’s presentation at E. L. Crossley Secondary School, and following the firm’s release of its reports shortly before Christmas, the Voice has identified a number of important issues that remain unresolved.

The Town has said that it will no longer directly respond to inquiries about past finances, requiring such questions to be filed as Freedom of Information requests. Answers to such requests may be legally delayed by 30 days. Based on previous experience, the Town exploits this timetable nearly to the maximum, often then not providing the answers requested. The Voice is aware of at least three denied-FOI appeals against the Town currently filed with the province.

The following remain open issues, ones that may ultimately need to be pursued by other bodies, either Regional or provincial.

The 3.3-acre land transaction in East Fonthill

The KPMG report states that the Town was following its own by-law in valuing the land, namely by assuming that it was ready for construction. This valuation method led to the Town paying Fonthill Gardens (the Allen Group) an exorbitant amount for the land. While the Town asserted that it used this method to compensate Fonthill Gardens for its “lost profit opportunity,” KPMG disputes this. KPMG writes that since the Town proposed that Fonthill Gardens buy the land, and since Fonthill Gardens “never intended to develop the excess dedications, it appears that [Fonthill Garden’s] opportunity cost was not the ability to sell the land fully developed.”

KPMG says also that it appears as though the Town did have the flexibility to negotiate the purchase price, and was not required to “pay the appraised value at the building permit stage.”

Why, then, did the Town choose to have the land valued in a way that would result in such a high price?  Why did the Town pay for and provide the appraisal for Fonthill Gardens to acquire the land from the original owners? Did the Town engage in “bonusing,” a form of incentive that’s illegal in Ontario?

After the credit-for-land agreement with the Allen Group had been rescinded, the Town paid Fonthill Gardens just over $3 million in cash for the land. Then-Treasurer Cari Pupo first suggested that the Town obtain a loan to make the payment, but later told Council that the $3 million would be paid out from the Town’s operating bank account. But as the balance of this account was just $554,000 at the start of the year, it appears that the Town could not have had sufficient funds to fund such a large transaction. Former Councillor Marvin Junkin has said that Council was not given information as to how these funds were ultimately found, despite the Mayor asking Pupo to send a follow-up email to Council with this information.

The Town has repeatedly refused to state by what means it found an extra $3 million in cash to pay off Fonthill Gardens.

KPMG’s report shows that the Town recorded future development charges/parkland charges/other Town fees as a current asset receivable in 2016, with a revenue amount recorded called “Contributed Assets,” in addition to recording the actual purchase of the lands from Fonthill Gardens. Regional Audit Chair Tony Quirk says that this approach “created revenue out of thin air.”

KPMG only presented the journal entry that was made. It did not conclude whether the entry was appropriate.

Why did the Town book future development charges and other revenues as a current accounts receivable asset/revenue in 2016, in light of the fact that the events that would see them being owed to the Town had not yet occurred?

General Finances

At the beginning of 2016, $1.09 million of debt remained on the Town’s original $3.5 million CIBC bank loan from 2005, which was used to buy the Rice Road property that was to become East Fonthill.

At some point 2016, this $1.09 million was paid of in its entirety.

Once again, considering that the Town had just $554,000 in cash at the start of 2016, which funds did the Town use to pay off this $1.09 million loan?

In its E. L. Crossley presentation, KPMG reported that the Town had exhausted its $3 million Line of Credit as of last November 29.

At its final meeting of 2017, Town Council authorized an increase of its Line of Credit from $3 million to $7 million. Treasurer Teresa Quinlin said that this increase was the result of a timing issue.

However, Quinlin did not explain why such a dramatic increase was required, nor did she give specifics as to how the Line of Credit would be used.

The Town’s Community Centre construction report for November 2017 appears to show that debenture funds already received will run out by January 31, and that a further $8 million will be needed between February and May of 2018. It is indicated that this will come from land sale proceeds.

Will the increased Line of Credit be used to cover construction costs of the Community Centre, until such time as proceeds of land sales in East Fonthill may come in?

Both KPMG and Treasurer Quinlin have confirmed that reserve funds were routinely used to fund capital expenditures, leaving the Town with “minimal cash on hand.” Quinlin has made it a priority to replenish these reserves. When asked why the Town used reserve funds to pay for capital projects (rather than acquire the debentures as approved by Council), Quinlin said that she didn’t know, and that it was done before her arrival at the Town.

“That’s just the way things were done here,” she said.

Accounting experts consulted by the Voice said that this use of reserve funds was a way by which the Town could have made its debt obligations appear lower than they actually were.

Former Councillor Marvin Junkin alleged that behind closed doors on September 5, Quinlin told Council that the Town would not have received provincial funding approval for the Community Centre if this internal borrowing was public knowledge.

Why did the Town spend reserve funds instead of acquiring the debentures approved by Council? Was this done deliberately to make the Town’s debt obligations seems lower than they were in reality?

Regarding the balances of reserve funds, KPMG writes that, “In each report to Council, it was stated that ‘year end reserve balances remain healthy and capable of supporting the Town’s ongoing commitments.’ This statement appears misleading as the Town does not appear to have the cash balances on hand to support the year end reserve balances.” KPMG’s report confirms former Councillor Marvin Junkin’s allegation that Council was not properly informed of the use of reserve funds.

Why was Council not fully informed about the depletion of reserve funds. Who among staff did know about it. When Council learned of this depletion on September 5, why was this information not immediately made public?

Based on the Town’s 2015 audited financial statements, five of seven provincial financial indicators showed a challenge of “Moderate.” Two showed a challenge of “High.” Per KPMG, ratings of “Moderate” on just two of the seven prompt follow-up contact from the province.

The Town did not respond to, or publicly acknowledge, communication from the province regarding its “Moderate” and “High” financial challenge when first received.

The Voice has learned that this communication was made prior to former Treasurer Cari Pupo’s departure.

Why did the Town not acknowledge these “Moderate” and “High” financial red flags from its 2015 financials? Why was this provincial communication not disclosed during debate in 2016 over whether to approve the $36 million dollar Community Centre project?

 

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