Examining recent assertions made by the Town’s Chief Administrative Officer
BY VOICE STAFF
Town CAO Darren Ottaway at times seems a spectral figure in the ongoing saga of Pelham’s financial situation. He talks at Council, at all points defending the actions of the Town—though his words are often forgotten after Mayor Dave Augustyn and Councillor Gary Accursi take turns leading the defence, with the rest of Council stoically echoing these efforts.
Ottaway virtually never replies to emailed questions. Town Public Relations and Marketing Specialist Marc MacDonald has requested that all questions to Town Staff go through his desk, since apparently, in his words, direct inquiries to Ottaway and the rest of staff “may not [be] seen.”
But as the Chief Administrative Officer of the Town, there is no one with more power and responsibility than Ottaway. Last month, Ottaway—along with a number of staff —met with several members of the advocacy group Pelham DEBT, and attempted to provide explanations for residents’ outstanding questions relating to the Town’s financial situation. On February 5, Ottaway provided Council with his synopsis of that meeting. We consulted with a group of accounting experts to assess the accuracy of Ottaway’s assertions.
Cancelled public meeting
In the meeting, members of DEBT expressed concern that Council had cancelled a promised public question and answer meeting, and had done so before Councillors had even been able to read KPMG reports commissioned by the Town in response to local and Regional scrutiny of Town finances. Ottaway asserted that this was untrue, and that Council had not cancelled the promised public meeting before reading the reports.
“Sorry, you’re mistaken on that,” he said to DEBT’s Nancy Beamer.
Is this true? No.
On December 18, Ottaway asserted that the Town had received KPMG’s reports just hours before that night’s Council meeting. At this meeting, Councillor Accursi moved to cancel the planned public meeting, saying, “I can think of no other questions that could come forward,” even though he hadn’t read the list of questions and KPMG’s responses, and had not been able to assess whether other questions had emerged as a result of the reports’ more detailed findings, as compared to a November 29 presentation made by KPMG at special Council meeting held at E. L. Crossley High School.
Immediately after Ottaway made his claim, Town Clerk Nancy Bozzato provided an accurate timeline of events. She confirmed that Council had only seen the KPMG presentation from November 29 and not the full, detailed reports when it cancelled the public meeting.
“Yep, that’s right,” Ottaway replied, seemingly forgetting that he had asserted the opposite only a moment before.
While Town Treasurer Teresa Quinlin asserted that KPMG’s findings did not change from November 29 to the release of the actual reports on December 19, there was a substantial amount of information not included in KPMG’s November presentation, including KPMG’s conclusion that it is “unsure” if the Town’s credit scheme violated any bylaws or municipal legislation.
“Audit” or “investigation”
In the same meeting, Ottaway asserted that it was “irrelevant” whether KPMG’s review of a disputed 3.3 acre land deal was actually an audit.
“This audit, this supposed audit, and you can argue about whether it was an audit or an investigation—that’s irrelevant…Council said that we’d do an audit to show that we are not printing money in the basement and all the other bull allegations that were forwarded by [Rainer Hummel] in public,” he said.
Is this true? No.
It is indisputably relevant whether KPMG’s review of the 3.3 acre land purchase was an audit or an investigation. Last summer, the developer Rainer Hummel alleged that the Town’s scheme to purchase land with credits may have been illegal. Because KPMG did not conduct a forensic audit, and did not speak to anyone other than Town Staff, the Town’s lawyers, and the Allen Group, it could not independently assess whether the scheme was illegal.
“We are unsure if this contravened any bylaws or municipal legislation,” concluded KPMG. The Town appears to have circumvented the Development Charges Act by calling these credits “municipal credits” even though nearly all of those used were in fact applied toward development charges. If KPMG had conducted a forensic audit, it could have determined—or at least solicited an independent opinion—as to whether this was legal.
Public questions for KPMG
In the meeting, Ottaway asserted that Council had allowed questions about general Town finances following the resignation of Councillor Marvin Junkin and the allegations Junkin made about Town finances. “[After the allegations about the 3.3 acre purchase] there was all sorts of controversy related to allegations made by a former Councillor, so Council said, ‘Fine, ask whatever questions you want, KPMG will answer them.’”
Is this true? No.
Council voted for the KPMG review on October 2. KPMG created an email address to which residents could direct questions, but the Town said that KPMG would only be accepting questions from residents until October 17. Junkin did not resign until November 6, with his allegations appearing in the Voice the next day. By this point, KPMG was no longer accepting questions.
Subsequently, at a special council meeting held November 29 at E.L Crossley High School, the Town allowed KPMG to present a revised and redacted version of a report the firm presented in camera to Council on September 5. However, KPMG did not take questions at the meeting. The Town refused to answer questions about the allegations made by Junkin both before November 29 and after, directing the Voice and residents first towards KPMG’s reports, and then to file Freedom of Information requests.
$17 million dollar of debt
In the meeting, Ottaway was asked where the $17 million in debt that Junkin alleged came from. “That’s a number that Mr. Junkin decided he was going to go to the newspaper with. We never said anything about $17 million.” But then, when challenged, Ottaway immediately conceded that the $17 million figure does appear in KPMG’s report, but that it is not unreported debt.
Is this true? Technically, yes. Practically, no.
KPMG confirmed that, as of September 5, it was believed that the Town had $17 million in approved but not-yet-acquired loans, corroborating Junkin’s figure from the September 5 meeting. By November 29 this amount had been reduced to $10 million. KPMG indeed said that this number was not unreported debt.
But accounting experts consulted by the Voice say that this statement is true only in a narrow, technical sense.
Since the Town depleted reserves to fund projects that were supposed to have been paid for with loans, these reserves must eventually be replenished. Treasurer Quinlin has said that up to $10 million in debt needs to be acquired to replenish these reserves; accounting experts consulted by the Voice say that this necessary future debt is effectively unreported debt at present.
Corroboration of claim
One of the DEBT members at the meeting reminded Ottaway that Councillor Peter Papp had confirmed Junkin’s figures. Ottaway asserted that Papp had corrected the record at Council.
“He made a statement saying that he had made a mistake, made an error, and was wrong about what was reported in the newspaper,” said Ottaway. “However, the paper chose not to report that…He stood up and made a statement at Council on December 18. Please, check the video and watch what he said, and take it from him, not from what you read in the paper.”
Is this true? No.
After the special Council meeting at E. L. Crossley on November 29, Papp told a resident that Junkin wasn’t a liar, and that he had “got the figures right.” Papp also told the Voice that there were times when the Town had borrowed from its reserves without the proper approval from Council.
Four days later, Papp emailed the Voice asking to “rescind” his comments about whether Council had always given approval for the use of reserve funds. When asked to clarify whether this meant that he and Council had always been aware of the reserve use, Papp did not respond. The Voice reported Papp’s request in its December 6 issue. In his email, Papp made no mention of his comment about Junkin getting the figures right.
On December 18, Papp indeed made a statement to Council. He apologized and called his comments to the Voice “inaccurate and untimely,” and said that it’s “quite clear that there is no fraudulent activity and no unreported debt.”
However, Papp did not say specifically what he was apologizing for. He certainly did not say that he was apologizing for saying that Junkin “got the figures right.”
Further, Papp had not read the full KPMG reports when making this statement.
Reserve Funds use
According to former councillor Junkin, Council was shocked on September 5 when KPMG revealed that the Town had spent nearly all of its reserve funds. Junkin said that this was because Council was always told by Staff that the reserve balances were fine.
“In budget debates, the former Treasurer would go through and say all of the reserves were healthy,” said Junkin.
KPMG confirmed Junkin’s account of former Treasurer Cari Pupo’s reports.
“In each report to Council…it was stated that, ‘year-end reserve balances remain healthy and capable of supporting the Town’s ongoing commitments,’” writes KPMG. “This statement appears misleading because the Town does not appear to have the cash balances on hand to support year-end reserve balances.”
When presented with this quote from KPMG, Ottaway first appeared to stall for time, asking to re-read the passage himself.
“These were previous reports written by a previous Treasurer. After KPMG went through it all, they said that it may appear misleading,” said Ottaway. “In order to talk about that further, I’d have to talk about personnel issues. I’m not authorized to do that, nor will I.”
Ottaway seems to be asserting that the information in these past reports were solely the responsibility of former Treasurer Cari Pupo, and that he has no responsibility for what they contain.
Is this true? No.
While it may have been Pupo who prepared and presented the reports, Pupo reported to Ottaway. It is next to impossible that Pupo was capable of making decisions about the use of reserve funds without Ottaway’s authorization.
Representatives of Pelham Debt asked Ottaway for an explanation as to why the Town had paid the exorbitant price of nearly $1 million per acre to Fonthill Gardens (the Allen Group) for 3.3 acres in East Fonthill. Ottaway conceded that the deal had cost money up front, but asserted that the Town will collect this money in the future as developers connect to the road.
“The rationale was that because [Summersides Boulevard] will be shared, we’ll eventually collect that money back. As developments come online, they’ll have to tap into that road,” said Ottaway.
Treasurer Teresa Quinlin seconded Ottaway’s assertion, saying that “in the end, it should be a wash” and that the Town will recover the money it spent on the land through parkland dedication fees.
“That’s why it was set up as a receivable,” said Quinlin. “As soon as the money comes back, we’ll collect it.”
In her presentation at E. L. Crossley on November 29, Quinlin asserted that the Town could expect to receive $3.6 million in parkland dedication fees.
Is this true? Possibly, but unlikely.
It is technically possible that the Town will eventually collect $3.6 million in parkland fees. However, Quinlin has repeatedly refused to say how long this will take. Town Public Relations and Marketing Specialist Marc MacDonald said that the calculation was based on “historical trends,” but did not provide any data to back this assertion.
Accounting experts consulted by the Voice calculated that it would take the construction of 1,200 homes in order for $3.6 million to be acquired by the Town.
“I cringed when I heard the Treasurer say the costs and revenues were a ‘wash,’” said one of the experts. “Generalities like that are the refuge of the lazy and uninformed. They are almost never accurate.”
“She used another term: ‘timing difference.’ When I was in public accounting, we were not permitted to use that term,” the expert continued. “Our leadership regarded that the same as ‘wash.’ One who understood the matching principle did not use weak, uninformed terms like ‘wash’ and ‘timing difference.’”
The “matching principle” cited by the expert is an accounting method that requires a “[matching of] costs with revenues in the period the revenue was earned to fairly represent the operating results.”
In essence, the expert said, the matching principle was violated because the Town matched the cost of buying those 3.3 acres with a revenue that is speculative and without a specific acquisition date.
Even if the Town does recover this amount, it still does not explain the Town’s decision to so dramatically overpay for the land.
Further, Ottaway does not explain why it was the Allen Group who so benefited from the scheme. Ottaway said that the Town intends to collect its $3.6 million from a variety of developers in East Fonthill, not just the Allen Group. This means that eventually the Town may come out even (as Quinlin asserted), while the assortment of developers in East Fonthill will come out in the red, since they have to pay hefty fees, while the Allen Group will have greatly profited from its sale of the 3.3 acres to the Town.
Town requests for corrections
In the meeting with DEBT, Ottaway intimated that the Voice had reported that residents of Poth Street were unable to access their properties as a result of their road being closed. He also asserted that the Town requests corrections of the Voice on a weekly basis, and that the paper ignores these errors when apprised of them. “When the paper comes out, we do respond,” said Ottaway. “We have a guy on staff who goes through and if there’s errors we let the paper know, and ask them to print these corrections. They ignore it.”
Is this true? No.
No Voice article has ever suggested that the closure of a portion of Poth Street has meant that residents have been unable to access their properties. Further, when genuine factual errors are brought to the Voice’s attention, they are corrected.
Shortly after Public Relations and Marketing Specialist Marc MacDonald was hired in early 2017, MacDonald sent periodic emails to the Voice containing what he, on behalf of his employer, characterized as errors. In fact, the “errors” cited were almost uniformly matters of degree or opinion. After three or four tries, the emails ceased, and in a face-to-face meeting later in 2017 with reporter Sam Piccolo and publisher Dave Burket, MacDonald acknowledged that writing them had not been “the best use” of his time. [Editor’s note: After the print version of this article appeared, MacDonald emailed the Voice to assert that his “best use” quote was inaccurate. Rather, he wrote, “I recall saying it wasn’t amongst my favorite tasks, but you have a different recollection.” Not in dispute is that MacDonald’s regular “correction” emails did, in fact, end several months ago.]
Province seeks finances mentor to help Pelham
In a report to Council on February 5, Ottaway asserted that the Town had confirmed with the Ministry of Municipal Affairs that the province “did not approach other municipalities for a ‘financial mentor [to help Pelham]’” as has been alleged by Regional Councillor Tony Quirk.
Is this true? Unknown.
It is possible that the Ministry of Municipal Affairs asserted this to Town staff. However, in an email obtained but not independently verified by the Voice, the treasurer of a local area municipality says that contact did come from the ministry.
“I can’t speak to what the Pelham CAO is saying,” said the treasurer, referencing Ottaway’s assertion that the ministry had not sought a mentor. “But I was certainly contacted by MAH about being a mentor and I refused to participate as I didn’t think it was appropriate.”