In the latest in a series of questionable transactions involving the Hamilton Waterfront Trust, The Bay Observer examined figures which raise the question of whether the city of Hamilton might have paid twice for the same Zamboni purchased to groom the ice of the Pier 8 outdoor skating rink. The Zamboni issue is only a small part of a wider issue of how public money was managed and the level of oversight in the construction of the outdoor rink, and subsequent additions to the Williams Coffee Pub. The Hamilton Waterfront trust was authorized to build the rink following a 35 minute special meeting of City Council’s Committee of the Whole in June of 2008. The committee voted to spend $3 Million for projects listed simply as
- Skating Rink
- Pier 8
A note describing the project said,
there is a preliminary proposal from the Hamilton Waterfront Trust to partner with other entities for the development. The Hamilton Waterfront Trust has estimated a budget of $3.5 – $4.0 million for the skating rink and building.
No detailed budget was provided but council nonetheless voted that day to turn over $3 Million to HWT and subsequently voted an additional $1.2 Million to bring the project cost up to a total of $4.2 Million. A staff note suggested that the project would be closely monitored by the city:
the project would require a Project Manager who in turn would lead a Corporate team to ensure a coordinated corporate effort in order to eliminate last minute issues having to be dealt with and not at a strategic level.
In the end, however, the project was undertaken entirely by the Waterfront Trust, without formation of a corporate team from the city nor with involvement by any outside partners. Instead, the city’s involvement consisted of issuing cash advances which were eventually matched up with invoices from the HWT issued only after construction was completed. At the time Council authorized the $3Million they had yet to see a single financial statement from the waterfront trust, even though the trust was obliged by its incorporation agreement to provide financial information annually to council. Indeed, it was only in the fall of 2008 that council got its first look at 5 years of financial statements, and even then were unaware that an HWT auditor had issued a rare adverse opinion of the Trust’s financial reporting. By the time council saw any financial records the auditor who issued the negative opinion had been replaced by Deloitte Touche who issued an unqualified opinion using the same set of financials.
At the time of voting the $3 Million Council was also unaware that the HWT was embarking on a string of 5 straight years of financial deficits. The year 2007 showed a surplus of $820,000; but that was only achieved by an accounting entry that classified approximately $1.2 Million spent in previous years on the Williams Coffee operation and other assets, as “revenue”. In fact the transaction, while legal, involved no cash, and masked the fact that the HWT actually lost between $300,000 and $400,000 on operations that year. The trust from that point racked up annual losses totalling $1.9 Million in the following years up to 2011. Clearly the management fee the HWT received for overseeing the rink construction and the$150,000 annual operating fee the HWT negotiated with the City, were urgently needed sources of funding to keep the HWT solvent.
A word on Adverse Accounting Opinions
On September 6th, Hamilton Taxpayer and Entertainment Producer Gary Santucci appeared before the City’s General Issues Committee to ask a series of questions about the financial state of the Hamilton Waterfront Trust. In the course of that discussion, there was an exchange with Councillor Brad Clark who took issue with Santucci’s assertion that the HWT had ‘failed an audit’ as a result of receiving an adverse opinion from its auditors in 2008. After questioning Santucci’s qualifications to discuss accounting matters, Clark asserted that “The trust didn’t fail an audit, it was just an adverse opinion. Adverse opinion is common in the industry.”
The Bay Observer asked Burlington Accountant and governance expert Fay Booker how common an adverse accounting opinion is. Ms Booker who also served for a time as the City of Hamilton’s External Auditor provided the following response. “Adverse audit opinions are not common place. An “adverse” opinion leaves the reader doubting the financial information as well as management’s handling of the finances…It is a serious matter to get an adverse opinion. I obtained my CA degree in 1982 and over my career never had to deal with issuing an adverse opinion. An adverse opinion clearly tells the Board that it needs to take strong action to rectify the administration of the organization and the safeguarding of resources entrusted to it.”
The Bay Observer contacted two other auditors in the community with a combined career experience of 50 years and neither had issued an adverse opinion in their career. One accountant said that if a publicly traded company received an adverse audit opinion it would be delisted from the stock exchange.
For boards and agencies connected to the City of Hamilton, it’s another matter. In addition to the HWT adverse opinion, the Police service, Library, and Conservation Authority have all received adverse audit opinions in the recent past.
Back to the Zamboni, in the absence of any contract covering the $4.2 Rink and building project, it cannot be definitively determined whether it was paid for twice by the city. City Treasurer Rob Rossini categorically states that the city did not pay twice for the Zamboni, but the facts are these:
In 2010 the HWT bought the $87,000 machine, paying for it out of a cash advance from the city earmarked for the rink construction.
In 2011 the city paid the HWT, now effectively broke, $83,000 for the one year old machine.
On completion of construction in 2010, the rink belonged to the city, as arguably did the Zamboni, since both were paid from funds advanced by the City for the overall rink project. Without any written agreement for the $4.2 Million it is impossible to know whether it was intended that the HWT was to own the Zamboni in its own right, or whether as seems more plausible that the city would purchase a Zamboni as part of the overall cost of building a city-owned rink. Whatever the technicalities, the fact remains that the over the course of a year, two cheques totaling $170,000 of taxpayer dollars were issued on the same $87,000 machine.