Bill Kelly Show with John Best: June 21, 2012

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The city of Hamilton continues to hand over funding for infrastructure projects to the Hamilton Waterfront Trust, despite some questionable accounting  practices on past work undertaken by HWT.  In researching this article the Bay Observer came across  Instances  of altered invoices for projects undertaken, apparent conflicts of interest, ineligible HST claims, and a strongly-worded  letter by an auditor pointing out numerous areas of concern, including chaotic bookkeeping. Nonetheless, Council  recently voted to grant the HWT  $1.3 Million to finance an expansion of its Williams Coffee Pub Headquarters; even though the construction had already been underway for months. Starting the project before funds were voted is indicative of the special status the Waterfront Trust apparently enjoys with City Council and at least some senior staff members.  In addition, according to the lease agreement between the city and HWT any works at the Williams coffee pub required prior approval by the city. The 1.3 Million grant followed an earlier grant of $500,000 from the city this year to fund studies related to the future development of the West Harbour area.

The largest number of questions arising from HWT’s accounting surrounds the reconstruction of the Lakeland pool and banquet centre on the beach strip—a project that was fronted by the Hamilton Conservation Authority, with the Hamilton Waterfront Trust acting as project manager. From a governance standpoint the Conservation Authority is effectively a creature  of City Council. Council appoints the entire HCA board which consists of 5 members of council and 6 citizen appointees.  The Conservation authority operates Confederation Park, which includes Lakeland Pool, on behalf of the city, receiving a 15% management fee. At the time the Lakeland project was announced by the Hamilton Conservation Authority  three of HCA’s board members were also key figures on the Waterfront Trust. Werner Plessl, the Waterfront Trust general manager, was at the same time, a board member at HCA, as was HWT Chair Councillor Chad Collins, in whose ward the Lakeland project was built. In addition, Chris Firth-Eagland served as HCA board chair while he was a provider of contract services to the Waterfront Trust. Interestingly, although the Conservation Authority was  supposedly the initiator of the project, the agreement called for the Waterfront Trust to pay a project management fee to HCA, begging the question of whose project this really was. HCA executive Sandy Bell told the Bay Observer that the Lakeland project had been discussed at the Conservation Authority for some years, but added ,”that’s not surprising given the composition of the board” – a reference to the domination of the board by Hamilton Council.

The Lakeland project was originally budgeted at $2.3 Million but  ultimately cost $3.6 Million. The end result was  the Waterfront Trust having to come up with more money as its share. The shortfall was partly met by billing the City  $400,000 from  a recently-completed beach trail project which had come in $400,000 under budget. This was a project that had been  100% funded  by the City and the provincial waterfront agency. The transaction consisted processing an accounting entry that boosted the cost of a beach canal washroom from its actual cost of $258,000 to $681,000. The HWT was subsequently reimbursed at the higher price according to documents provided by the city treasurer and the Conservation Authority. Asked how closely the City monitors its payments to the HWT,  Joseph Splier, Manager of Capital Budgets and Development  for the City, said all payments “included an itemized list of expenditures which were “verified by a city staff person.” When asked for backup details on the washroom, Mr. Spiler declined to share them  stating  the documents “contain  compensatory information directly related to identifiable individuals.” The beach Canal Washroom is a roughly 900 square foot cement block structure faced in decorative stone. It consists of 2 washrooms , a storage area  for equipment and a small picnic shelter. In early documents it was forecast to cost $90,000 which is about $100 per square foot—typical for structures of this type. The actual cost according to documents was $258,000—or $286 per square foot –expensive enough– but after the HWT accounting entry was made, the cost ballooned to $750 per square foot. For comparison purposes the same amount of money that was allocated to the washroom would pay for a 3,000 square foot, 4 bedroom, 3 bathroom estate home in Ancaster or Flamborough.

There was some perplexing paperwork passing between HWT and the Hamilton Conservation Authority related to Lakeland. In December 2006, the Waterfront trust submitted a final invoice for the Lakeland project in the amount of $1.2million. For unknown reasons, the invoice was subsequently reduced by  $740,000 through an apparent verbal agreement, which meant HWTs income for  2006 was overstated by $740,000. Despite the reduction the Conservation Authority filed a claim for a GST refund on the full amount of the invoice resulting in an apparent overpayment.

In a letter to HWT trustees in May, 2007, the Lakeland project was only one of a number of concerns raised by the Waterfront Trust’s former  external  auditors,  Guyatt Wood + Moffatt. After attempting to audit the Trust’s books for 2005; Guyatt issued the following opinion: Due to an absence of adequate internal controls we are unable to satisfy ourselves that all revenues and expenditures of the organization had been recorded, nor were we able to satisfy ourselves that the recorded transactions were proper. Such a statement by an external auditor is known in the accounting profession as an “adverse opinion.” Accounting firms contacted by the Bay Observer said adverse opinions are rare and are serious.  One accountant we contacted pointed out that if a publicly-traded company received an adverse opinion from an auditor they would be immediately de-listed from the stock exchange. Also in the report was a list of observations including:

  • Five different sets of financial statements were presented in attempting to arrive at the HWT’s true financial picture.
  • The auditor questioned the fact that  Chris-Firth-Eagland performed services for the HWT as an independent contractor at the time he was Chair of the Hamilton Conservation Authority, pointing out that during the year in question the Waterfront Trust had received over $2.5 Million  from the Conservation authority for Lakeland.
  • Credit cards being issued to a contractor.
  • Contractors filling out time sheets as an employee would. The auditor suggested that contractors might in fact be deemed employees and if so, CPP and EI payments would be required.
  • Too many employees having access to the safe.

Shortly after this exchange of correspondence the HWT engaged new auditors Deloitte Touche, who produced  a new audit for 2005 and subsequent years.

The Bay Observer has attempted to gain additional information from HWT without success. Some of our questions included:

  • Who were the  contractors who received  more than $8Million,from 2002 to 2010
  • Who were the contractors who received nearly $900,000 for design services for 2002-10.
  • Did the Waterfront Trust call tenders for all of its works? If so, when and where did the advertisements appear? The Lakeland Project was tendered, and the contract was awarded to Kemp Construction. But Kemp either quit or was removed from the project and were subsequently paid $140,000. No one from Kemp would comment on why they left the project. The project was then handed over to M-2 Construction of Oakville who were the second lowest bidder.

In 2008, City Solicitor Peter Barkwell was asked to provide an opinion on whether the Waterfront Trust was obliged to use the same purchasing policies as the City and he concluded that, in the absence of language to the contrary, it did not. He did note, however, that the trust was obliged to provide financial statements to the city, something that up to that point, had not been done which was  also the period during which most of the projects referenced in this article occurred.

Asked to comment on the issues raised in this article, HWT Chair Bob Charters said it would be impossible to pull all of the information together in time for the Bay Observer publishing deadline. He added in an e-mail, “We have continued to diligently improve access to the water’s edge. We currently are involved in two major additions to the Hamilton Waterfront, the addition to Williams and the addition of tenants to the former Discovery Centre. The HWT has made significant enhancements that the public well recognizes in as short a time period as possible. This flexibility to accomplish projects and make change on the waterfront happen quickly is part of our value added contribution that we bring to the process…”

 

Despite the accounting issues, Hamilton City Council continues to strongly support the HWT. At the end of a meeting  with Council  last November where HWT was asked to explain an $800,000 shortfall for the year 2010, Councillors, who got few clear answers  about  how the HWT does business;  nonetheless voiced their confidence in the Waterfront Trust in a standing recorded vote. The Waterfront Trust’s financial report for 2011 is coming due this month. At the meeting last November HWT Chair Charters predicted an operating surplus for 2011.

John Best had enjoyed a lengthy media management career, in television and radio and now print. As Vice President, News at CHCH in Hamilton, John oversaw a significant expansion of the news operation. He founded Independent Satellite News, Canada’s only television news service providing national content to Canadian independent TV stations. John is a frequent political commentator on radio and television, a documentary producer and author of a book and numerous articles on historical and political subjects. John is a past recipient of the New York Festival’s award for writing in the International TV category.

No Comments to: Waterfront trust bookkeeping raises some eyebrows

  1. markalanwhittle

    June 17th, 2012

    Bring on the forensic auditor. No way this should be allowed to continue.

    Reply
  2. moonsmullins

    June 22nd, 2012

    John, your work needs a wider audience. Charters’ explanation amounts to a lot of hot air.  Earlier this year, he went in front of council asking for the extra money having all the votes in his pocket.  Councillors like Whitehead and Clark pretend that they are always asking the tough questions, but when Charters showed up, they turned turtle.  For their part, Whitehead and Clark are bullies and nothing but a lot of wind and noise and no substance.  It is your work and that of the other reporters for the Bay Observer who are the only ones digging up the truth.  The local rag is in bed with the councillors and doesn’t attack them for fear of being shut out.  So such scandals which you uncover go largely unnoticed.  Your work is  a huge service to  the beleagured tax payers who not only have to pay a taj mahal price for a crapper but are getting screwed by a unionized fantom work force who costs us millions in “sick” time.

    Reply
  3. markalanwhittle

    June 22nd, 2012

    It’s pretty hard to believe some of the allegations. Especially what I’m hearing from local Politicians. Even stranger is the daily Spectators ignoring of it. Too funny, that is. Welcome to Hamilton, get used to it.

    Reply

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