Special meeting on Town finances raises almost as many questions as it answers
In front of some 200 residents in the E.L. Crossley high school cafeteria on Wednesday night, a pair of auditors from the accounting firm KPMG presented the results of two financial reviews of the Town, and Town Treasurer Teresa Quinlin presented a more general report on the state of Pelham’s finances.
While Mayor Dave Augustyn said that he was pleased with the information provided, former Councillor Marvin Junkin’s account of a closed-door September 5 meeting with KPMG was markedly different from the public presentation the firm made on Wednesday. Councillor Peter Papp acknowledged that the presentation was different in tone from what Council previously heard.
“I think that they covered a lot of ground,” said Papp. “They may not have answered all the questions, and if there are some areas that need to be re-stated, we’ll do that.”
As Papp was leaving the cafeteria, a resident confronted him and said, “All you guys on Council are saying that Marvin Junkin’s a big fat liar.”
“No, we’re not,” responded Papp. “He’s not a liar. He got the figures right. It would have been nice if he had stayed with us to get through it all. He’s not a liar…. I have nothing against Marvin.”
“I like what I do,” Papp told the woman. “Sometimes things don’t go the way they should.”
“Then change it,” the woman said.
“We are,” replied Papp. “I can’t say too much, but we are. There are things —that I can’t say—that have to be changed. That’s absolutely correct.”
Papp said also that when the presentation was over, he said to a colleague on Council, “‘If you watch this, you think, ‘Maybe things aren’t so bad. Maybe things were done right.’” Then, apparently referring to the closed-door presentation Council received on September 5, Papp said, “That’s not what we heard.”
Junkin echoed Papp’s words.
He recalled that on September 5, “The message was, ‘You’re [in deep trouble].’ The information the Treasurer presented tonight was mostly the same, but tonight it was painted in a rosy picture. On September 5th the Treasurer said that we wouldn’t have been approved for the community centre if Infrastructure Ontario had known about the empty reserves and the other debt that wasn’t on the books.”
Junkin said that it wasn’t made clear how long the $17 million in approved future debt—which KPMG said on Wednesday night had been updated to $9 million—had been floating around.
“The people on Council are all basically good people,” Junkin added. “I’ve never said anything personal about them. They’re just being led down a path that everyone on the outside can see is not a good path. I hope when they have the time to reflect they’ll see this.”
KPMG’s presentation covered the Town’s 3.3 acre land purchase from, and development credit scheme with, the Allen Group, a GTA-based developer doing business as “Fonthill Gardens.” The report included a complex series of documents and land transfers. The firm concluded that the parkland dedication agreement was not subject to the development charges act and thus could not contravene it. KPMG confirmed that the Town had negotiated a transaction with Allen Group that saw the land paid for through “municipal credits” rather than cash.
“These credits did not constitute debt because the Allen Group could not compel the Town to pay out the credits,” said KPMG’s Karen Grogan.
Furthermore, KPMG learned the Allen Group had subsequently sold some of these credits at a discount prior to the Town taking actual ownership of the land from the developer.
Although the scheme had initially been approved by the Town, it was later deemed an “administrative burden” and the Town bought back the remaining credits from Allen Group in the summer of 2016.
KPMG reported that then-Treasurer Cari Pupo told Council that the Town would not need to borrow to make this $3 million dollar purchase. No explanation was given during the presentation as to which funds were ultimately used for the buy-back.
(According to Junkin, Council was informed that they could approve the buy-back of the credits, but he says that they weren’t told where the money was coming from.)
Unusually, KPMG did not provide an “assessment of deficiencies” or management letter that typically accompanies an audit, in which the firm would have interpreted the results and provided an opinion of the Town’s actions.
KPMG also revealed elements of the presentation it made to Council several weeks ago, in that closed-door September 5 meeting, including its findings that cash from the Town’s reserve funds had been spent on capital projects.
Grogan said that while there is no requirement for the Town to cover the reserves with cash or liquid assets, “We do understand that there should have been cash on hand.”
Town Treasurer Teresa Quinlin confirmed that the Town has nearly emptied its reserve funds, saying that this cash had been spent on capital projects.
While, like Grogan, she said that there was no requirement to have the reserve cash on hand, the first priority of her “Financial Strategic Direction” is “replenishing the cash balances.”
When asked if Council had been informed of the use of reserves for capital projects, Councillor Papp said that Council had received reports and that it had been told that “there would be lean years.”
However, Papp told the Voice, “There were some instances where the reserves were depleted without the proper approval.”
In response to allegations that the Town had an unreported debt of $17 million, KPMG’s Grogan said that this figure was not unreported debt, but rather debt approved by Council but not yet acquired.
“We understand that this has been updated to $9.9 million,” said Grogan, saying that the figure had changed since the summer.
(After the presentation on Wednesday night, Mayor Augustyn asserted that the number was never $17 million, and that the auditors had been confused because $17 million and $9 million “happened to be on the same page.” Editor’s note: In a Sunday night email to the Voice, after this story was posted, the Mayor said he didn’t know how $17 million became $9 million, and that he may have misunderstood our reporter’s clearly phrased questions. “I did not mean to say or imply that KPMG were confused about anything,” wrote the Mayor.)
Grogan displayed a chart depicting the Town’s levels of financial challenge, and said that the Town ranked “moderate” on five of the seven indicators and “high” on two.
“Two or more indicators showing moderate to high would prompt follow-up contact [from the provincial government] to remediate,” said Grogan.
Teresa Quinlin confirmed that the Town has “requested” a visit in January from a municipal financial advisor from the province.
In an interview on November 6, Mayor Augustyn stated unequivocally to the Voice that the reserve fund figures on the Town’s financial statements were accurate to the best of his knowledge. During their Wednesday presentation, KPMG confirmed that on September 5, Council was told about the Town’s empty reserve funds.
Wednesday night, Augustyn said, “We’re a growing community, and we’ve invested in the groundwork of it. That’s where the money is—invested in the community, and that payment will come back to the Town as a result.”
Augustyn repeatedly refused to comment on KPMG’s September 5 presentation to Council, and blamed the Voice for printing “confused and garbled things that got this huge uproar in the community, which is unfortunate.”
“Now the community knows that the finances of the Town are in good shape, and in good hands,” concluded the Mayor.
Updated on 3 Nov 17 to reflect Mayor Augustyn’s assertion that he did not mean to state that KPMG was confused.