Dropping The Ball: MFP Revisited

I kept hearing last night at Council that "City Hall dropped the ball" in relation to the failure by the City to send out a tax assessment to WESNET for a 5 year period. An advisory committee which included City financial officials apparently did not object to monies set aside for taxes being used to pay down their mortgage over that period. The result was a $400,000+ waiver of taxes.

Do you remember the remarks Mayor Francis made in relation to the MFP case:

• Francis said the city's demand that "any settlement cannot include confidentiality" should assure the public, as should the "significant amount of changes that have taken place at city hall to avoid this from happening again."
• While policies and procedures may have been in place, but ignored, at the time of the original MFP contract signing, Francis said "extra due diligence" should now prevent any similar leasing fiasco.

Accordingly, I was interested last night in listening to Council‘s deliberations on forgiving back taxes to WENSNET. Onorio Colucci, the Acting City Treasurer confirmed what everyone knows. Even with the best intentions in the world and with financial controls in place, not every financial disaster can be averted. (Just check on the blogs relating to Agenda Item #5 to know that is true!). One cannot criticize him for his honesty. One can only do the best that one can do.

I was reminded of some reading that I had undertaken one nice, warm weekend earlier in the summer. I was interested in learning more about the MFP fiasco and so read the KPMG forensic accounting report. That was an eye opener.

So it got me thinking. We have a settlement with MFP now and according to the Star, it will cost taxpayers an extra $68 million. Instead of receiving the "favourable" rates we thought we were getting, we are now paying "conventional" ones. We can have a long debate over about $400,000 in back taxes but I don’t recall hearing how we can recover some of that $68 million!

As a litigation lawyer, and as one who has handled professional negligence cases, there are some obvious areas that should be investigated and pursued depending on the facts:

1. In a Court of Appeal decision, that Court forced the City to release the KPMG Forensic Accounting Report since the Court decided that the City lost its "legal privilege" in relation to that report. The release of the KPMG Report caused major problems in resolving the lawsuit since the other side was given the City's facts on a silver platter. MFP became aware of all of the City's short-comings without doing any work! No wonder Windsor had to settle!
   
   How did that report really get out? The Mayor has not yet told us. Why not?
   
   In the Court of Appeal, the following was stated: "On his cross-examination, Gregg testified that on many occasions the appellants' solicitors had directed him and others about the importance of maintaining confidentiality and that he did not believe that he had made the decision to send the report to Stewart on his own. Although he could not recall the details, the decision to send the report to Stewart "would have been made...with other members of the County team or other members of legal counsel."
   
   If the Report was given out and the proper steps to maintain privilege were not taken, then why isn’t the City considering taking action against those parties responsible for the loss to recover some of the $68 million . Clearly, the release of the Report weakened the City’s legal position dramatically.
   
   
2. In reading the KPMG Report, it seemed that financial matters at least in respect to leasing in the City were out of control with few financial procedures in place, or if there were controls, no one was bothering with them. The Mayor’s comment above confirms what I read.
   
   I would suggest that you read the KPMG Report in detail to see what I mean. (I think it will cost you $25 dollars to buy the Report or you will have to sit at City Hall to read it at no charge since the City did not put the Report on its website so citizens could read it for free at home in their leisure. "Open and transparent Government but at a price!)
   
   Did the City retain outside auditors to look over its financial statements? I read in one of the City’s Financial Reports the following statement: "As required by the Municipal Act, the Corporation retains a licensed accounting firm to express an independent opinion on management’s financial statements."
   
   Who were the auditors? What was their job? Was it part of their function to review the procedures and controls in place to see if there were any, if they were adequate and if they were being followed? Did they do so and to whom did they report? If not, why not?
   
   Did the auditors ever make a review of the City’s leases and the MFP deals in particular because of the size of the deals? Did they do so and to whom did they report? If not, why not?

I am sure that the Mayor and Councillors assisted by outside Counsel are in the best position to answer these questions and deal with them.

If there were negligent parties, then why aren’t they paying for some of the excess $68 million it cost the City to settle the case? Otherwise, the City loses out as our taxes will have to be increased to cover the extra costs for the settlement.

But then again, it's only taxpayer money. Why ask the questions and keep the file open any longer, right. I wonder if a certain Councillor can tell us how much that is per household per year!