Hiding the Costs

February 10, 2016 – Yesterday, I sent a short report via e-mail to the Mayor and Councillors in anticipation of tomorrow’s planned meeting between the councils of Chatsworth and Georgian Bluffs that was scheduled back in December. No notice of the meeting has been posted, so it is possible that the meeting won’t go ahead. Even so, I thought it worthwhile to take the time to prepare the report.

I encourage readers to read the whole document (which is only 3 pages), but here’s a “Coles Notes” version:

The first report (June 2015) by the engineering consulting firm hired by the Chatsworth Council to review the design and operation of the Bio-Digester made 3 recommendations:

  • continue to operate the Bio-Digester with some improvements to reduce the losses;
  • attempt to lease it to a third party; or
  • put it in mothballs.

The second consultant’s report (January 2016) threw cold water on the story that we have heard to the effect that the Bio-Digester is the only safe way to dispose of septage. Here is a summary of the options that were reviewed:

  • The most common septic disposal option exercised by ratepayers in both townships (as well as in most of rural Ontario) is spreading on MOE-approved fields;
  • The report says that the risk is “very low” that there will not be suitable approved land to continue to dispose of septage in this manner;
  • Since spreading on approved fields is the least expensive method of disposal, it is therefore a viable option for the indefinite future and the base case for comparisons;
  • There are some alternatives for disposal that appear to be around 30% more expensive than land application, but these all require major capital expenditures for removing most of the water in septage before treatment;
  • There are other alternatives up to about 40% more expensive than land application that do not require major capital expenditures; and
  • In theory, the Bio-Digester would be an option that is 53% more expensive than land application, but this doesn’t take into account the necessary additional capital and operating costs and resulting higher tipping fees required for “break-even” operation (annual losses have averaged about $340,000 since the first year of operation which was 2011).

The report contains a year-by-year summary of costs (including amortization) and revenues out of the above-noted 2015 consultant’s report. These are the “real” revenues (tipping fees plus value of electricity produced) which means that the subsidies provided by the townships to keep the lights on, which have been recorded as “revenues” in the past, have been stripped out.

From 2011 (the first year of operation) through 2015, the annual losses to both townships combined were: $243,614; $432,352; $386,627; $295,519; and $316,500; for a total of $1,674,612 over the 5 years. The figure for 2015 is based on the proposed budget (that was never approved by the Board) because actual figures aren’t available yet.

The costs to Chatsworth taxpayers have been half of this amount, or roughly $837,000 in exchange for which the contents of an estimated 199 septic tanks from Chatsworth have been treated at the Bio-Digester. You read that right: 199 tanks over the entire five year period at an average cost to Chatsworth taxpayers of a little more than $4,200.

My report didn’t calculate the average cost for each Georgian Bluffs septic tank. The figure would be less than $4,200 per tank for two reasons. First, their 50% of the total costs also paid for half of the transportation and treatment of grey water from the Sunset Strip (you know who pays for the other half). Second, there are about 50% more septic tanks in Georgian Bluffs than in Chatsworth.

 

October 19, 2015 – Here is the email I sent today:

Dear Mayor Pringle, Deputy Mayor Mackey, Councillor Gamble, Councillor Greig and Councillor Thompson:

When the Agenda package for the October 7, 2015 meeting was posted, Agenda item 9.1 had to do with Budget Assumptions (Report FIN 12-15). Although there is nothing in this report having to do with an RFP for an Auditor, I see in the Minutes of the same meeting that a decision was taken to put out an RFP for an auditor for another 3 years.

My purpose in sending this email is to point out that the existing Terms of Reference for the annual audit obviously have a serious deficiency in the general area of “presentation of clear results.” Taxpayers should be able to rely on the annual Audit Report which must be presented in a way that is crystal clear; this is absolutely not the case at present. The process of preparing a Request for Proposals, and the review of proposals eventually received present the Council with opportunities to correct this deficiency.

By way of background, here is what I wrote on my blog after the presentation of the Draft 2014 Audit Report to Council by representatives of BDO (the present auditor).

May 12, 2015: Actual costs for 2014

The actual costs for the Bio-Digester can be found in the Budget documents provided for the May 6, 2015 Council meeting. In 2014, the cost to Chatsworth taxpayers was $350,055.33 (you can see the figure yourself if you check out the second last page of Financial Report FIN 05-15 under the Council Meetings tab Agenda item 9.1).

Don’t bother to look for this figure in the Draft Audit report that was presented by BDO at the same meeting (the first topic covered under Agenda item 7). There, Note 13 to the Consolidated Financial Statements shows the Bio-Digester with an annual surplus of $123,111, a difference of almost half a million dollars from the actual number!

The reason for this huge difference is that money collected from taxpayers and then trucked over to the Bio-Digester in order to keep it operating is counted as “revenue.” If each township would have thrown another $250,000 of taxpayer money into the trucks, then the books would show the Bio-Digester with a “surplus” of $623,111!

At the Council meeting on May 6, I asked the representative of BDO why they didn’t make any effort to ensure that their reports provided a clear, straightforward picture that the average taxpayer could read, understand and rely upon. In essence, the answer was that they don’t care as long as it is within municipal accounting “rules;” in other words, BDO is quite happy to cooperate in hiding the actual costs from taxpayers. This leads to obvious questions such as: What value do taxpayers receive from an audit such as this? What else has the auditor agreed to bury so it’s not clear?

Providing clear and straightforward information to taxpayers should be Goal No. 1 of any audit and the resulting report. You may recall that, at the October 2, 2014 all-candidates meeting in Williamsford, Mr. Henry Feenstra stood to ask one of the very first questions which was: “How much is the Bio-Digester costing?” To my way of thinking, the fact that Mr. Feenstra had to ask this question was an indictment of the methods by which costs were then reported, a problem that BDO either did not understand or chose to overlook.

Since it began operation in 2011, the Bio-Digester has had a net operating loss for Chatsworth taxpayers of around $1 million (this does not include the capital of another million or so). Regrettably, there is no way that anyone could come up with this actual cost to taxpayers from figures in the the Audit Reports for 2011, 2012, 2013 2014 which provide the following figures: 2011 – “surplus” of $209,574; 2012 – “deficit” of $168,392; 2013 – “deficit” of $86,640; and2014 – “surplus” of $123,111. These net out to a “surplus” of $77,644 over that period.

I trust that you will take steps to include explicit instructions that the auditor present clear results, both in the RFP and in any future contracts with auditors.

Yours truly,
Trevor Falk

May 12, 2015: Actual costs for 2014

The actual costs for the Bio-Digester can be found in the Budget documents provided for the May 6, 2015 Council meeting. In 2014, the cost to Chatsworth taxpayers was $350,055.33 (you can see the figure yourself if you check out the second last page of Financial Report FIN 05-15 under the Council Meetings tab (Agenda item 9.1).

Don’t bother to look for this figure in the Draft Audit report that was presented by BDO at the same meeting (the first topic covered under Agenda item 7). There, Note 13 to the Consolidated Financial Statements shows the Bio-Digester with an annual surplus of $123,111, a difference of almost half a million dollars from the actual number!

The reason for this huge difference is that money collected from taxpayers and then trucked over to the Bio-Digester in order to keep it operating is counted as “revenue.” If each township would have thrown another $250,000 of taxpayer money into the trucks, then the books would show the Bio-Digester with a “surplus” of $623,111!

At the Council meeting on May 6, I asked the representative of BDO why they didn’t make any effort to ensure that their reports provided a clear, straightforward picture that the average taxpayer could read, understand and rely upon. In essence, the answer was that they don’t care as long as it is within municipal accounting “rules;” in other words, BDO is quite happy to cooperate in hiding the actual costs from taxpayers. This leads to obvious questions such as: What value do taxpayers receive from an audit such as this? What else has the auditor agreed to bury so it’s not clear?

Sept 22, 2014: Actual Costs for 2013

Chatsworth’s 2013 Financial Information Report was filed with the province on September 17 (you can see that date here), but it is not yet available on the Chatsworth website. If you download a copy from the provincial website by clicking here, you will see on line 0898 on Schedule 40 (Consolidated Statement of Operations: Expenses) that the 2013 bio-digester costs after adjustments amounted to $307,737.

This is much higher than my estimate of $220,000 (I provided this figure towards the bottom of my first post on Sept 18, below). I think the difference is largely due to capital, depreciation and interest that I didn’t include, but at least our Leaders can’t accuse me of exaggerating to make it appear worse than it is!

This brings the average cost of the bio-digester to Chatsworth for 2011 through 2013 to a bit more than $331,000 per year, and the total costs over these three years to $994,000! This, instead of the “profit” our Leaders promised which by the end of 2013 should add up to about $480,000.

To learn what services Chatsworth residents and taxpayers have received over these 3 years in return for the million dollars (in addition to the million originally borrowed in 2010 to build the bio-digester), please navigate to the Operations tab.

Older Information

The following information was posted on Sept 18, 2014; a few revisions were made on Sept 21.

The original plan was that the total cost of operating the bio-digester would be $212,000 per year. This would be the cost to process every drop of septage produced in both townships. The annual revenue would be about $535,000 for a profit of more than $320,000. Chatsworth would net about $160,000 per year. These figures are from Schedule “C” in the Agreement.

The first place I thought of looking to find actual financial results was in Audit Reports. The fact that Chatsworth didn’t make Audit Reports available in spite of the provisions of Article 295 of the Municipal Act presented an initial obstacle, but that was fixed after my request. I didn’t pursue the matter of why nobody in Chatsworth seemed to know about Article 295.

The 2013 Chatsworth Audit Report is here. However, there is no separate “bio-digester” line on the “Consolidated Statement of Operations and Accumulated Surplus” (page 8 of the pdf file, page 6 of the Audit Report). Evidently, the figures for the bio-digester are buried among the costs for garbage and recycling pickups, and landfill sites.

Digging deeper, Note 13 of the Audit Report shows Bio-Digester “Revenue” for 2013 at about $482,000 and “Expenses” at about $568,000 for a “Deficit” of $86,000 (these figures are for both townships combined). To a casual reader this might look a bit worrying but not too bad. But …

But … but … only the handful of taxpayers who attend meetings of the Joint Management Board know that “Revenue” includes money requisitioned from the two townships to keep the bio-digester operating. Calling this “Revenue” is preposterous, of course, but it does a terrific job of hiding the truth from anybody who might take audit figures at face value, doesn’t it?

With “Revenue” flowing in like this, another requisition for $50,000 from each township would have resulted in the bio-digester making a “profit” of about $14,000 in 2013. Better yet, if the Joint Management Board had requisitioned an extra $250,000 from each township, then presumably the Audit Report would have shown a “profit” of half a million dollars!

Since tipping fees and payments from Hydro One (these are the real revenues) were around $150,000 in 2013, it is possible to use figures in the Audit Report to conclude that the net cost to Chatsworth taxpayers for the Bio-Digester was about $220,000 in 2013.

Instead of trying to make estimates based on the Audit Report, costs for previous years can be found in the compulsory Provincial Financial Information Returns filed by Chatsworth which may be found here. Chatsworth is a prime example of why the Province has legislation making it compulsory to make certain financial information available to the public.

These reports show that the bio-digester costs for Chatsworth were $381,196 in 2011 and $305,094 in 2012, so the estimate of $220,000 for 2013 might be a bit low. However, if this is the correct figure, then the average annual cost to Chatsworth over the first three years will be about $302,000.

The deadline for filing these forms is September 30, 2014. When the figure for 2013 is posted, I will update this page.

There are other aspects of the costs that will be discussed here, especially the answer to this question: What did Chatsworth taxpayers get for $300,000 per year for 2011 – 2013?

Please stay tuned for the answers.

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