Pool costs audit sought
KL’s new CAO requesting forensic audiit of pool construction project
KIRKLAND LAKE – Kirkland Lake Chief Administrative Officer Peter Avgoustis is proposing the town spend up to $50,000 for an independent forensic audit relating to the costs of the new pool.
Avgoustis will make a recommendation at Tuesday night’s council meeting that “council serve notice to the public that the Chief Administrative Officer will be requesting up to $50,000 to order an independent forensic audit of all the funding and financial transactions related to the aquatic centre which will be made as part of the 2018 budget request to commence 30 days after 2018 budget has been approved.”
In his report, Avgoustis will also recommend “that council approve an increase of $1 million from $12 million to $13 million to the construction operating line of credit for the Aquatic Centre.”
He will also recommend that council amend the current agreement with Salterpilon Architecture and increase by $765,000 the contract amount from $735,987.50 to up to $1,500,000 +HST.
He will also recommend that council serve notice to the public that the Treasurer will be requesting up to $150,000 in additional operating funds to operate the new aquatic centre, which will be made as part of the 2018 budget request. That council serve notice to the public that the Treasurer will be requesting up to $30,000 in additional operating funds as a contingency to decommission the old pool, which will be made as part of the 2018 budget request.”
In his report, Avgoustis writes “After nine years of discussion, debates and decisions, the Town of Kirkland Lake has less than five months remaining to complete and commission its new aquatic centre. For both financial prudency and public interest transparency the CAO has disclosed all ‘known’ operating and capital forecasted costs associated with the aquatic centre at this time based on information available as of the date of this report.
“At this point in time, staff have identified two additional construction-related costs associated with the aquatic centre. The first is an unbudgeted amount for the interest to be paid on the construction line of credit.
“Preliminary forecasts estimate this amount to be anywhere between $100,000-$200,000 of payable interest owed from the initial construction loan until debenture date. This number is expected to fluctuate up or down, based on the daily prime lending rate and will be finalized after the loan has been paid off by the issuance of the debenture. From the information made available to the CAO, there is no explanation as to how or why this was not previously identified, but in the interest of transparency is now being reported out.
“The second item is an unexpected construction issue recently identified during the 7 September 2017 bi-weekly construction meeting, related to high voltage service requirement completed during an electrical safety authority inspection. Technical details of this item, estimated cost and explanation of why this is not included in the original guaranteed maximum price contract, are included in the attached letters from Salterpilon Architects and Montieth Building Group. The estimated cost is approximately $190,000 plus HST.
“Both of these identified costs are in addition to what has been previously reported and have placed all available project contingencies in a deficit situation resulting in financially impacting the property tax levy.
In order to settle up all known and incurred claims and costs, allow for an additional buffer for any other additional unknown, unexpected or unbudgeted costs that may still be yet to come, and relieve pressure from the property tax levy, and the CAO is requesting an increase of $1 million to the recently passed borrowing limit construction line of credit from $12 million to $13 million.
“With the information available today, it is hoped, that this should allow for the timely completion of the project, and as of right now, this increase will only be utilized to pay the two items as identified above thus relieving pressure from the property tax levy.
“Any additional unknown, unexpected or unbudgeted costs that do arise between now and commissioning of the new facility will be publicly reported.”
The CAO said the Salterpilon Architecture contract is another item that is required to be accurately report out on to reflect current accrued values and payments made. The original Jan. 12 2016 by-law set the contract price at $735,987.50 + HST which was based on a $9.6M pool construction estimate. Since then the pool was approved for a higher construction cost and because the Salterpilon Architecture contract is a percentage of the construction cost, the bylaw is required to be amended to adjust the amount.
“The current amount owed to date is $1,154,660 + HST, an increase of approximately $420,000 from the 12 January 2016 bylaw.
“However, this amount does not include the additional percentage which may be added by the hydro voltage costsidentified above as staff remains in continual discussions with Salterpilon Architecture at the writing of this report.
“As previously mentioned, if the construction costs go up, so will this amount with the final amount not known until the completion of the project. With the information available today and with a few more months to complete the project the wording of the by-law is being requested to be amended to “up to $1,500,000” which will provide an upper ceiling on the contract, and all for some contingency.
“To square up what is currently owed, and provide some additional contingency, this request is for an extra $765,000 from the 12 January 2016 by-law and the final price will be reported out at the completion of the project. All additional costs will be paid out of the contingency from the requested up to $13 million borrowing by-law.
“In the interest of complete transparency,” the CAO said he has also disclosed all `known’ operating forecasted projections associated with the aquatic centre again, based on information available as of the date of this report. This includes the following three items:
1.Additional funding required associated with new facility is forecasted to be between $100,000 -$150,000 annually, commencing in 2018. This is an operating impact, and will increase pressure on the property tax levy.
2.Unknown costs associated with decommissioning of the old pool are forecasted to be $30,000. This is strictly a contingency amount based on hypothetical scenarios that may or may not occur when the water is drained from the old pool. It will only be utilized if required, however, for proper accounting prudency, must be identified and allocated in the budget. This is also an operating impact, and will increase pressure on the property tax levy.
3. Additional funding required for the principle and interest payments related to the 30-year debenture of the final construction line of credit. With the information available today, including the two items identified above for the construction of the facility, the borrowing amount currently stands at $12,400,000 which is estimated at today’s interest rates to be estimated around $680,130 in annual payments commencing in 2019, and for 29 years thereafter.
“This is an operating impact and will increase pressure on the property tax levy as of 2019.”
Avgoustis said these three items will need to be included, and properly calculated as part of future year budget deliberations but “have been identified here for transparency purposes.”
The CAO said a forensic audit is needed because he “cannot accurately provide answers to certain questions at this time, and will be required to defer investigating them to a professional audit.
“This request will be made as part of the 2018 budget and will impact the property tax levyand if approved will commence after the project has been completed.”