The Black Rod

The origin of the Usher of the Black Rod goes back to early fourteenth century England . Today, with no royal duties to perform, the Usher knocks on the doors of the House of Commons with the Black Rod at the start of Parliament to summon the members. The rod is a symbol for the authority of debate in the upper house. We of The Black Rod have adopted the symbol to knock some sense and the right questions into the heads of Legislators, pundits, and other opinion makers.

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Tuesday, May 16, 2006

O'Learygate losses mount, trustees spell loss p-r-o-f-i-t

And the winner of the Pinocchio nose-stretcher award is.....The Seven Oaks School Division, aided and abetted by Education Minister Peter Bjornson.

The Seven Oaks School Division has issued another financial statement, audited no less, regarding its less-than-legal Swinford Park land development.

And guess what? It's less credible than the first one.

The Black Rod crunched the numbers and discovered that Seven Oaks S.D.:

*has lost more than $300,000-- and counting--- on its ill-fated land deal just as REPORTED IN THE BLACK ROD 11 MONTHS AGO.

* has spent $819,000 on a school that's not being built

* is buying land for a new high school despite having bought land for a new high school five years ago, then selling most of it off to land developers -- and claiming that what was left was too small for a high school.

Oh, and, of course, Seven Oaks says it's made a profit on Swinford Park Parts One through Four.

For the uninitiated, this saga is known as
O'Learygate, so named after Brian O'Leary, the former Superintendent of the Seven Oaks School Division (and former NDP campaign manager) under whose watch it all started.

The Seven Oaks board of trustees has issued A Report to The Community in which they say:


"In 2006, the division wrapped up the sale of surplus property through development of 70 residential lots adjacent to the new Riverbend School site. Full audited statements of the development activity are available at www.7oaks.org and show that the Division made a profit of about $450,000."

What could we do but go to the site, which turns out to be the school division's homepage.

The audit was a bit harder to find. Once on the page, first click on "Community Information", then on "Financial."
You will find two financial reports. One is on the Swinford Park development and the other is on the "Future School Site."

See, that's how they fudge the books this time. (Nobody has ever explained how they overestimated revenues by almost a million dollars in their first financial accounting of Swinford Park.
But that's another story.)

By shifting expenses from Swinford to the 'New School Site', they manage to show a profit to the uninformed reader, again.

We can't explain how they came up with $450,000 since that figure never shows up anywhere in the financial statement. The bottom line in the audited statement is a surplus of $512,118. There are some future costs still not counted and maybe they've deducted these.

Nevertheless, any surplus is fictional.

O'Learygate starts with the purchase of 15 acres of land in 2001 for a new high school. The School Division bought another 7.5 acres in 2002.

After the Public Schools Finance Board rejected a proposal for a new high school to replace West Kildonan Collegiate, Seven Oaks hived off almost 12 acres for a land development, something forbidden by the Public Schools Act.

When discovered, they claimed they had the approval of the PSFB all along and
the cover-up went into full gear.

The surplus land became 71 finished lots (not 70), which were sold for $2.4 million. The problem was that total expenses, which the school division divides between the residential development ($1.9 million) and the new school site ($819,810), added up to $2.7 million.

That's a loss of $300,000.

But keep counting, because the financial report says there are still future costs to be added. There's $28,000 for trees, $40,000 for a nature pond, and $10,000 for professional services (engineering, planning, drawings, etc.)

When all the adjustments are made, it looks like the loss on the Swinford Park development will be tickling $378,000.

Seven Oaks, of course, claims $819,000 was spent on a site for a new middle school, and has an audited financial statement to prove it.

That charade falls apart when you know that the Province has told other school divisions they won't get any money for new schools, as long as there are empty seats in old ones.

And once high school students leave West K. there will be a lot of empty seats in the old building.

So a new middle school is years and year away.

Until then, the $819,000 has bought an empty lot.

But. but, but...the auditors agree with Seven Oaks, don't they?

Uhh. Sort of, but not without plenty of provisos such as:

* "Since many of the costs incurred were common to both the future school site and residential development and not specifically allocated to either project segment by the respective service providers, the preparation of the financial information requires the use of estimates and assumptions which have been made using careful judgement.

The Division's critical accounting estimate in this financial information is the cost allocation between the future school site and the residential development. A change in the allocation basis... would directly affect both the Division's calculation of the residential development's excess of revenues over expenditures, and the cost of the land recorded by the Division for the future school site
."
And...

* "The preparation of financial information requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial information, and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates."
And...

* "Management of the Division reviewed all of the expenditures that related to the residential development and to the future school site, and were required to determine an allocation for certain costs that related to both the residential development and the future school site.

Management requested that the project consultant, a third party consulting firm, prepare a report to the Division specifying an appropriate basis for cost allocation given the nature of the expenditures incurred."

Would that be Lombard North Group?
The Lombard North Group?
The Lombard North Group that's stickhandling River Ridge, the new residential development east of Main Street, whose main selling point is---wait for it---a new high school being built by Seven Oaks School Division?
The same new high school that was supposed to be built in Swinford Park?

Hmmm.

O'Learygate is getting curiouser and curiouser. And this time, the
Education Minister can't say he doesn't know what's going on.

Maybe Bjornson can start by explaining why he told the Legislature the audit would be independant when it was nothing of the sort.

We are not casting aspersions on KPMG. They say up front they are only able to report based on numbers provided to them.

But the auditors were entirely dependant on "facts" and "estimates" and "assumptions" provided by the same people being investigated.

Haven't we seen this before under Bjornson's watch? But then again bogus investigations are a specialty of this Minister.

When a citizen first blew the whistle on the illegal Riverbend land development, Bjornson's reaction was to have the PSFB not ask Seven Oaks any actual questions, and then prepare a reply to the citizen's letter about the project they were knee-deep in from the beginning.

The letter, unsurprisingly, said everything was on the up and up.


" If The Public Schools Finance Board (PSFB) approves a new school on that property, the school division is entitled to be reimbursed its acquisition cost at fair market value... The matter of community development appears to be a local issue and as such, I would encourage you to deal directly with the school division on this issue."

Well, PSFB totally ignored the law, let alone "standard practices and procedures" or "requirements for due diligence", and prepared that "incorrect and inappropriate" letter for Bjornson.

The new legislation to restructure that body and entrench 3 deputy ministers to monitor PSFB, does nothing to hold the people who allowed the illegal development to be held accountable.

As we said last year - "Seven Oaks got not one, but two new schools (a brand new Middle Years school to replace the aging and soon to be abandoned West Kildonan Collegiate, and a new high school in, guess what, another new subdivision) when they weren't on the Finance Board's capital project list.


So all the other school divisions got cheated because they played by the rules."

Now as for dealing directly with the school division, Bjornson's suggestion may yet blow up in their face.

On May 12, the Free Press reported that the city councillor for the area encompassing the SOSD land developments, Mike O' Shaughnessy, was facing a challenge in the upcoming civic election.

The story mentioned a couple of interesting facts.

The challenger managed a federal NDP campaign in the past, will rely on the party machinery to get out the vote, and lives outside the ward boundaries.

And oh yeah, the challenger is a Seven Oaks School Division Trustee, who says his campaign to oust O'Shaughnessy isn't personal but that "he's been there for too long."

Conspicuously absent from Bartley Kives' story was any mention of O'Learygate or the trustee's role in the fiasco.

But on the campaign trail, voters at a public town hall may raise a lot of questions for trustee Ross Eadie to answer.

Such as

- the vote to suspend regular business and pass a bylaw to borrow money, seemingly because the illegal development had tied up almost a million dollars earmarked for actually educating their children.

- Or what the trustee knew about who was responsible for the misleading financial statement in October, 2004, that overstated revenues from lot sales by almost one million dollars.

- Or why at least 5 of the lots were sold for a buck, instead of the going rate of $150-200,000, and to whom.

If taxpayers are angry at being duped again, they could march down to the SOSD offices and take a number.

However keep in mind, that -378,000 is already taken.

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