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.

Location: Winnipeg, Manitoba, Canada

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Friday, September 21, 2007

O'Learygate: As Simple as One-Two-Three

O'Learygate---the scandal that keeps on giving.

A brief recap:

- The Seven Oaks School Division wanted a new high school to replace West Kildonan Collegiate.
- But the province refused to approve new schools anywhere when students could still be accomodated in existing schools.
- Undaunted, the Seven Oaks School Division launched a scheme to get a new high school.
- They found some land they could buy cheap, so they bought twice as much as they needed for a school, with a plan to build a subdivision with the extra land, and use the profits to cover the cost of the school site.
- They ran into two problems:

They lost their shirts on the subdivision, and their scheme was exposed by a taxpayer who began asking questions about the legality of a school division using tax money to become a land developer.

To disguise their humiliating financial loss, they come up with a quick explanation:
The land they bought for a school was an asset.
When they sell it, they will cover their losses and show a tidy profit.

The land, they said, would be sold for $819,810, precisely what they claim they spent on it.

That's not the appraised value.
That's not the market value.
That's the value the Seven Oaks School Division set itself.
What gives an asset like land its value? Location? Mineral Rights?

Since the Seven Oaks School Division isn't mining for gold, there's only one factor behind its valuation of the school site--use.

If the land is used for a new school the school division will be repaid what they spent on the land.

For the last five years the land has been used to raise mosquitoes in the spring and weeds all summer.

The Seven Oaks School Division says that as long as they say the land will be used for a school, they can claim the full value of the land as a school site and that value is anything they say it is.

In effect, they've given themselves an IOU--when we sell the land for a school we'll make some money so we'll claim the money now as if we've already received it.

Loss becomes profit. It's the magic of Enron economics.

And like Enron they even have fully audited financial statements to prove their point.

The only problem is that their financial statements don't explain that the loss is in real money, like the money in your pocket, or your wallet, or under your mattress, or in your savings account. Meanwhile the "profit" is in imaginary money, like an IOU, the 649 ticket in your glove compartment, or sitting in your lucky VLT.

Manitoba's Auditor General Carol Bellringer bought into this hook-line-and-sinker.

In her special audit of O'Learygate she concludes that imaginary money is just as good as real money and, using generally accepted accounting principles, the Seven Oaks School Division can claim a "net in-come" even though none of the imaginary money has acutally come in and they don't actually have a binding agreement from the province to buy the land for $819,810.

But why quibble over facts.

The big defect in their house-of-cards explanation is that the land is worth exactly $819,810 to only one buyer. The Seven Oaks School Division.

While Seven Oaks can claim, if a new school is ever approved for the site, that the land will really be sold to the province, they're only playing three-card monte with the truth.

At the request of the Seven Oaks School Division the province's Public Schools Finance Board will buy the land on behalf of the Seven Oaks School Division from the Seven Oaks School Division at a price set by the Seven Oaks School Division.

Does a bailout have a smell? If it does, it smells just like this.

O'Learygate is a simple as one-two-three.

ONE project that lost $307,000 (and counting.)
TWO sets of books to disguise the loss.
And today, we add, THREE official, audited, declarations of revenue from their Swinford Park land development.
Three-- all different and yet all equally valid.
Go figure.

In 2003, the Seven Oaks School Division declared in its June 30, 2003 financial statement that "The Division has now sold all of the building lots in Phase 1 for total proceeds of $1,840,820..."

In 2004, the Seven Oaks School Division declared in its June 30, 2004 financial statement that "The Division has agreements as at June 30, 2004 to sell 54 residential lots for $2,834,357 to two firms."

And in 2006, the Seven Oaks School Division declared that as of Jan. 31, 2006, the revenue from lot sales for the same segment of the land development totalled $1,758,594.

These weren't estimates.
These weren't ballpark figures.
They were supposedly accurate to the last dollar.
And audited. Don't forget that.

The taxpayer was supposed to believe every one of them. Except maybe for the second one.

The report into O'Learygate by Education Minister Peter Bjornson in 2005 said that the auditor for Seven Oaks Schoool Division advised the school board that the revenue figures in the 2004 financial statement were overstated by ... let's see, add here, move the decimal point, subtract this ... almost ONE MILLION DOLLARS.

That's right. The audited financial statement showing a figure down to the last dollar was off by almost ONE MILLION DOLLARS.

Bjornson said in his report that this was discovered "subsequent to the 2003/04 audited financial statements."

When? He coyly doesn't say.

The financial statements are handed over to the province at the end of October each year. Was the "mistake" discovered early in 2005, say about the time an angry taxpayer send Bjornson an email asking whether Seven Oaks School Division could legally use taxpayers' money to play land developer?

And, while we're at it, when and how was this error disclosed to the public?

These are questions you might expect the provincial Auditor General to answer.

But it seems a million dollar misstatement of revenue is not something she finds noteworthy or suspicious in the least.

How convenient for the Seven Oaks School Division and Peter Bjornson.

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