.. \ \ COUNCIL MEETING · ~ · 851 Report 1/ · ~Oshawa· MAY 21 2013

To: Item: Date of Report: Council in Committee of the Whole AG-13-09 May 16, 2013 File: Date of Meeting: From: Ron Foster Auditor General C-1000 May 21, 2013

Subject: Independence of the Auditor General PUBLIC REPORT

1.0 PURPOSE

To propose a number of changes to support the independence of the Auditor General, improve accountability and transparency and to bring the City into full compliance with the Municipal Act, 2001.

2.0 RECOMMENDATION

It is recommended to City Council within AG-13-09 "Independence of the Auditor Genera!' dated May 16, 2013:

1. That an Audit Committee be established with formal terms of reference:

a. To improve accountability and transparency within the City, b. To oversee the results of the external auditor and Auditor General, c. To support the independence of the Auditor General; and d. To bring the City into full compliance with the Municipal Act, 2001.

2. That the revised multi-year audit plan at Attachment 5 be approved to allow the Auditor General to reprioritize his activities:

a. To fulfill his statutory responsibilities outlined within the Municipal Act, 2001; b. To fulfill his Council approved mandate; c. To meet his reporting requirements for the Corporate Risk Management Policy; and d. To lead the Core Services Review.

3. That the Auditor General and City Solicitor be asked to hold an education session with members of Council and the Mayor to review their respective statutory roles; and

4. That the City Manager be asked to explain to the Mayor and Council why he approved Confidential Reports CM-12-32 and CM-13-29 when he knew they excluded important facts and contained both inaccurate and materially misleading information. J 852 Report to Council in Item: AG-13-09 Committee of the Whole (Continued) -2- Meeting Date: May 21, 2013

3.0 EXECUTIVE SUMMARY

The Auditor General has not been allowed to fulfill his statutory duties without fear of reprisal and other limitations imposed by the City Manager. Budget restrictions, reporting restrictions and the continual expansion his responsibilities have threatened his independence and ability to fulfill his statutory obligations, approved mandate and reporting responsibilities under the Corporate Risk Management Policy.

Confidential Reports CM-12-32 and CM-13-29 on the Potential Acquisition of Land were materially misleading.

4.0 INPUT FROM OTHER SOURCES

 Director of the Local Government Policy Branch, Ministry of Municipal Affairs and Housing;  Chair of the Public Sector Committee, Institute of Internal Auditors;  Two Former Presidents of the Toronto Chapter of the Institute of Internal Auditors;  Auditor General, City of Ottawa; and  Auditor General, City of Toronto.

5.0 ANALYSIS 0

5.1 Governing Legislation

 The Municipal Act, 2001 as amended in 2009 {the Act) sets out a number of provisions that Councils and the heads of Councils are required to observe to support accountability and transparency within municipal governments in Ontario.

 Among other things, clause 224 of the Act indicates that it is the role of Council:

• To ensure that administrative policies, practices & procedures and controllership policies, practices & procedures are in place to implement the decisions of Council; and • To ensure the accountabflity and transparency of the operations of the municipality, including the activities of the senior management of the municipality.

 Clause 225 of the Act indicates that it the role of the head of Council includes:

• Providing leadership to the Councit; and • Without limiting the aforementioned role, providing information and recommendations to Council with respect to their above role.

I ·, 853 Report to Council in Item: AG·13-09 Committee of the Whole (Continued) -3- Meeting Date: May 21, 2013

5.2 Legislation for the Auditor General

 The Municipal Act, 2001 (the Act) also sets out a number of provisions that have a bearing on the mission, mandate, duties and powers ofthe Auditor General.

 Clause 223.19( 1) of the Act indicates that, once appointed, the Auditor General "is responsible for assisting the Council in holding itself and its administrators accountable for the quality of stewardship over pubfic furids and for the achievement of value for money in City operations."

 The Auditor General is an Accountability Officer of the corporation. His legislative responsibilities overlap those of the ChiefAdministrative Officer and Treasurer to assist Council with holding these administrators accountable for their duties under the Act.

 Under clause 229, the Chief Administrative Officer is responsible for, among other things, ensuring the efficient and effective operation ofthe municipality.

 Under clause 286, the Treasurer is responsible for handling all of the financial affairs of the municipality including maintaining accurate records and accounts.

 Clause 223.19(1.1) of the Act stipulates the Auditor General shall pe'rform his or her responsibilities under this Part in an independent manner.

 Council has an obligation to ensure that the Auditor General can perform his duties in an independent manner without fear of reprisal or other limitations which might impair his ability to fulfill his or her responsibilities under the Act.

5.3 Independence of the Internal Audit Function

 The standard on Internal Audit Independence in the Public Sector by the International Standards of Supreme Audit Institutions defines independence as free(::lom from dependence on, or influence or control by, another person, organization, or state.

 For internal auditors, independence is the freedom from conditions that threaten the ability of the internal audit activity or chief audit executive to carry out internal audit responsibilities in an unbiased manner.

 Independence permits internal auditors to render the impartial and unbiased judgments essential to the proper conduct of engagements.

 Independence and objectivity are vital in ensuring that stakeholders view the audit work performed and the results as credible, factual and unbiased.

,. Ideally, the organization's employees should bring concerns, information and important matters to the attention of the internal audit activity. 854 · Report to Council in Item: AG-1~-09 Committee of the Whole (Continued) -4- Meeting Date: May 21, 2013

 According to the Institute of Internal Auditors:

• The Chief Audit Executive (CAE) must report to a level within the organization that allows the Internal Audit (IA) activity to fulfill its responsibilities; • The CAE must communicate and interact directly with the Board; • Direct communication occurs when the CAE regularly attend and participates in Board meetings that relate to the board's oversight responsibilities for auditing, financial reporting, organizational governance and control; • The IA activity must be free from interference in determining the scope of internal auditing, performing work and communicating results; • The IA activity should have sufficient independence from those it is required to audit so that it can both conduct its work without interference; • The internal audit activity must be free from interference in determining the scope of internal auditing, performing work, and communicating results; • Important parts of this independence are the CAE's ability to be protected from management or political interference or retaliation resulting from carrying out legitimate duties in accordance with the Standards;

5.4 Threats to the Independence of the Auditor General

 The following actions compromised the independence of the Auditor General:

• During the last term of Council, the City Manager threatened to have the Auditor General fired if he brought the draft report in Attachment 1 to Council to identify his concerns about the site selection criteria for the Environmental Services Centre.

• In 2011, the City Manager met with the current Mayor to discuss the City's budget, to recommend reductions to the budget of the Auditor General's Office and to propose staffing changes within the Auditor General's Office without consulting the Auditor General on the impact of their recommendations.

• In late 2012, the City Manager advised the Auditor General that he had made staff changes within the City to address the actions of two senior staff who had voiced concerns about the plans for the Centralized Operations Centre.

• During the preparation of Confidential Report CM-12-32, Potential Acquisition of Land, the City Manger instructed the Auditor General to exclude the lower en~ value of the appraisal of $4.3 million for the property at 199 Wentworth Street East from his audit attachment.

• During the preparation of CM-13-29, Potential Acquisition of Land, the City Manager tnstructed the Auditor General to exclude information related to the valuation of the properties subject to acquisition from his audit attachment. 855 Report to Council in Item: AG-13-09 Committee of the Whole (Continued} -5 - Meeting Date: May 21 , 2013

• Following the Council meeting on March 20, 2013, the City Manager complained to the Mayor on March 21 that the Auditor General was "becoming increasingly difficult to work with and certainly not a team player."

• In reality, the Auditor General is not part of any team. He is required by Clause 223.19(1 .1) of the Act to be independent of staff and Council.

• The City Manager neglected to tell the Mayor that the Corporate Leadership Team had determined that the best way to improve the change management process was to have the Auditor General highlight significant risks within his audit attachments to reports to Committee and Council.

• The Change Management Process was one of the approved risk management initiatives shown at Attachment 2 within AG-11-13, Corporate Risk Management Policy.

 Ideally, an Audit Committee would be in place to protect the independence of the Auditor General and to mediate the Auditor General's relationship with the organization. Without these protections, restrictions imposed by management can prevent the Auditor General from fulfilling his statutory obligations and mandate which is shown at Attachment 3.

( \5.5 Role of Audit in Public Sector Governance

 Governance is defined as the combination of processes and structures implemented by a board or Council to inform, direct, manage, and monitor the organization's activities toward the achievement of its objectives.

 Effective governance systems identify the root cause of problems, determine required corrections and follow up to ensure those actions were implemented on a timely basis.

 According to The Role ofAuditing in Public Sector Governance by the Institute of Internal Auditors, auditing is a cornerstone of good public sector governance.

 By providing unbiased, objective assessments of whether resources are managed effectively, auditors help public sector organizations achieve accountability and integrity, improve operations, and instill confidence among citizens and stakeholders.

5.6 Role of Audit Committees in Public Sector Governance

 Audit committees are a key element of public sector governance because they improve accountability and transparency, ensure that audit results are communicated and that recommended improvements are addressed on a timely basis.

 Audit committees also bolster the independence, integrity, and effectiveness of public sector auditors by providing independent oversight of the internal and external audit work plans and results, assessing audit resource needs, and mediating the auditors' relationships within public sector organizations. 856 . Report to Council in Item: AG-13-09 Committee of the Whole (Continued) -6- Meeting Date; May 21, 2013

 A Model Audit Committee Charter from the Institute of Internal Auditors is provided at Attachment 4A.

 The Audit Committee Charter for the City of Ottawa is provided at Attachment 4B.

5.7 Audit Committee in Oshawa

 Council in Committee of the Whole presently receives the audit resuUs of the external auditor and Auditor General.

 No charter or terms of reference exists to ·guide members of Council in Committee of the Whole while overseeing the work of the external auditor and Auditor General.

 New members of Council may not be aware of their statutory responsibilities to ensure:

• the Auditor General can perform his duties in an independent manner without fear of reprisal or other limitations that might impair his ability to fulfill his responsibilities under the Act; and

• the accountability and transparency of the operations of the municipality, including the ~ activities of the senior management of the municipality per clause 224 of the Act. ( _]

 It is recommended that the Auditor General and City Solicitor hold an education session with members of Council and the Mayor to review their respective statutory roles.

 It is recommended that an Audit Committee be established with formal terms of reference:

• To improve accountability and transparency within the City, • To oversee the results of the external auditor and Auditor General, • To support the independence of the Auditor General; and • To bring the City into full compliance with the Municipal Act, 2001.

5.8 Funding of the Auditor General's Office

 According to The Role of Auditing in the Public Sector, by the IIA, "the audit activity must have sufficient funding relative to the size of its audit responsibilities. This important element should not be left under the control of the organization being audited because the budget impacts the audit activity's capacity to perform its responsibilities."

 Clause 223.19(1) of the Act indicates that, once appointed, the Auditor General "is responsible for assisting the Council in holding itself and its administrators accountabl!:! for the quality of stewardship over public funds and for the achievement of value for money in City operations." 857 Report to Council in Item: AG-13-09 Committee of the Whole (Continued) -7- Meeting Date: May 21, 2013

 Council can add responsibilities and work to the annual audit plan of the Auditor General, but cannot reduce his responsibilities or work.

 Adding work to the annual audit plan without providing funding compromises the independence of the Auditor General and his ability to complete his statutory responsibilities.

 In February 2011, significant reductions were made to the budget of the Auditor General's Office without consideration of the potential impact on his independence or ability to fulfill his statutory responsibilities.

 In May 2011, Council expanded the responsibilities of the Auditor General's Office to include its local boards, municipally-controlled corporations and grant recipients without increasing his budget.

 In November 2011, Council expanded the Auditor General's responsibilities for risk management but provided no additional resources to the Auditor General's budget.

 In February 2013, Council directed the Auditor General to lead an internal core services review with no budget impact.

 In April 2013, Council provided the Auditor General with an additional $30,000 to conduct a number of follow-up audits and reviews to improve value for money within operations.

 Notwithstanding the $30,000 increase, the Auditor General still has insufficient resources to fulfill his statutory responsibilities and professional obligations; meet the requirements of the Corporate Risk Management Policy; lead the Core Services Review; and make a significant contribution to the Continuous Improvement Program.

 It is recommended that the revised multi-year audit plan at Attachment 5 be approved to allow the Auditor General to reprioritize his activities:

a. To fulfill his statutory responsibilities outlined within the Municipal Act, 2001; b. To fulfill his Council approved mandate; c. To meet his reporting requirements for the Corporate Risk Management Policy; and d. To lead the Core Services Review.

 If Council wishes to reduce the annual budget for the Auditor General's Office going forward, the City should enter into shared services agreements with one or more of the municipalities which have recently expressed interest in shared service agreements.

 The bottom of page 2 of the revised plan identifies the cost savings that could be realized by the City without compromising the Auditor General's independence or his ability to fulfill his statutory obligations, mandate or other responsibilities assigned by Council. . 858 Report to Council in Item: AG-13-09 Committee of the Whole (Continued) - 8- Meeting Date: May 21, 2013

5.9 Special Review

 The following internal control weaknesses were identified within Confidential Report CM-07- 16 at Attachment 6 for the acquisition process for the Cullen Garden miniatures:

• The City Manager led the transaction completely by-passing the Commissioner of Development Services who plays a key role in managing the accuracy and completeness of real estate reports; • The City Manager advised Council that the City was competing with a number of other purchasers for the property and needed to move forward quickly; • The appraisals obtained by staff to determine the value of the real estate subject to acquisition were flawed; and • The City overpaid for the property subject to acquisition.

 Most importantly, staff did not conduct the acquisition process in accordance with Council's direction: "That Council authorize staff to proceed as discussed with Option 1 concerning Confidential Report CM-07-16 subject to due diligence."

 As a result of the above internal control weaknesses the Auditor General reported at AG-09- 07, which is provided at Attachment 7, that "The City does not have a consistent process for appraising property for acquisitions and disposals. As a result, the City could potentially ) overpay for properties it purchases or be under-compensated for property it sells."

 Accordingly, the Auditor General recommended in AG-09-07, which has been removed recently from the City's website, that management update processes for the acquisition and disposal of City property. Dollar thresholds should be identified for acquisitions and dispositions that require an external appraisal.

 The above recommendation was still outstanding when both CM-12-32, Potential Acquisition ofLand, and CM-13-29, Potential Acquisition ofLand were submitted to Council.

 As all of the weaknesses that were present within the acquisition process for the Cullen Garden Miniatures appeared to be present within the acquisition process for 199 Wentworth Street East, the Auditor General initiated a special review.

 Senior Staff attempted to block the Auditor General's special review. Their email is provided at Confidential Attachment 8.

 The results of the Auditor General's special review of the acquisition process for 199 Wentworth Street East are shown in the memo at Confidential Attachment 9 to this report.

 The City Manager requested that the results of the special review not be shared with the Mayor or Council. This request compromises the independence of the A uditor General and delays the implementation of appropriate controls to mitigate the risks identified within the real estate acquisitions. 859 Report to Council in Item: AG-13-09 Committee of the Whole (Continued) -9- Meeting Date: May 21, 2013

 Following the issue of CM-13-29, the Auditor General was interviewed by Senior Staff for disciplinary purposes which is unusual considering that only Council has the authority to discipline the Auditor General.

 The results of the second phase of the Auditor General's special review which assessed the completeness and accuracy of reports CM-12-32 and CM-13-29 are provided at Confidential Attachment 10 of this report.

 The Auditor General concluded that both Confidential Reports CM-12-32 and CM-13-29 were materially misleading due to inaccuracies and incomplete information.

 The Auditor General also concluded that staff had not completed their due diligence prior to reporting to Council in July 2012 for CM-12-32 and in March 2013 for CM-13-29.

 It is recommended that the City Manager be asked to explain to the Mayor and Council why he approved Confidential Reports CM-12-32 and CM-13-29 when he knew they excluded important facts and contained inaccurate and materially misleading information.

6.0 FINANCIAL IMPLICATIONS

1  Minor costs will be incurred to appoint an external member to the City's Audit Committee.

7.0 RESPONSE TO THE OSHAWA STRATEGIC PLAN

 The Auditor General assists Council in holding itself and its administrators accountable for the quality of stewardship over public funds and for the achievement of value for money in City operations. Ensuring accountable leadership is one of the goals contained within the Oshawa Strategic Plan.

Ron Foster Auditor General

Attachments 860 AG ~J3- Vi ~Oshawa Report AUcJ,~h-,i l-'I,/ 1 , To: Date of Report: Council in Committee of the Whole Item: AG-09-06 July 8, 2009 From: Date of Meeting: Ron Foster File: C-1000 July xx, 2009 Auditor General Subject: Review ofPlans for the Operations and Ward(s): ALL Environmental Services Centre Public Report

1.0 PURPOSE

The purpose of this review was to provide Council with additional information to allow them to make more informed decisions on the plans for the Operations and Environmental Services Centre.

2.0 RECOMMENDATION

It is recommended to City Council:

That Report AG-09-06 dated July 8, 2009 regarding the Review of Plans for the Operations and Environmental Services Centre be received and that Council: 0 a) Endorse one of the strategies for a partially consolidated depot;

b) Direct staff to revise the evaluation criteria and weights for potential sites to place greater emphasis on cost and to screen the potential sites again;

c) Direct staff to complete the environmental assessment process for preferred sites that are endorsed by Cound l; and

d) Following the update of the Strategic Financial Plan that is scheduled for this fall, direct staff to develop options for financing construction of new facilities at the final site that has been endorsed by Council.

3a0 EXECUTIVE SUMMARY

This report recommends that Council endorse a strategy for replacing some of the ageing and undersized operational facilities, Once the scope of the project is finalized, management can revisit its site selection criteria and weights which should be modified to better reflect the importance of the cost of reptactng existing facilities. The potential sites should then be reassessed using the revised criteria_ Thereafter, environmental reviews should be completed for the preferred sites which are approved by Council. Following the fall update of the Strategic Financial Plan which will address the City's current and future commitments, management can devellop funding strategies for Council's revrew and approval. 861 Report to Council in Item: AG-09-06 Committee of the Whole (Continued) - 2- Meeting Date: July xx, 2009

4.0 INPUT FROM OTHER SOURCES

4.1 Input from Management

 City Manager  Commissioner, Community Services  Commissioner, Corporate Services  Commissioner, Development Services

5.0 ANALYSIS

5.1 Objectives

 The purpose of this review was to provide Council with additional information to allow them to make more informed decisions on the plans for the Operations and Environmental Services Centre (Operations Centre).

5.2 Scope

 This review examined studies conducted on the Operations Centre for the City from 2003 to date as well as reports to Council from November 2006 to date.

5.3 Procedures

 The review included a comparison of best practices for capital planning against processes used within the City for planning the Operations Centre. It also included a review of background studies on the Operations Centre and relevant reports to Council between November 2006 and present.

5.4 Background

 The following reports that were prepared by Giffels were reviewed as part of this review:

• September 2003 - Depot Facility Review - Phase 1 - Draft Operational Needs Analysis • October 2003 - Depot Facility Review - Phase 2 - Depot Condition Assessment - Draft Report • November 2003 - Depot Facility Review - Phase 3 - Alternatives and Opportunities Assessment • November 2003 - Depot Facility Review- Depot Condition Assessment- Final Report • May 2004- Depot Facility Review- Summary Report • July 2007 - Updated Depot Facility Review • August 2008 - Comparison of Proposed Options 862 Report to Council in Item: AG-09-06 Committee of the Whole (Continued) -3- Meeting Date: July xx, 2009

 Since November 2006, the following reports were provided to Council on the Operations Centre: 0

• April 2007 - CS-07-75 - Motion to recommend that Council hold an Education and Training Session on the Consolidated Depot • May 2007 - Education and Training Session on the Consolidated Depot • July 2007 - CS-07-155- Report to submit the "Depot Facility Review Updated Summary Report" dated June 29, 2007 and to recommend proceeding with the next steps to advance a Consolidated Depot • July 2007 - CS-07-156 - Confidential Report • Oct 2007 - CS-07-203 - Report on the proposed opportunity statement for the class environmental assessment on the depot • September 2008 - CS-08-96- Report to update Council on Phase 2 of the depot environmental assessment • February 2009 - CS-09-24 - Report to update Council on the City Operations and Environmental Services Centre EA. • February 2009 CS-09-24 - Appendix A - Confidential Report • April 2009 - CS-09-38 - Report to update Council on 2nd Public Information Centre and request additional funds for remaining environmental and servicing work • June 2009 - CS-09-62 - Report to address referral to staff of CS-09-38 and an amendment regarding further consideration of Site G • June 2009 - CS-09-99 - Confidential Report

5.5 Analysis 0 5.5.1 Rationale for Change

 Various studies completed by Giffels between 2004 and 2008 identified significant concerns with the City's operations depots including inefficiencies related to the,r design, deteriorating condition and capacity restrictions. They also indicated that significant maintenance work must be carried out to bring these facilities into reasonable condition for ongoing operations.

• All of the facilities need upgrades in terms of handicap accessibility in order to meet legislation requirements. • Most of the depots have safety conditions that woutd be significantly improved in a new facility. • All but the North Depot are too small to carry out the functions required now or in the future. • All of the facilities are imposing inefficiencies that are adding to current operating costs. 863 Report to Council In Item: AG-09-06 Committee of the Whole (Continued) Meeting Date: July xx, 2009

 The Giffels' studies also indicated that there is an urgency to take action on items that include fire safety, environmental safety, electrical safety, and deteriorated overhead structural elements. Furthermore, issues identified in previous condition audits that have been deferred are now being repaired to keep the depots operational. This is resulting in significant throw­ away costs that will continue for the next 4-5 years. These studies also found that essential and emergency services could not be adequately provided in the event of a power failure such as the blackout of August 2003.

 Giffels indicated that urgent action is also needed because:

• The Parks Farewell office space has exceeded its design capacity and is unable to accommodate present and future needs. • The Wilson Road Waste Services depot is currently undersized and cannot house all of the waste trucks on the premises. The current spillover is being accommodated at the Ritson Yard. Future growth will continue to exacerbate this problem. • The Cowan Barn sustained fire damage in 2003, exacerbating the shortage of materials storage space. Materials from ~his location are now stored in already overcrowded facilities at City Hall and at Parks Farewell. • The handling of road salt at Ritson Road Depot is out-of-step with environmental best practices. • The Region of Durham has suggested that 170 lane kilometers of regional roads be transferred to the City. This will place an additional burden on the already overloaded Public Works facilities at Ritson Road. • The Conant Depot has been sold to the Separate School Board and must be vacated by the end of 2011.

All of the above information was included in the opportunity statement for the environmental assessment which Council endorsed in October 2007.

5.5.2 Options

 In September 2008, Council authorized staff to proceed with Phase 3 of the environmental assessment process for a partial consolidation of existing facilities which was recommended by Giffels in their August 21, 2008 report entitled "Comparison of Proposed Options."

 If Council wishes, it can reconsider this direction and examine all of the options outlined below.  Alternatively, Council can limit its choices to Options A and B which outline two different approaches to the partial consolidation of existing facilities.

Option A - Build a partially consolidated expanded facility to address growth; Option B - Build a partially consolidated facility with contracting out to address growth; Option C - Build a fully consolidated facility with expansion to meet future growth; Option D - Repair the existing facilities; and Option E - Purchase land and build later. 864 . Report to Council in Item: AG-09-06 Committee of the Whole (Continued) -5- Meeting Date; July xx, 2009 OPTION A-PARTIALLY CONSOLIDATED EXPANDED FACILITY TO ADDRESS GROWTH 0  In August 2008, Giffels recommended a partially consolidated expanded depot wUh one or two satellites since this option allows for business continuity and provides for lower capital and operating costs than a fully consolidated depot.

 This option woutd address future growth by increasing the size of the new facilities immediately. Depending on their location, it would also allow the City to realize up to $BOOK of operational savings (up to $200K less for a site that is not centrally located).

 While several! options are possible, locating a new facility in the north end of the City while retaining a satellite at Farewell Street would reduce the overall size of the facility and site required.

 The disadvantage of this option is that the City would have to incur maintenance and renewal costs for the Farewell depot. Short-term maintenance costs for this depot are approximately $1 million. Renewal costs over the next 10 years would be approximate y $3 million.

 This option addresses the environmental, health and safety risks at the Ritson depot.

 An advantage of this option is that the growth component of the depot could be funded by development charges. An expanded facility would also meet a number of the eligibility criteria for the Buflding Canada Program.

OPTION 8 - PARTIALLY CONSOLIDATED FACILITY WITH CONTRACTING OUT TO ADDRESS GROWTH 0

 This option would entail building a partially consolidated facility that meets existing service requirements but does not provide for future growth.

 As the City grows, additional service demands would be met by contracting new service demands for winter maintenance and waste collection. Additional fleet maintenance functions could also be contracted out or provided by using more than one shift of staff.

 Analyses completed during recent program reviews indicated that the costs for outsourced winter maintenance and waste collection services were not significantly different than the operating costs for in-house services provided from the existing facilities.

 Depending on the location of the new Operations Centre, operational savings for this option would be approximately $300K to $400K (more for a centrally located site).

 Capital costs and land acquisition costs could be reduced if the new facility was located in the south and both the Howden depot and the Farewell depot were retained . Capital costs would be lower than those for Option A if this approach were taken .

 A disadvantage of this option is that devefopment charges could not be used to fund the costs. The new facility would also not readily meet the eligibility criteria for the Building Canada Program si nce it includes a capacity building component. 0 865 Report to Council In Item: AG-09-06 Committee of the Whole (Continued) -6- Meeting Date: July xx, 2009

 Another disadvantage of this option is that the City would have to incur maintenance and renewal costs for both the Farewell and Howden depots. Short-term maintenance costs for these depots are approximately $1.3 million. Renewal costs over the next 10 years would be approximately $3.5 million.

 This option addresses the environmental, health and safety risks at the Ritson depot.

 A variation of this option would be to expand the Howden depot at a later point in time.

OPTION C - FULLY CONSOLIDATED FACILITY WITH EXPANSION TO MEET FUTURE GR0WfH

 Giffels recommended this option in 2007, but subsequently acknowledged that having all operational staff at one location could present business continuity risks during emergencies.

 This option addresses the environmental, health and safety risks at the Ritson depot.

 An advantage of this option is that the growth component of the new facility could be funded by development charges. An expanded facility would also better fit the eligibility criteria for the Building Canada Program.

 This option was not recommended by Giffels in 2008. A partially consolidated depot with one or two satellite operations was seen to be the best solution for best service delivery at lowest operational cost with a potentially lower capital cost.

 Given the increasing financial pressures faced by the City, this option is not recommended.

OPTION D - REPAIR THE EXISTING FACILITIES

 At the request of Council, this option was recently examined by staff.

 Report CS-09-62 indicated that $3.3 million of deficiencies were present at the depots located at Ritson, Farewell and Howden. Renewal costs of approximately $9.5 million would also be required at these sites over the next 20 years. Further analysis indicated that $4. 7 million would be required over the next 10 years.

 Correcting these deficiencies would still not address the design, environmental and health and safety issues at the Ritson depot.

 This option also does not address the need to find a new location for traffic operations by January 2012 or the ongoing costs for leasing a storage facility for waste vehicles.

 Given the limitations of this option, it is not recommended.

OPTION E - PURCHASE LAND AND BUILD LATER

 This option has not been formally examined by staff, but has merit. Buying land that is well­ suited for future development would allow the City to continue to move forward with replacement plans when funding becomes available. 866 Report to Council in Item: AG-09-06 Committee of the Whole (Continued) -7- Meeting Date: July xx, 2009

 The disadvantage of this option is that the City must find another short-term solution for its 0 traffic facility and must continue to lease a storage facility for its waste trucks. It also means that the City will have to continue to operate an inefficient, undersized facility at Ritson Road with its inherent health and safety and environmental risks. Strategies to effectively mitigate these risks would need to be developed if this option is adopted by Council.

 This option may be viable in conjunction with alternative funding strategies if the City wants to proceed with the Operations Depot but cannot fund the project on its own and/or is not eligible for funding under the Building Canada Program.

 Depending on the location of the land, this option may include expanding the Howden depot at a future point in time.

5.5.2 Environmental Assessment Process

 To-date, the environmental assessment process has provided the following outcomes for Council:

a) Opportunity statement (rationale for change) b) Site selection critena c) Potential sites d) Public Information Centres to obtain community feedback on potential sites

 Council has been uncomfortable with the site setection process and recently directed that a conceptual site plan for Option G be prepared. In light of the availability of another viable site becoming available, Council also directed that staff be authorized to include the re-evaluation 0 of the entire site at 1455/1565 Thornton Road North.

 Council's lack of comfort with the site evaluation process appears to stem from the evaluation criteria and screening requirements used by staff: These criteria include the following items and weights:

1. Operational requirements - 28% 2. Site Size-10% 3. Land planning - 39% 4. Cost-23%

 Using the above criteria and weights led to development of the following screening requirements:

a) The site should be in an industrial location, away from residential land because of the noise created by operations and equipment; b) The site must have good access; c) The site should be a minimum of 35 acres; d) Consider a site where the construction of a City Operations and Environmental Services Centre would improve the current use of the land or revitalize sterilized land in the best interest of the City; e ) The site should not conflict with planning initiatives or land use designations that are currently being considered; and 0 f) Minimizes impact on existing viable businesses. 867 Report to Council In Item: AG-09-06 Committee of the Whole (Continued) -8- Meeting Date: July xx, 2009

 In recent discussions, Council has placed much greater significance on the cost of the proposed depot than staff. Given that the City is no longer pursuing a fully consolidated facility, Council has also questioned the appropriateness of retaining the site size criterion of 35 acres in the evaluation process. To address Council's concerns, it is recommended that this criterion be reduced and that the weights for the evaluation criteria be revised as follows:

1. Operational requirements - 28% 2. Site Size - 8% 3. Land planning - 28% 4. Cost-36%

 The effect of these revisions will be to place greater emphasis on smaller sites such as Site G which includes the existing Ritson depot and 6 acres to the immediate south.

 Revisiting Site G is unlikely to be fruitful, however, unless adjacent parcels of land can be purchased economically for employee parking and/or equipment storage.

5.5.3 Financial Constraints

 The Corporate Strategic Financial Direction Update in November 2008 identified a number of financial pressures within the City that required short-term measures to maintain a balanced budget. This update did not, however, include an analysis of the City's long-term obligations.

 Since that time, the City has taken on a number of additional financial commitments:

• The costs for the City Hall Revitalization project have increased by over $4 million; • The City's costs for the Courthouse have increased by $9 million; • The City's share for the recently approved Civic Fields project is $6 million; • The Federal Government has announced funding for the Oshawa Harbour. It is unclear how much the City may have to contribute to the waterfront going forward; and • The City recently received approval for several projects under the Recreational Infrastructure Canada (RlnC) Program and the Ontario Recreation Program. The City's share of the capital costs for these projects is approximately one third. • The City may receive approval for additional projects under the Community Adjustment Fund program. The City's share of approved projects would be 50 percent.

 Collectively, these commitments will impose significant constraints on the City's ability to finance a new Operations Centre. They also come at a time when the Canadian economy is in recession and the local economy has been damaged by the recent closing of the GM truck plant.

 Council may choose to defer major investment decisions until the next update of the Strategic Financial Plan (SFP) which is scheduled for this fall. Thereafter, Council can consider a range of funding strategies relative to the City's existing and anticipated financial commitments which will be addressed in the SFP update. 868

Report to Council In Item: AG-09-06 Committee of the Whole (Continued) - 9 - Meeting Date: July xx, 2009 5.5.4 Other Funding Considerations 0  The City can still apply for funding for the Operations Centre under the federal-provincial Building Canada Program which provides two-thirds of the funding for approved projects. Several criteria must be met for this program. For now, projects must be at least $30 million to qualify. There is some uncertainty as to whether the Operations Centre would qualify for funding under this program.

 The Operations Centre may also be eligible for funding under Alternative Financing and Procurement or P3 Funding programs. These approaches may allevtate the need for the City to finance construction costs but would lead to higher operational costs.

5.5.5 Next Steps

 Council needs to proceed with the following steps in order to arrive at a solution:

a) Endorse one of the strategies for a partially consolidated depot; b) Direct staff to revise the evaluation criteria and weights for potential sites to place greater emphasis on cost and to screen the potential sltes again; c) Direct staff to complete the environmental assessment process for preferred sites that are endorsed by Council; and d) Direct staff to report back on options for financing construction of new facilities following the fall update of the Strategic Financial Plan. 0 6.0 FINANCIAL IMPLICATIONS

 If Council opts to continue with plans for replacement of some of the existing operational facilities, additional costs will be incurred for the completion of environmental assessments. These costs are estimated to be $75,000 for each additional site not already evaluated.

7.0 RESPONSE TO THE COMMUNITY STRATEGIC PLAN

 The Office of the Auditor General is responsibte for evaluating the effectiveness of risk management, control and governance processes by carrying out audits or reviews of all programs, activities, functions of all City departments, agencies, boards and commissions as well as the offices of the Mayor and members of Council.

 Completion of audits and reviews help Council to take action and ensure accountability which is identified as Goal C3 in the Community Strategic Plan.

Ron Foster Auditor General 0 - 869 ~Oshawa Report AG-13-09 Attachment 2

To; Council in Committee of the Whole Item: Date of Report: AG-11-13 November 3, 2011 From: Ron Foster File: Date of Meeting: Auditor General C-1000 November 7, 2011 Subject: Corporate Risk Management Policy and Process PUBLIC REPORT

1.0 PURPOSE

This report replaces report AG-11-09 which was tabled by Council to allow input from members of Council. Report AG-11-13 proposes a corporate risk management policy and process for Council's endorsement and provides a status report on the City's risk management initiatives.

2.0 RECOMMENDATION It is recommended to City Council that: 0 1. AG-11-09 be received for information and replaced with AG-11-13 dated Nov 3, 2011, and

2. The corporate risk management policy and process as well as the status report on the City's risk management initiatives outlined within AG-11-13 be endorsed by Council.

3.0 EXECUTIVE SUMMARY

 Effective risk management is required for good corporate governance, financial stewardship and performance management. To manage risks effectively requires a formal policy, common language, standard processes, a clear delineation of responsibilities for risk management, and the endorsement of senior management and relevant boards or governing bodies.

 Senior staff and the Auditor General have developed a risk management policy and process to ensure that significant risks are identified, assessed, mitigated, monitored and reported effectively. Staff has also developed a multi-phased initiative to review and update risk management practices within the City to incorporate best practices within the public sector. 870 Report to Council in Committee Item: AG-11-13 of the Whole (Continued) -2- Meeting Date: November 7, 2011

4.0 INPUT FROM OTHER SOURCES

 In preparing this revised report, input was obtained from: o Members of Council, o The City Manager, o The Commissioners o The City Solicitor o Other Canadian municipalities, and o Best practice literature.

5.0 ANALYSIS

5.1 Background

 Risk management practices have evolved in recent years becoming more formalized within both private and public sector organizations. The maturity of risk management practices varies from one organization to the next and is often driven by external events such as accidents or lawsuits.

 The federal and provincial governments and a number of large municipalities have implemented enterprise or integrated risk management frameworks to identify, assess and manage significant risks. While these frameworks are informative, they are not always helpful as they are onerous to establish and maintain.

 Risk management practices within the City have traditionally been assigned by function. The Commissioner of Corporate Services manages financial risks; the Commissioner of Community Services manages operational risks; the Commissioner of Development Services manages development risks; the City Solicitor manages legal risks. In conjunction with the Commissioners, the City Manager coordinates the development of strategies to mitigate these risks as well as strategic risks that are faced by the corporation. The City Manager also manages reputational risks in concert with the Commissioners, the Mayor and Council.

 Senior staff recognize that a number of limitations exist within the present approach to risk management within the City and requested the assistance of the Auditor General to identify better risk management practices that could be implemented and maintained to improve corporate governance, financial stewardship and performance management. 871 Report to Council in Committee Item: AG-11-13 of the Whole (Continued) -3- Meeting Date: November 7, 2011

5.2 Best Practices 0

 Research and a recent survey of Canadian municipalities identified lhe following characteristics of effective risk management:

o Strong support by senior management and relevant boards or governing bodies; o Establishment of a formal policy, processes and common language; o Engagement of all levels of management in risk management; o Clarification of responsibilities for risk management; o Integration with other management processes; o Phased implementation of risk management; and o Periodic reports to Council on risk exposures, the effectiveness of controls in place to mitigate them and any gaps that need to be addressed.

5.3 Proposed Corporate Risk Management Policy

 Implementation of a corporate risk management policy wm embed a systematic approach to identify, assess, mitigate/manage, monitor and report on risks that impact the City's abitity to achieve its objectives.  The corporate risk management policy at Attachment 1 includes the foWlowing elements: 0 o Purpose; o Applicability; o Principles; o Definitions; and o Responsibility.

5.4 Proposed Corporate Risk Management Process

 The purpose of formalizing and standardizing risk management processes is to optimize risk management within the City.

 The recommended corporate risk management process and implementation procedure that are outlined within Attachment 2 and 3 incorporate the following steps:

1. Establish service delivery context; 2. Identify service delivery risks; 3. Assess inherent risks; 4. Assess residual risks; 5. Address significant risks; 6. Monitor and report on significant risks and risk management strategies intern ally; and 7. Report on significant risks and risk management process externally. 872 Report to Councif in Committee Item: AG-11-13 of the Whole (Continued) -4- Meeting Date: November 7, 2011

5.5 Risk Management Initiatives

 The following risk management initiatives have been identified for completion:

Risk Management Initiative Scope of Initiative Target for Completion Communication of policy and Circulation of policy and process 04 2011 process to Council and staff Training in new policy and Training of Commissioners and process to senior staff Directors within each department Phase 1 - Higher risk areas 04 2011 Phase 2 - Lower risk areas 04 2012 Integration of risk management Inclusion of risk management within 04 2011 with strategic olannina processes strateaic olannina processes Review of change management Revision of Committee and Council 04 2011 reporting templates to identify significant risks Review of issue management Formalization of issue management Q4 2011 orocess Feedback to Council on risk Status report to Council from AG on 01 Annually management effectiveness of processes Status reports from Corporate Semi-annual Leadership Team to Council on sii:tnificant risks Review of project risk Major capital projects 04 2011 management including updated policy for project charter and Moderate-sized capital and operating 01 2012 business case proiects Training of staff in risk Risk management training for management procedures managers, supervisors, coordinators & lead hands. Awareness training for others. 04 2011 Phase 1 - Higher risk areas 04 2012 Phase 2 - Lower risk areas Review of insurance claims Analysis of costs and root causes 02 2012 management Review of Workers Safety Analysis of costs and root causes 03 2012 Insurance Board claims mgmt Integration of risk management Inclusion of formal risk management with branch work plans strategies into branch work plans Phase 1 - Higher risk areas 01 2012 Phase 2 - Lower risk areas 01 2013 Review of disaster recovery Best practice review and development 02 2013 planning of priorities, plans and procedures Review of emergency Best practice review and update of 02 2013 management procedures plans and procedures 873 •

Report to Council in Committee Item: AG-1 1-13 of the Whole (Continued) - 5- Meeting Date: November 7, 2011

6.0 FINANCIAL IMPLICATIONS

 Establishing a corporate risk management policy and formalizing and standardizing risk maoagement processes will bolster lhe quality of stewardship over public funds.

7.0 RESPONSE TO THE COMMUNITY STRATEGIC PLAN

 Establishing a corporate risk management policy and process will assist Council in holding itself and its administrators accountable for the quality of stewardship over public funds. Taking action and ensuring accountability is one of the objectives contained within the Community Strategic Plan.

Ron Foster Auditor General

Attachments Supplementary to AG-13-09 Attachment 2

Item: AG-13-02 Corporate Risk Management Policy Attachment 1

PURPOSE

• To embed a systematic approach to identify, assess, mitigate/manage, monitor and report on risks that impact the City's ability to achieve its objectives.

APPLICABILITY

• This policy applies to all members ofstaff and Council

PRINCIPLES OF RISK MANAGEMENT

• Risk management is an essential component ofgood governance. • Good decisions are made when supported by a systematic approach to risk management. • Risk management should be integrated into strategic and business planning as well as informed decision-making in the day to-day management ofactivities. Risk management should be consistently applied to lhe development and implementation ofpolicy, programs, plans and future directions • The integration of risk management within the City should be supported by corporate vaJues that encourage everyone to identify and manage risks proactively and to communicate openly about risk. Significant risks should be disclosed when reporting to management, Council or Standing Committees. • Risk management is an ongoing. iterative process and risk and mitigation/management strategies should be re-assessed at regular intervals.

DEFINITIONS

• Managers - includes the City Manager, Commissioners, directors, managers • Risk - an event that impacts the achievement ofobjectives and deals with the uncertainty ofevents. It is measured in terms ofimpact and likelihood. Inherent risk - the risk that exists without consideration ofthe controls that are put in place to mitigate the risk. • Residual risk - the risk that remains after taking into account the effects of controls that are put in place to mitigate/manage the risk, Risk management - the process of identifying, assessing, mitigating/managing, monitoring and reporting on risks. • Resource risks are associated with human resources, physical assets, financial and information resources. • Context risks are associated with the external environment, regulatory environment, organization culture ond internal business processes. Supplementary to AG-13-09 Attachment 2 RESPONSIBILITY FOR RISK MANAGEMENT 0 • All members ofstaffand Council are expected to comply with this policy and risk management process. • All members ofstaff are responsible for identifying significant risks and reporting them to their manager. • All members ofCouncil are responsible for considering significant risks when setting policy and directions. • The Corporate Leadership Team is responsible for risk management throughout the Corporation and for ensuring compliance with this Policy. • The Corporate Leadership Team will pmvide semi-annual reports on the status of significant risks to Council. • The Auditor General will provide annual reports on the effectiveness ofrisk management processes to Council. • Managers are responsible for proactively identifying risks and controls to mitigate/manage the risks that are under their control within their respective ureas. • All managers will manage 1isks in compliance with legislated requirements, corporate values, approved policies and processes. • AU reporls to Council or S1anding Committees must include disclosure of significant risks associated with the recommended course ofaction. 0

0 Supplementary to AG-13-09 Attachment 2

Item: AG-13-02 Corporate Risk Management Policy Attachment J

PURPOSE

• To embed a systematic approach to identify, assess, mitigate/manage, monitor and report on risks that impact the City's ability to achieve its objectives.

APPLICABILITY

• This policy applies to all members of staff and Council

PRINCIPLES OF RISK MANAGEMENT

• Risk management is an essential component. of good governance. • Good decisions are made when supported by a systematic approach to risk management. • Risk management should be integrated into strategic and business planning as well as informed decision-mal

DEFINITIONS

• Managers - includes the City Manager, Commissioners, directors, managers • Risk - nn event that impacts the achievement of objectives and deals with the uncertainty of events. It is measured in terms of impact and likelihood. Inherent risk - the risk that exists without consideration ofthe controls that are put in place to mitigate the risk. • Residlllll risk - the risk that remains after taking into account the effects of controls that are put in place to mitigate/manage the risk. Risk management - the process of identifying, assessing, mitigating/managing, monitoring Elnd reporting on risks. • Resource risks are associated with human resources, physical assets, financial and information resources. • Context 1isks are associated with lhe external environment, regulatory environment, organization culture nncl internal business processes. Supplementary to AG-13-09 Attachment 2 RESPONSIBJLJTY FOR RISK MANAGEMENT 0 • All members ofstaffand Council ure expected to comply with this policy and risk management process. • All members or staff ure responsible for identifying significant risks and reporting them to their manager. • All members or Council are responsible for considering significant risks when setting policy and directions. • The Corporate Leadership Team is responsible for risk management throughout the Corporation and for ensuring compliance with this Policy. • The Corporate Leadership Team will provide semi-annual reports on the status of significant risks to Council. • The Auditor General will provide annual reports on the effectiveness ofrisk management processes to Council. • Managers are responsible for proactively identifying risks and controls to mitigate/manage the risks that are under their control within their respective areas. • All managers will manage risks in compliance with legislated requirements, corporate values, approved policies and processes. • All reports to Council or Standing Committees must incJude disclosure of significant risks associated with the recommended course ofaction. 0

0 874

Item: AG-13-09 Attachment 3

Mission, Mandate, Duties and Powers of the Auditor General

(i) Mission

'To be recognized as a leading audit organization, respected by our clients and peers for excellence, innovation and integrity, in supporting the City ofOshawa to become a first class organization.'

The audit process is an independent, objective assurance activity designed to add value and improve an organization's operations. The audit process assists an organization to accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness ofrisk management, control and governance processes.

In carrying out its audit activities, the Auditor General's Office is independent of management and individual members ofCouncil and has the authority to conduct financial, operational, compliance, information systems, forensic and other special reviews. ofall City departments, local boards, municipally-controlled corporations 0 and grant recipients.

(ii) Mandate

The mandate for the Auditor General's Office was approved by Council and empowers the Auditor General to assist City Council in holding itself and its administrators accountable for the quality of stewardship over public funds and for the achievement of value for money in City operations. It establishes that the Auditor General shall be responsible for evaluating the effectiveness of risk management, control and governance processes by carrying out financial (excluding attest), compliance and perfonnance audits or reviews of all programs, activities, functions of all City departments, local boards, municipally-controlled corporations and grant recipients, and the offices of the Mayor and members of Council.

The Auditor General's Office effects its mandate by developing and carrying out a work plan which identifies and ranks projects to be completed based on a number of risk factors. In addition, it responds to requests from City Council, subject to the request being approved by a 2/3 majority resolution ofCouncil. 875

(iii) Duties 0 As approved by City Council, the Auditor General is empowered:

a. To conduct, or cause to be conducted, audits on behalf ofCity Council in· the areas ofcompliance, financial (excluding attest), program or value-for­ money, information technology infrastructure, environment, and sustainability; and other audits or reviews as appropriate to address matters ofimportance to the Corporation;

b. To undertake forensic investigations including suspected fraudulent activities;

c. To liaise and consult with external auditor(s) if required performing financial statement/attest audits;

d. To examine problems and carry out special assignments identified and recommended by Council, and further approved by 2/3 majority resolution of Council;

e. To provide assurance that the information technology infrastructure contains adequate controls and security by ensuring the existence of such controls in existing systems, assessing overall computer security including business continuity (emergency) planning. 0

(ii) Powers

a. The Auditor General shall have access co any records necessary to complete audit work.

b. Staff of those organizations within the Auditor General's scope have a duty to co-operate with the Auditor General and to not obstruct audit activities.

c. Such powers as are from time to time prescribed by provincial statute or regulation.

0 876 AG-13-09 Attachment 4A

MODEL AUDIT COMMITTEE CHARTER

PURPOSE

To assist the board of directors in fulfilling its oversight responsibilities for the financial reporting process, the system of internal control, the audit process, and the organization's process for monitoring compliance with laws and regulations and the code of conduct.

AUTHORITY

The audit committee has authority to conduct or authorize investigations into any matters within its scope of responsibility. It is empowered to:

• Appoint, compensate, and oversee the work of any registered public accounting firm employed by the organization. • Resolve any disagreements between management and the auditor regarding financial reporting. • Pre-approve all audit and nonaudit services. • Retain independent counsel, accountants, or others to advise the committee or assist in the conduct of an investigation. • Seek any information it requires from employees - all of whom are directed to cooperate with the committee's requests - or external parties. • Meet with the organization's officers, external auditors, or outside counsel as necessary.

COMPOSITION

The audit committee will consist of at least three, and no more than six, members of the board of directors. The board or its nominating committee will appoint committee members and the committee chair.

Each audit committee member will be both independent and financially literate. At least one member shall be designated as the "financial expert," as defined by applicable legislation and regulation.

MEETINGS

The audit committee will meet at least four times a year, with authority to convene additional meetings as circumstances require. All audit committee members are expected to attend each meeting in person or via teleconference or videoconference. The audit committee will invite members of management, auditors, or others to attend meetings and provide pertinent information as necessary. It will hold private meetings with auditors (see below) and executive sessions. Meeting agendas will be prepared and provided in advance to members, along with appropriate briefing materials. Minutes will be prepared. 877 RESPONSIBILITIES The committee will carry out the following responsibilities: 0 Financial Statements

• Review significant accounting and reporting issues, including complex or unusual transactions and highly judgmental areas, and recent professional and regulatory pronouncements, and understand their impact on the financial statements. • Review with management and the external auditors the results of the audit, including any difficulties encountered. • Review the annual financial statements and consider whether they are complete, consistent with information known to committee members, and reflect appropriate accounting principles. • Review other sections of the annual report and related regulatory filings before release and consider the accuracy and completeness of the information. • Review with management and the external auditors all matters required to be communicated to the audit committee under generally accepted auditing standards. Understand how management develops interim financial information, and the nature and extent of internal and external auditor involvement. • Review interim financial reports with management and the external auditors before filing with regulators, and consider whether they are complete and consistent with the information known to audit committee members.

Internal Control 0

• Consider the effectiveness of the organization's internal control system, including lnformabon technology security and control. • Understand the scope of internal and external auditors' review of internal control over financial reporting, and obtain reports on significant findings and recommendations, together with management's responses.

Internal Audit

• Review with management and the chief audit executive (GAE) the charter, activities, staffing, and organizational structure of the internal audit function. • Have final authority to review and approve the annual audit plan and all major changes to the plan. • Ensure there are no unjustified restrictions or limitations, and review and concur in the appointment, replacement, or dismissal of the GAE. • At least once per year, review the performance of the CAE and concur with the annual compensation and salary adjustment. • Review the effectiveness of the internal audit function, including compliance with The Institute of Internal Auditors' International Standards for the Professional Practice of I ntemal Auditing. On a regular basis, meet separately with the GAE to discuss any matters that the committee or internal auditing believes should be discussed privately. 878 External Audit

• Review the external auditors' proposed audit scope and approach, including coordination of audit effort with internal auditing. • Review the performance of the external auditors and exercise final approval on their appointment or discharge. • Review and confirm the independence of the external auditors by obtaining statements from the auditors on relationships between the auditors and the organization, including nonaudit services, and discussing the relationships with the auditors. On a regular basis, meet separately with the external auditors to discuss any matters that the committee or auditors believe should be discussed privately.

Compliance

Review the effectiveness of the system for monitoring compliance with laws and regulations and the results of management's investigation and follow-up (including disciplinary action) of any instances of noncompliance. • Review the findings of any examinations by regulatory agencies and any auditor observations. • Review the process for communicating the code of conduct to the organization's personnel and for monitoring compliance therewith. • Obtain regular updates from management and the organization's legal counsel regarding compliance matters.

Reporting

• Regularly report to the board of directors about committee activities, issues, and related recommendations. • Provide an open avenue of communication among internal auditing, the external auditors, and the board of directors. • Report annually to the shareholders, describing the audit committee's composition, responsibilities and how they were discharged, and any other information required by rule, including approval of non-audit services. • Review any other reports the organization issues that relate to the audit committee responsibilities.

Other Responsibilities

• Perform other activities related to this charter as requested by the board of directors. • Institute and oversee special investigations as needed. • Review and assess the adequacy of the audit committee charter annually, requesting board approval for proposed changes, and ensure appropriate disclosure as may be required by law or regulation. • Confirm annually that all responsibilities outlined in this charter have been carried out. • Evaluate the audit committee's and individual members' performance on a regular basis. 879 Board Chair 0

Audit Committee Chair

Dated

0 880

Audit Sub-Committee - City of Ottawa AG-13-09 Attachment 48

Members

· Chair: Vice Chair: Members: Ex officio: Councillor Rick Councillor Allan Hubley Councillor Rainer Bloess, Mayor Jim Watson Chiarelli Councillor Steve Desroches, Councillor Keith Egli, Councillor Eli EI-Chantiry, Councillor Marianne Wilkinson

Mandate

The Audit Sub•Committee is a sub-committee of the Finance and Economic Development Committee and its mandate is to oversee all audit matters and receive the annual and ad hoc reports from the City's Auditor General. The Sub-Committee is responsible for both the external audit process as well as matters relating to the Office of the Auditor General.

Membership

Membership of the Audit Sub.Committee shall consist of Members of City Council and approved by City Council. The Audit Sub-Committee will appoint its Chair at the beginning of each term of Council, or on an as required basis. The Mayor shall be an ex officio member of the Sub-Committee.

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General responsibilities

The Audit Sub-Committee shall:

1. Be primarily responsible to the Finance and Economic Development Committee for those applicable items emanating from: a. the Auditor General's Office: b. the Finance Department (on matters relating to the City's external audit process); and, c. all other Departments/Branches in the City of Ottawa having to do with matters pertaining to the responsibilities of the Sub-Committee.

2. Act as a liaison between the Office of the Auditor General and City Council to ensure regular and effective communication.

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Specific responsibilities 881 Administration and General Policy 0 1. Recommend a selection committee to interview candidates for the position of City Auditor General.

2. Confirm and assure the independence of the City's Auditor General and the external auditor, including a review, if requested. of all additional audit, management consulting and other fees of the external auditor.

Audit Plan and Annual Report

3. Review and recommend to the Finance and Economic Development Committee and Council, the annual Audit Plan submitted by the Auditor General and any subsequent adjustments from the Office of the Auditor General

4. Following Notice to City Council, table the Annual Report of the Office of the Auditor General and refer the Annual Report to the appropriate Standing Committee(s).

5. Receive and resolve any audit recommendations where management does not agree as directed by Council.

6. Ensure that any policy recommendations coming out of an audit are referred to the appropriate Standing Committee. 0 7. Monitor the performance of the Office of the Auditor General in carrying out its approved Audit Plan and provide input to the Finance and Economic Development Committee with regards.

8. Consider and recommend to Committee and Council a process for a Quality Assessment Review of the Office of the Auditor General.

9. Conduct a performance appraisal for the Auditor General and make recommendations to the Finance and Economic Development Committee and Council as appropriate.

10. Review reports from the Office of the Auditor General on status and implementation of audit recommendations for which management action has been directed.

11. Receive reports and additional background information on changed or disputed audit recommendations, and direct staff on next steps or make recommendations to Council on potential resolutions.

External Audit

12. Recommend the appointment of the external auditor and the audit fees to Council, as required. 882

13. Recommend the appointment of an external auditor to conduct an annual financial audit of the Officer of the Auditor General.

14. Receive and review the Annual Financial Statements with management and the external auditors and ensure Council receives an information report.

15. Review any other matters brought to the Committee's attention by the external auditor and determine the appropriate disposition.

16. Review any changes in accounting principles and practices followed by the municipality.

17. Discuss with the external auditor the annual evaluation of the internal control systems and recommendations for improvements.

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Authority, Decision-making and Reporting Relationship

All Sub-Committee dealings will comply with By-Law No. 2009-323, a by-law of the City of Ottawa to establish the position and duties of the Auditor General of the City of Ottawa and the Corporate Pohcy on Fraud and Other Similar Activities.

By-law No. 2006-462, a by-law of the City of Ottawa to govern the proceedings of the Council and its C Committees, shall govern the Audit Sub-Committee meetings and committee administration.

The Audit Sub-Committee shall meet at the call of its Chair in accordance with the notice provision of above-noted Procedure By-law. All Members of Council will receive meeting notices, agendas and meeting documentation for this Committee. All Members of Council, and/ or their office staff, and the public are permitted to attend meetings of the Committee.

A decision by the Audit Sub-Committee shall be forwarded to the Finance and Economic Development Committee and Council for consideration, Revised Multi-Year Audit Plan Item: AG-13 l Attachment 5 Risk '* Lenath of Audit in Weeks PROGRAM/CATEGORY *Rating 2013 2014 2015 2016 2017 2018 2019 A. Corporate Audits Mayor & Council 29 1 1 1 1 1 1 1 ' Citv Manager's Oegt City Manager's Office 30 HR 8 8 4 Leg & Regulatory Mun law Enforcement & Licensing 2 4 4 City Clerk's Office 23 4 Legal Services 24 4 Corporate Services Fire Services 3 2 4 4 Finance Services 21 4 Communications 25 2 IT Services 4 4 4 4 4 2 2 Taxation, Printing, Purchasing 26 6 4 Facilities Management 1 4 4 Communlrl Services Strategic & Business Services 27 4 Works &Transp 9 8 4 4 4 Parks Services 11 4 4 Waste Collection 5 4 4 Recreation & Culture 15 4 Parking 16 4 Partnerships 22 4 ,Development Services Admin 34 Building Services 18 4 4 Planning Services 19 4 Economic Development 20 4 4 Airport 14 2 1 2 1 1 2 1 Engineering Services 6 8 4 Environmental Policy 28 4 External Entities Oshawa Public Utilities Commission 12 1 1 Oshawa Sr Citizens Centre 7 1 1 1 Oshawa Public Library 13 2 1 The Parkwood Foundation 32 Oshawa Historical Society 33 Robt McLaughlin Art Gallery 31 Total Coroorate Audits 30 31 31 31 27 24 21 0 u . - •• LenQth of ( in Wet. .. s I

PROGRAM/CATEGORY 2013 2014 2015 2016 2017 2018 2018 B. Project Reviews Infrastructure projects 1 2 2 1 2 1 1 1 2 2 1 2 1 1 C. Business Process Reviews Strategic Plan 2 Financial Plan/Budget 2 2 2 2 2 2 2 Risk Management Program 8 6 4 3 2 2 2 Cash Handling 2 2 2 2 2 2 2 Contract Management 2 2 2 2 2 2 2 GM Centre 2 2 2 2 2 2 2 External Auditor Coordination 1 1 1 1 1 1 1 Com & Council Mtgs & Reports 4 4 4 4 4 4 4 Core Services Review 8 4 Continuous Improvement••• 2 2 2 2 2 2 1 Total Process Reviews 31 25 21 18 17 17 16

D. Follow-Up and Status Reports 2 2 2 2 2 2 2 E. Special Requests of Council 2 2 2 2 2 2 2

Total Weeks for Audits & Reviews 66 62 58 54 50 46 42

F. Administration Training 1 1 1 1 1 1 1 Quality Assurance 1 1 1 1 1 1 1 Stat Holidays 2.8 2.8 2.8 2.8 2.8 2.8 2.8 Administration 0.2 0.2 0.2 0.2 0.2 0.2 0.2 Vacation 5 5 5 5 5 5 5 Total Administration 10 10 10 10 10 10 10

Total Number of Weeks 76 72 68 64 60 56 52 Auditor General's Time 52 52 52 52 52 52 52 Contract Resources Reauired 24 20 16 12 8 4 0 Budget Requirement 258000 255000 250000 246000 242000 237000 232000 Shared Services Reduction o 40000 40000 41000 42000 43000 44000 Net Budget Reauirement 258000 215000 210000 205000 200000 194000 188000

* The risks that are shown are ranked by significance. Facilities Management has the highest risks but was reviewed in 2012. •• The length of audit is influenced by inherent & residual risk factors & by whether it has been subject to prior review or audit. *** The Auditor General will provide training in Performance Measurement and Project Management to support the TEAMS and LEADS initiative. ~Oshawa Report A 8 ~ t3·· l'R-I/lbt/;111trrl· To: Item: Date of Report: & Council in Committee of the Whole CM-07-16 March 14, 2007 From: File: Date of Meeting: Bob Duignan City Manager B-1500 March 19, 2007 Subject: Ward(s): All Wards Potential Purchase ofthe Cullen Miniature Village

CONFIDENTIAL • CLOSED MEETING

1.0 PURPOSE

The City has been presented with a unique opportunity to purchase the "Miniature Village" that was once a treasured and highly popular tourist attraction at Cullen Gardens in Whitby. The family of the late Len Cullen has approached the City to acquire the models (109 buildings) and other related components (miniature rides, boats, train engines and cars, etc.) for the village at an asking price of $250,000 (see Attachment #1). Thirty nine of the models have been restored and are in excellent condition. The remaining models require varying degrees of restoration.

The Miniature Village has the potential to create a highly visible tourist attraction for the City and this offer needs to be addressed in a timely manner. The family has advised that the City will be permitted to use the Cullen name/brand if Council decides to proceed with this acquisition and recreate the Miniature Village.

This report is in camera due to the nature of the proposal, the reputation of the Cullen family locally and the potential for the information getting out and resulting in a competitive bid process with other communities who have expressed an interest in acquiring the buildings. The potential acquisition has been discussed with the Auditor General.

The purpose of this report is to provide a summary of the opportunity and to recommend that the City take immediate steps to negotiate the acquisition of the Cullen Miniature Village and all related components.

2.0 RECOMMENDATION

It is recommended to City Council:

1. That staff be authorized to negotiate the purchase of the Cullen Miniature Village collection and use of the Cullen name/brand, at a cost not to exceed $250,000 to be funded from the Parkland-Open Spaces Reserve (account #15445) and that the Mayor and Clerk be authorized to execute an agreement of purchase and sale with the Estate of the Late Len Cullen in a form satisfactory to the City Solicitor;

98011-0612 Report to Committee of the Item: CM-07-16 Whole (Continued) -2- Meeting Date: March 19, 2007

2. That staff develop a business and implementation plan, including preferred location, drawings, timing, restoration requirements, financial projections, potential partners and other opportunities and report back to the Community Services Committee.

3.0 EXECUTIVE SUMMARY

Cullen Gardens and Miniature Village has been recognized throughout the world as a unique and significant tourist attraction. VVhen the Cullen Family sold the property to the Town of Whitby in 2005, the Town of Whitby declined to acquire the Miniature Village. At that time, Mr. Len Cullen, founder of Cullen Gardens and Miniature Village purchased ·another property to re-establish the Miniature Village. Unfortunately, Mr. Cullen died before this transition could occur. Plans were developed for this new site and are available to the City as part of a purchase. The estate intends to divest itself of the Miniature Village and has offered the collection to the City of Oshawa for an asking price of $250,000.

The Cullen Miniature Village consists of 129 components that reflect Canada's rich history. Tiny court buildings, cottages and landmark homes, including such Oshawa notables as Parkwood Estate, Henry House, Robinson House and Guy House make up this significant collection. The collection also includes the various theme components such as the miniature train, boats, circus and the mechanical and electrical components.

Mr. Owen Hachey, who worked for the Cullen family for over 30 years and helped to manage the Miniature Village has an intimate knowledge of the models and components. Mr. Hachey met with staff to show the collection and would be an invaluable asset to the City in this undertaking for both his knowledge of the village and his craftsmanship to restore the models.

If the City were to undertake to create a miniature village of this extent, the cost of the buildings and train component alone would be approximately $850,000.

Over the years, the Miniature Village has attracted millions of visitors and in the last years of operation had well over 200,000 visitors per year. Based on the experience in VVhitby, with admissions at $12.00 per adult and $6.00 per child and assuming an average of $8.00 per person, revenues were in excess of $1.6 million annually. This represents a significant tourism opportunity for Oshawa in a market that is virtually untapped at this time.

Three options are presented for Council's consideration: 1. Purchase immediately • The City could negotiate and present an unconditional offer for the models, components and use of the Cullen name/brand for a maximum of $250,000. Staff would report back through the Community Services Committee with a business and implementation plan that would include preferred location, Report to Committee of the Item: CM-07-16 WhoJe (Continued) -3- Meeting Date: March 19, 2007

drawings, timing, restoration requirements, financial projections, potential partners and other opportunities. This option is recommended.

2. In-depth process to purchase • The City could submit an offer to purchase with a $10,000 non-refundable deposit and hire a consultant to complete a detailed analysis including financial projections, locational analysis, building audits and comparative reviews. This process would cost approximately $30,000 - $40,000 and would take 6-8 weeks. This option is not recommended as it may not be accepted in the event a firm offer is received from another municipality.

3. Decline the offer • The City could advise the Cullen family that they are not interested in the opportunity. This option is not recommended.

4.0 INPUT FROM OTHER SOURCES

 The following have provided input to this report:

• Parks and Facilities Maintenance Services • Finance Services • Legar Services

5.0 ANALYSIS

Council has indicated that untapped tourism is a priority. The acquisition of the Cullen Miniature ViHage provides a significant opportunity for Oshawa and is the only tourist attraction of its kind in Canada.

• The asking price of $250,000 is considered reasonable given the number of models and components to be acquired as well as the use of the Cullen name/brand. • 39 of the models are in excellent condition with the remaining models and miniature components such as the train requiring varying degrees of restoration. • The original builder of the homes, Mr. Owen Hachey operated and maintained the Miniature Village and could restore the balance of the homes and trains. • The Miniature Village has the potential to attract in excess of two hundred thousand visitors to Oshawa each year and would help to support and draw visitors to other tourism attractions such as Parkwood, the Oshawa Community Museum and others. • The location of the Miniature Village could serve as a base for other tourism draws including miniature golf, miniature trains, etc. a Council has adopted a prioritization model for capital projects and initiatives. This model has been used by Finance staff to evaluate this project against projects recommended in the 2007 annual budget. This project scored highest in its funding envelope as shown in the following table; Report to Committee of the Item: CM-07-16 Whole (Continued) -4- Meeting Date: March 19, 2007

Prioritized 2007 Parks Capital Projects

Project Total Cost Tax Levy Other Funding Score on Funding (Reserves etc.} Prioritization Model Purchase of Cullen Garden $250,000 44 Miniatures Playground Equipment $300,000 $300,000 36 Reolacement (Phase 2 of3) OVBG lmorovements $116,000 $75,000 $41,000 33 Plavuound Resurfacine $40.000 $40,000 30 Outdoor Field Development $200,000 $100,000 $100,000 25 - Conversion ofBall Diamonds to Soccer Fields (Phase J of 3)

In 2007 however, this envelope would not provide sufficient tax levy funding to purchase the miniatures, and therefore staff considered the following funding options:

1. Transfer funding from other project envelopes to this envelope (with a resulting reduction and project impact on that/those envelope(s) to be identified during budget deliberations). This is not recommended as projects in other funding envelopes have also scored high and require funding. 2. Use of an interfund note. This is not recommended due to the absence of a business plan and a basis for repayment. 3. Use of the discretionary reserve 15445, Parkland - Open Spaces which has available and uncommitted funding of $127,000. Contributions in 2007, if approved by Council, would increase this reserve to $227,000. This reserve could be marginally over~expended in 2007 to fund this purchase.

In reviewing this opportunity from a risk management perspective, should the business and implementation plan and the ability to attract private sector partners not be sustainable, the City can sell the village to recoup its investment.

6.0 FINANCIAL IMPLICATIONS

• Funding for this acquisition is recommended from the discretionary reserve, 15445 Parkland- Open Spaces. • Subject to receipt of a business and implementation plan that indicates the potential success of this project, further capital costs, including refurbishment of the models and components (estimated at $120,000), park preparation and landscaping could be in the range of $1.5 million to $2 million and be required within the next two years. An ultimate source of funding for these costs can be determined following review of the business and implementation plan which will address in part, potential private sector partnerships. u Annual operating costs includi'ng staffing, programming, lighting and security are still to be determined however would be included in the business and implementation plan. Report to Committee of the Item: CM--07-16 Whole (Continued) -5- Meeting Date: March 19, 2007

• Based on the 200,000 plus visitors annually in Whitby, with admissions at $12.00 per adult and $6.00 per child and assuming an average of $8.00 per person, revenues could be in excess of $1 .6 million annually. • With an increased number of people visiting Oshawa on an annual basis, the City would see a significant economic impact through increased visitor spending, support for other tourism attractions and longer stays.

7.0 RESPONSE TO THE COMMUNITY STRATEGIC PLAN

 The acquisition of the Cullen Miniature Village supports Goal A -A Vibrant, Strong and Progressive Community by improving our image and enhancing Arts, Culture and Recreation.

Cindy Symon Economic DJ

BobOui~ City Manager Attachment No. 1

From: Peter Cullen JOn behalf of) The Estate or Len Cullen 14(1 )

Toil Louise Panes, February 21, 2007 Councior for the City of Oshawa Oshawa.ON.

Dear Ms. Parlces: I am so pleased that the City of Oshawa is considering the purchase of the Cullen Mmiature Collection. This collection of miniatures was the pride and joy of my late father, Len Cullen. Dad loved to create these miniatures. He and his staff spent many hours planning, building and landscaping them. He took delight in seeing people of aH ages take the time to visit his garden. ln his last few months, Dad was quite concerned over what would happen to his collection of miniatures. He made it quite clear to me that if at au possible, he preferred them to be kept together and displayed in similar fashion as they were at Cullen Gardens and Miniature Village, rather1han "discarded" at an auction or yard sale. So, it is my hope that by meeting with you, I might be able to cany out his final wish. We have evaluated each buikfing, taki11g into consideration the present concfdion or the unit and the original cost of production. We have established an asking price or $250,000 for the Cullen Miniature Collection as a whole. You will find a complete rist of the items attached, including notations as to the condition they are-in currently. Please don't hesitate to phone or email me with any questions you or the city staff may have. Thank you to you and the city staff for considering the pun:hase or these miniatures, and for taking the time to meet With me.

Yours truly, 14(l)~ I. Peter Cullen -

' . CULLEN MINIATURE COLLECTION barn .. bsmnt :...... ~~~•.upstL..:::._iving Rnge .• .. ~ 1! ~ DESCRIPTION fQQB ~ [email protected]

1 General Store, Belfountaln red brick X 2 Baptist Church, Belfountain limestone X 3 Public School, Whitby red brick X 4 Drive Shed, Markham board & batten X 5 Residence, Unionville buff brick X 6 Dairy Farm Residence, Sunderland red brick X 9 Residence, King City I 400 red brick X 10 Residence, Cobourg brown brick X 11 Central Public School, Cobourg brick X 12 Residence, Cobourg yellow siding X 13 Residence, Thornhil yellow stucco )( 14 Len's Lucky Fried board & batten X 15 A-Parrel, Toronto brick (2 sides) X 16 Office Building, Toronto 1 side X 17 Curt Brown Electric, Port Hope 1 side X 18 Burkes, Toronto 1 side X 19 Dandelions, Toronto 1 side X 20 Appliance Store, Cobourg 1 side X 21 Bank, Toronto 2 sides X 22 Jewellers, Toronto 1 side X 23 Reid's Books, Cobourg 1 side X 24 Victoria & Grey, Cobourg 1 side X 25 Barber Shop, Cobourg 1 side X 26 Office Building, Whitby 1 side X 27 Jack's Milk, Whitby 1 side X 28 Pant Shop, Whitby 1 side X 29 Pastries, Whitby 1 side X 30 Anne Teke's, Port Hope 2 sides X 31 Mr. Uboat, Cobourg 1 side X 32 Mini Mirrors, Cobourg 1 side X 33 Hobbie Hut, Cobourg 1 side X 34 Mother Nature, Cobourg 1 side X 36 Air Travel, Cobourg 1 side X ' . 36 Emporium, Brooklin brick )( 37 Cabinet Maker's, Thornhill board & batten X 38 Blacksmith Shop board & batten )( 40 Residence, Whitechurch Township yellow clapbrd X 41 Duncan House, Toronto ? X 42 Mill ? X 43 Residence, Port Hope red brick X 44 Residence, Port Hope brown clapbrd X 45 Residence, Port Hope red brick X 46 Gas Station, Toronto X 47 Firehall, Cannington red brick X 48 Residence, Thornhill green clapbrd X 49 Public School, Tyrone red brick )C 50 Church, Sibbald's Point stone )C 51 Residence, Whilby red brick )C 52 Residence, Thornhill blue clapbrd X 53 Residence, Oshawa grey clapbrd X 54 Residence, Port Hope red brick X 55 Residence, Milliken white clapbrd X 57 Residence, Port Hope red brick X 58 Blue Stone, Port Hope grey stucco X, 59 Residence, Unionville red brick X 60 Jackson House, Whilby yellow clapbrd X 61 House on Fire, Sandhill while clapbrd )( 64 Residence, Agincourt drk brown brick X 65 Residence, North York lght brown brick X 66 Residence, Agincourt brown brick )( 67 Residence, North York beige brick X 68 Weal! & Cullen Store, Whilby red brk & lathe X 70 Residence, Whitby red brick )( 71 Parkwood, Oshawa beige stucco )( 72 Cottage, Lake Scugog A-frame X 73 Octagonal House, Jackson's Point brick X 74 Cabin log constr. X 7S Guy House, Oshawa blue clapbrd X 76 Cottage, Roseneath red clpbrd )( 77 Train Station, Maple grey clapbrd X 78 Residence, Jackson's Point white clapbrd X 79 Cottage, Roseneath yellow ctapbrd X ,. 80 Cottage, Gore's Landing brown brd & batt X 81 Cottage & boathouse, Bewdley lght brwn tog X 82 Ferry Boat Station, Glenora white clapbrd )( 83 Ferry Boat with cars X 8 4 Cottage Rental Office, Roseneath red clpbrd )( 84A Rental Cottage red clpbrd )( 84B Rental Cottage red clpbrd X 84C Rental Cottage red clpbrd X 84D Rental Cottage red clpbrd _ X 85 Windermere, Lake Rosseau white clapbrd )( 86 Robinson House, Oshawa beige brick X 87 Church, Brooklin white clapbrd X 88 Cottage, Willow Beach ???stone??? 89 Henry House, Oshawa stone X 90 Residence, Cobourg Ork brown log 91 Dairy Bar log constr. X 92 Trading Post log constr. X 93 Young's Marina, Lake Rosseau white clapbrd )( 94 Carport, Lake Rosseau wood X 95 Rental Office, Deerhurst brown clapbrd X 95A Rental Cottage brown clapbrd X 95B Rental Cottage brown clapbrd X 95C Rental Cottage brown clapbrd X 950 Rental Cottage brown clapbrd X 95E Rental Cottage brown clapbrd X 96 Cottage, Roseneath green clapbrd 97 Cottage, Jackson's Point blue brd & batt X 97A garage to match above blue brd &batt X 98 Boat House, Lake of Bays blue brd &bait X 99 Cottage, Dwight white clapbrd X 100 Cottage, Willow Beach Stone rubble X 101 Boat House, Queen's Quay, Toronto blue clapbrd X 102 Campground Building stone & wood X 103 Tents & Campers various X 104 Cabin plank X 105 Airport Hanger green siding X 106 Barn red/ sliver roof )( " 107 Single Garage brown siding X 108 Barn L-shape brn siding X 109 Ferris Wheel X 110 Rocket Ride J( 111 Alpine Ride X 112 Merry-Go-Round X 113 Space Chase X 114 Kiddie Car Ride X 116 Swing Ride X 116 Round the World X 117 Alpine End Motor X 118 4 x Alpine Towers & cable X 119 Alpine Cars x 35~0 X 120 Kiddie Boat. 1 tub. 1 platform tower & mech. )( 121 Bumper boats, 1 tub, 1 platform, 5 boats & pump syst. X 122 Fair Booths x 15-20 X 123 little People..• 5 tulip crates x approx 250 X 124 Train Engines x 6 X 125 engine Covers x 2 freight, 2 passenger X 126 Freight cars x 8 & 1 Caboose X 127 Passenger cars x 8 Jigger car Cntroller in Village Programmable controller Transformer Copper Wire x 150' Pullies for boats x 3 Christmas Parade Report AG-13-09 Attachment 7

Council in Committee of the Whole Item: Date of Report: AG-09-07 October 14, 2009 From: Ron Foster File: Date of Meeting: Auditor General C-1000 October 19, 2009 Subject: Ward(s): ALL Audit ofEconomic Development Services Branch

Public Repon

1.0 PURPOSE

To present a report on the audit of the Economic Development Services Branch.

2.0 RECOMMENDATION

It is recommended to City Council:

That the recommendations contained in Attachment No. 2 of Report AG-09-07 dated October 14, 2009 regarding the Economic Development Services Branch be referred to the Commissioner of Development Services for a report back to the Development Services Committee.

3.0 EXECUTIVE SUMMARY

This audit indicated that programs within the Economic Development Services Branch are providing value-for-money. Progress has been made in key areas, but opportunities for improvement remain. To ensure continuous improvement, management needs to:

• Survey the public every 4 years to obtain community input on the City's economic priorities; • Update the Downtown Action Plan in conjunction with preparation of the implementation plan for the Community Adjustment and Sustainability Strategy; • Incorporate performance targets into annual business plans; • Update processes for the acquisition and disposal of real estate; and • Prepare action plans to address concerns identified within recent customer surveys.

4.0 INPUT FROM OTHER SOURCES

4.1 Input from Management

 City Manager  Commissioner, Development Services  Director. Economic Development Services Branch 886 · Report to Council in Item: AG-09-07 Committee of the Whole (Continued) -2- Meeting Date: October 19, 2009 0 5. 0 ANALYSIS

5.1 Objectives

 The objectives of the audit were to assess the efficiency, effectiveness and economy of programs as measured against best practices to identify opportunities for improvement and to demonstrate accountability to Council and the community.

5.2 Scope

 This audit examined activities and processes within the Economise Development Services Branch focusing on the current year and two previous years.

5.3 Procedures

 The audit included interviews with management, analyses of reports, customer satisfaction surveys and benchmarking with other municipalities. A risk-based methodology was employed to focus on areas of significance to the pubHc, management and Council.

5.4 Background 0

 The mission of the Economic Development Services Branch (Branch) is to expand Oshawa's economy by promoting its competitive advantages and business opportunities by working with business prospects to secure new investment and employment in the City; promoting the City as a tourist attraction; and effectively managing the City's real estate portfolio and municipal airport. The role of the airport is to serve the City of Oshawa and the Region of Durham as a vital component of the transportation infrastructure supporting business and building community.

 The Branch currently employs a Business Development Manager, Downtown Development Officer and Real Estate-Managerwho report to the Branch Director within the Development Services Department. The Contract Manager for the airport also reports to the Branch Director.

 Excluding the airport, net expenses of the Branch averaged $531 K over the last four years and are expected to be approximately $545K in the current year. Total net expenses for the airport averaged approximately $394K over the last four years and are expected to be approximately $278K in the current year. The airport is managed by T.A.A.S. Limited under a contractual agreement that expires on August 31, 2011. Over the last four years, average tota1 expenses for the airport were $1. 1 million and are expected to be $1 .1 millfon in the current year. Attachment No. 1 provides a summary of expenditures and revenues for the Branch as well as the airport. o 897 Report to Council in Item: AG-09-07 Committee of the Whole (Continued) - 3- Meeting Date: October 19, 2009

5.5 Accomplishments

 Significant accomplishments from the last three years include:

• Capable management of the Branch's budget • Creation of a Friends Discount program downtown for UOIT and Durham College students • Creation of new promotional materials including Restaurant Guide, Gift and Glamour guide, Viva Italia, Business Connections Newsletter, Community Profile, Amazing Facts Brochure, Museum Guide • Planning and coordination of events o Amicus Curiae event for lawyers and property owners o Realtor and Developer Breakfast (annual) o Economic Outlook Breakfast {annual) o Doing Business with Mexico • Sheraton Hotel and Conference Centre negotiation and sale of land • Regent Theatre RFEOI and negotiation of sale • Coordination of Community Improvement Program (2009 - 6 applications) • Establishment of UOIT Faculty of Education downtown, plus marketing for other downtown faculties • Finalization of downtown master plan in cooperation with Planning Services • Facilitated Genosha CIP request at Region • New downtown businesses including Mexico Undo, Strut, Avanti, Coffee Culture, Country Style, 19 on King, lsabellas, Rheana's, Osaka, Bayshore Home Health, etc. • Attraction of new investment and business including Hopewell Developments, Pival International, Abitibi Power, New Look Metal Fixtures, Durham Children's Aid Society HQ, Tirecraft, Smart Centres, Blaisdale Montessori School, Avery Dennison, Continental Tire • Sponsored and/or exhibited major events including: o Canadian Aviation Expo o Society of Industrial and Office Realtors o Canadian Brownfields Conference o Land and Development Conference o Department of Foreign Affairs Global Business Event • Partnered/exhibited with Durham Region and GTMA on events including: o International Association of Automotive (IAA) o Society ofAutomotive Engineers o Corenet o Automotive Parts Manufacturers Association o Globe (Energy and Environment) o Prepare Your Best Bid event o Advanced Manufacturing Familiarization Tour o Energy Sector Tour • Advertised in key site selector, tourism and business publications • Redevelopment of the Jubilee Pavilion • led and coordinated City re-branding • Led and coordinated the Community Adjustment and Sustainability Strategy • Updated available lands and buildings inventory, including transfer toe-space listings available on web • Business retention and expansion activities 888 Report to Council in Item: AG-09-07 Committee of the Whole (Continued) -4- Meeting Date: October 19, 2009

• Participated in the UOIT Technology Park initiative • Facilitated saJe of Acsys lands • Coordinated and launched BizPal • Facilitated Business Development Bank of Canada and Ministry of Training, Colfeges and Universities program to benefit local industries • Speaking engagements with key groups - Rotary, Real Estate Investment Network, etc. • Acquisition of the Foley woodlot • Negotiation of land for Habitat for Humanity • Malachowski land sale • Lakeridge Health redevelopment • Acquisition of lands for Fire Hall #6 • Lease of lands to Te_lus at Legends Centre • Land acquisition for courthouse • Coordinated RFEOI for the sale of Stevenson Road lands for residential development • Sale of Walter Avenue to Liza Homes • Negotiation and/or renewal of leases for numerous City-owned buildings • Agreement for Trent University on City-owned lands • Oshawa Airport Golf Club lease renewal • Airport land sales including Baseline purchase of DAS, Oshawa Airport Hangarminiums, Cox Aviation Supplies, Corporate Aircraft Restoration, Rick Robinson • Integration of the new airport management team • Completion of outstanding NAV Canada/Transport Canada requirements • Completion of Airport Economic Impact Analysis 0 • Completion of Airport Business Plan • Acquisition of Fuel Farm at airport • Hosted Canadian Aviation Expo (2007, 2008) • Review of noise and traffic management at Airport

5.6 Findings

5.6.1 Downtown Action Plan

 In February 2009, the City of Oshawa, Region of Durham and other component municipalities developed a Community Adjustment and Sustainability Strategy to advance economic development. This strategy jncludes 7 major recommendations and 73 items for action. In conjunction with the regional implementation team, management is presently working on a mum-year plan for Council's rev·ew and approval this fall.

 The Downtown Aclion Plan was developed in 2005 and has not been updated since that time. As a result, it needs to be updated to dovetail with the Community Adjustment and Sustainability Strategy and to reflect recent announcements by UOIT to bring further programming into the downtown. It is recommended that the Downtown Action Plan be updated to integrate with the Community Adjustment and Sustainability Strategy and recent announcements by UOIT and that an annual progress report be provided to Council. 889 Report to Council in Item: AG-09-07 Committee of the Whole (Continued) -5- Meeting Date: October 19, 2009

5.6.2 Performance Measures

 Performance measures have not been implemented consistently across the City's various branches. Like many of its counterparts, the Economic Development Services Branch (Branch) measures inputs and economic activities, but does not develop annual performance targets and measure progress against these targets. As a result, it is difficult to measure the effectiveness of the Branch and the airport. It is recommended that the Branch develop performance targets for its major programs in conjunction with preparation of its annual business plan. These measures should also be used to assess the performance of programs undertaken by the contract firm that manages the airport.

5.6.3 Community Support for Economic Initiatives

 In 2005, a general survey was undertaken when the Community Strategic Plan was developed. Downtown customers were surveyed in 2007 as part of the downtown master planning process. Since then, no surveys have been completed to measure public feedback on the downtown or the economic priorities of the City, It is recommended that formal surveys be conducted every four years in conjunction with updates to the community strategic plan and the corporate business plan to obtain community input on the City's economic priorities.

5.6.4 Tourism

 Both the City and the Region of Durham have a mandate to deliver tourism programs. Unlike the Region, however, the City has limited resources available and relies extensively on other organizations to delivery these programs. The City and the Oshawa Chamber of Commerce jointly fund the Oshawa TourisWisitor Information Centre. The City also supports a number of annual tourism events such as Autofest and Ribfest through the Community Services Department and the annual Partnership Grant Program.

 Management intends to consult with Council to identify the City's role in tourism and to clarify its importance relative to other priorities within the new Community Adjustment and Sustainability Strategy. Thereafter, appropriate resource requirements will be identified.

5.6.5 Grants and Loans

 The City has several grant and loan programs which focus on economic development.  The Central Business District Community Improvement Plan has a number of components including:

• The Upper Storey Conversion to Residential Program that provides loans of up to $25K to businesses within the central business district renaissance community improvement area. Owners of buildings in this area may also apply for loans up to $25K to upgrade buildings to meet the Building Code. Applicants may also apply for a development charge exemption. Report to Council in Item: AG~2oq Committee of the Whole (Continued) -6- Meeting Date: October 19, 2009

• The Facade Improvement l oan Program is an interest free loan program that 0 encourages downtown businesses to upgrade their store facades. This program provides a three-year interest-free loan of up to $15,000 per municipal street address or storefront and allows 25% of the loan to be forgiven.

 The City also has a Brownfields Renaissance Community mprovement Plan that encourages the rehabilitation and reuse of contaminated lands through study grants, tax cancellations and redevelopment grants. This plan and its re lated programs are administered by the Planning Services Branch.

 The appropriateness of the above grant and loan programs will be reviewed by the Economic Development Services Branch, the Financial Services Branch and Planning Services Branch in conjunction with the new Community Adjustment and Sustainabil'ity Strategy and other corporate priorities.

5.6.6 Airport

 The business plan that was prepared in 2007/2008 and approved by Council in March 2008 was quite sound. A number of significant events such as the acquisition of the fuel farm and receipt of fundlng under the Community Adjustment Fund have taken place since then, so management plans to update the plan for 2010. Management also plans to update the noise management strategy this fall and develop a new noise management and traffic plan after seeking input from the community. The impacts of this new strategy and plan will be incorporated into the business pSan for 2010 foflowing the approval of Transport Canada.

5.6.7 Real Estate Policies

 The City does not have a consistent process for appraising property for acquisitions and disposals. As a result, the City could potentially overpay for properties it purchases or be under-compensated for property it sells. Management will report to Council later this year on a revised process for identifying properties for sale. It is also recommended that management update processes for the acquisition and disposal of City property. Dollar thresholds should be identified for acquisitions and dispositions that require an external appraisal.

5.6.8 Customer Feedback

 The feedback from customer surveys shown in Attachment No. 3 to 8 provides performance indicators rather than conclusive measures. Populations subject to sampling and response rates were small in some instances; therefore results may not be reflective of the views of the overall community.

 Customer feedback on business development and real estate services was very favourable.  While feedback on the airport and business development programs were generally favourable, customers identified a number of areas for further improvement. It is recommended that Branch management meet with the Downtown Oshawa Board of Management and the Airport Advisory Committee to discuss areas for improvement and prepare appropriate action plans. 891 Report to Council In Item: AG-09-07 Committee of the Whole (Continued) - 7 - Meeting Date: October 19, 2009

5.6.9 Other Areas for Improvement

 A number of smaller areas for improvement were also discussed with management at the conclusion of the audit. A summary of significant findings and recommendations is provided at Attachment No. 2 of this report.

6.0 FINANCIAL IMPLICATIONS

 Implementing the recommendations within this report will improve the efficiency and effectiveness of the Economic Development Services Branch.

7.0 RESPONSE TO THE COMMUNITY STRATEGIC PLAN

 The Office of the Auditor General assists Council and the City's administrative team with the identification and management of risks. Effective risk management is required to achieve the goals, objectives and strategies set out within the Community Strategic Plan.

Ron Foster Auditor General

Attachments Ar:; 1J.• r;c:, Ron Foster C,);,1./, ,JLv,/i.) J.f./,:1 .•k11,,A 8

Jm: Jackie Long Sent: Monday, August 13, 201210:59 AM To: Ron Foster Cc: Bob Duignan; Rick Stockman; Tom Hodgins Subject: RE: Request for assistance

Hi Ron,

I just got back from vocation. I'm meeting with Bob on this matter tomorrow morning.

I'JI touch bose with you afterwards.

Jacqueline Long I Director of Human Resource Services I 905-436-5671

From: Ron Foster Sent: Friday, August 03, 2012 4:50 PM To: Jackie Long Cc: Bob Duignan; Rick Stockman; Tom Hodgins Subject: RE: Request for assistance

}kie:

If you have serious concerns about my authority to proceed with my review, I would suggest that we meet or arrange a conference call with the acting City Manager for a brief discussion next Wednesday morning as I am off next Monday and Tuesday and want to complete my review on a timely basis.

In the meantime, I can assure you that my request to review the emails of a number of City employees Is confined to a specific period of time for a specific transaction for which a number of staff had specific roles - rather than a random fishing expedition. I can also assure you that the specific transaction is significant enough for me to have good reason to review the adequacy of the Internal controls in place to safeguard the City's assets.

As noted in the attachments to my earlier email, under s 223.19(1) of the Municipal Act. I am responsible for assisting the council in holding itself and its administrators accountable for the quality of stewardship over public funds and for the achievement of value for money in municipal operations. My council approved mandate also allows me to conduct •audits orreviews as appropriate to address matters ofimportance to the Corporation.•

Please let me know how you would like to proceed.

Ron Ext 5688

From: Jackie Long Sent: August 3, 2012 3:31 PM To: Ron Foster C:c: Bob Duignan; Rick Stockman bject: Re: Request for assistance Ron I hope you are open to discussing further. I have a number of concerns.

• ,.e you aware of a recent precedent setting arbitration regarding the employers right to access? In essence (and I'm ;ually in the car on the way back from Quebec so don't have all the details) the ruling clarified the circumstances under which the employer has the right to access employee email and electronic tools (e.g. Laptops and blackberrys).

Also, can you share with me the reasons for choosing the employees you are reviewing? Arbitrators and the courts are clear that bona fide reasons need to exist (e.g. Suspicion of fraud) especially in the absence of company policy telling employees that random searches without cause will be undertaken. They don't like it when employers act in an arbitrary manner.

I have mentioned the recent arb ruling to Dave Mawby and HR is looking at the City's policy in light of this precedent.

If your mandate requires you to randomly undertake these types of reviews then I believe we need to tell employees. Otherwise my concern is that any findings may not stand up to scrutiny.

I've cc'd Bob and Rick as it may be prudent for the four of use to have this discussion before you get too far down the road.

Jackie Jackie Long Director of Human Resources City of Oshawa "'5-436-5671

From: Ron Foster Sent: Wednesday, August 01, 2012 01:26 PM To: Jackie Long Subject: Request for assistance

Hi Jackie:

Please be aware that I have requested the assistance of Steve Patterson in our IT Services Branch in order to obtain and review of the emails of a number of City employees.

The City Manager and Rick Stockman have both been advised of my request for assistance. I will brief the City Manager on the results of my review, the majority of which should be completed this week. If there are any human resource implications related to my findings, I will touch base with you after briefing the City Manager.

In keeping with my Council approved mandate which allows me to conduct "audits or reviews as appropriate to address matters ofimportance to the Corporation" and with my legislated powers as defined within the attached excerpt of the Ontario Municipal Act, I require that the nature, timing and scope of this review to remain confidential.

Your cooperation is appreciated.

Ron Foster Auditor General Ext5688

From: Ron Foster Sent: July 25, 2012 9:55 AM To: Steve Patterson 2 Cc: David Potts Subject: Request for assistance Importance: High .

Hi Steve:

I require your assistance to recover and review emails for 4 City employees between July 13, 2012 and June 11, 2012.

My authority as Auditor General to conduct "otheraudits orreviews as appropriate to address matters oflmporlan, to the Corporation" is set out in part (iii) subsection a) of my duties which are identified in Attachment 1 ofAG-11- 05. Page 21 of the attached minutes from the Council meeting on May 3, 2011 indicate the mandate proposed within AG-11-05 was approved by Council.

My legislative responsibilities, powers and duties, rights to access records and duty to maintain confidentiality are set ou in the attached excerpt from the Ontario Municipal Act (the Act). Please review the following subsections from the Act which set out certain matters of which you should be aware, including the duty of every person acting under the instructions of the Auditor General to preserve secrecy.

223.19 (1) - Responsibilities of Auditor General; 223.19 (3) - Powers and Duties; 223.20 (1) - Duty to Furnish Information; 223.20 (2) - Access to Records; 223.22 (1) - Duty of Confidentiality; and 223.22 (2) - Same.

After you have read the above information, I would ask that you confirm via email your understanding of my authority to proceed with the review of the specific electronic records that I have requested and of your requirement to maintain confidentiality while responding to my request for assistance.

Your assistance with this request is appreciated.

Ron Foster Auditor General Ext5688

3 Memorandum

AG-13-09 Confidential Attachment 9 Auditor General's Office

October 19, 2012

Tom Hodgins, Commissioner of Development Services

Re: Real Estate Acquisition Process for 199 Wentworth Street East

Summary of Findings:

o Audit recommendations from 2009 related to weaknesses over the acquisition of real estate and the management of real estate appraisals have not been implemented; o All real estate reports such as CM-12-32 should be written by the Real Estate Manager and signed by the Commissioner of Development Services; o The Real Estate Manager does not have sufficient autonomy from other City staff to lead transaction Involving the acquisition, disposition and leasing of real estate; o CM-12-32 was misleading as It indicated that staff had "validated" that there were other purchasers who have shown serious interest in the property. None of the other parties identified by staff were interested in leasing or purchasing the entire property; o The integrity of the real estate appraisal process for 199 Wentworth Street East was 12(1 ), 14(1 ), 14(3)(g)

o The integrity of the real estate negotiation process was 14(1 ), 14(2)(i), 14(3)(g)

o Two independent real estate appraisers indicated the estimated fair value of the property at 199 Wentworth Street East was somewhere between $4.3 and $5.2 million.

The following recommendations are provided to improve internal controls over real estate management processes:

 That the real estate management process be documented to ensure adequate safeguards exist over the acquisition, disposition and leasing of real estate;  That the Commissioner of Development Services directly oversee the real estate management function and sign all reports to Committee and Council on real estate transactions after vetting their accuracy;  That the Real Estate Manager position be reassigned to report directly to the Commissioner of Development Services to provide the Real Estate Manager with sufficient autonomy from other City staff to protect the integrity ofthe real estate management process;  That the City establish formal processes for appraising property for the acquisition, disposition and leasing of real estate;  14(1 ), 14(2)(i), 14(3)(g), 52(3)(3)  14(1), 14(2)(i), 14(3)(g), 52(3)(3)

 Thatall City staff receive training in the .corporate document and retention policy and data ownership;  That the job specification of the Real Estate Manager be updated to reflect increased responsibiuty for leading real estate transactions and for reporting directly to the Commissioner of Development Services; and  That the job specification for the Director of Economic Development be updated to reflect removal ofsupe,vision ofthe real estate management function.

Detailed Findings & Recommendations:

 In October 2009, the Auditor General reported in AG-09-07 that the City did not have a consistent process for appraising property for acquisitions and disposals. As a result, there was a risk that the City could potentially overpay for properties it purchases or be under-compensated for property it sells. Accordingly, it was recommended that management update processes for the acquisition and disposal of City property and that dollar thresholds be identified for acquisitions and dispositions that require an external appraisal.

 During his review of report CM-12-32, the Audi1or General noted that the above recommendations were still outstanding. While draft policies have been developed, they are not scheduled to be finalized and implemented until Q4 2012.

 It is recommended that the real estate management process be documented to ensure adequate safeguards exist over the acquisition, disposition and leasing of real estate.

 Report CM-12-32 was signed by the Commissioner of Community Services and City Manager. Notwithstanding, this report is a real estate report.

 Reassigning the responsibility for reporting on real estate transactions from the Real Estate Manager to the Director of Works & Transportation who represents the main user of the property proposed for acquisition; and from the Commissioner of Development Services to the Commissioner of Community Services who represents the vast majority of the users of the property proposed for acquisition introduces a potential for conflict of interest. It also eliminates segregation of duties which is an important internal control over the real estate acquisition process.

 Staff emails and interviews indicated that the real estate negotiation process for 199 Wentworth Street East was led by the Director of Economic Development rather than the Real Estate Manager. This assignment of res onsibilJ!.¥ is less than ideal as 14(1), 1.:l(2)(i), 14(3)(g)

 Page 3 of CM-12-02 indicates that "Staff verbally presented an offer of $5. 8 million to the owners of the 199 Wentworth Street facility, but were rebuffed. The owners made it known and staff have validated that there are other purchasers who have shown serious interest and countered with the original ask;ng price of $6.5 million. Hence there is a small window of opportunity for the City to advance an offer on the Wentworth property."

2  The Auditor General recently conducted a Request for Information under the Municipal Freedom of Information and Protection Act with the Region of Durham to obtain all records with respect to offers or agreements for the property located at 199 Wentworth Street East, Oshawa between January 1, 2012 and July 15, 2012. The response to this request from the Regional Clerk at the Region of Durham stated:

"We have no records with respect to offers or agreements for the property located at 199 Wentworth Street East> Oshawa between January 1. 2012 and July 15, 2012."

 It is recommended that the Commissioner of Development Services directly oversee the real estate management funcUon and sign all reports to Committee and Council on real estate transactions after vetting their accuracy.

 The Director of Economic Development Services is also responsible for business development within the City. This responsibility conflicts with the interests of the Community Services Department which is seeking to replace the aging works depot at Ritson Road South. In the weeks leading up to the proposed acquisition of 199 Wentworth Street East, the City's business development staff had been actively working with other parties who were looking to lease or buy portions of this property.

 It is recommended that the Real Estate Manager position be reassigned to report directly to the Commissioner of Development Services to provide the Real Estate Manager with sufficient autonomy from other City staff to protect the integrity of the real estate management process.

 The City's Real Estate Manager and Director of Economic Development were concerned with the initial appraised value for 199 Wentworth Street East. The draft report had been prepared under tight time constraints and the initial estimated value of $5.51 O million was based on the recent sale prices for only six comparable properties. Staff advised the appraiser that they felt he had undervalued the office component. They identified six additional comparables for his consideration and requested that he update his report. The consultant then added three comparables and revised the estimated market value of the property to $6.016 million.

 Given that the appraisal report was being prepared under strict time constraints, there was a strong possibility that it might contain deficiencies. When engaging the appraiser, staff should have clearly identified their expectations up front. Providing specific directions to the consultant to make significant adjustments to his/her draft report compromises the independence of the consultant and the integrity of the whole appraisal process. Providing general directions to obtain additional comparables to support a valuation would be more acceptable.

 The Real Estate Manager's emails to the appraiser indicate that he was actively seeking to increase the appraised value of the property at 199 Wentworth Street East. The following "comparables for further consideration• that he provided to the consultant all had values which exceeded the $85 per square foot (pst) average in the draft appraisal report:

3  On July 18, 2012, the Real Estate Manager acknowledged in a meeting with the Auditor General and other City staff that the reason for getting the appraiser to update the draft appraisal for 199 Wentworth Street East was that "the original valuation was too low" so City staff_provided additional comparables to the consultant for consideration. 14(1), 14(2)(i), 14(3)(g)

 An independent report commissioned from Property Valuators Consulting Inc. (PVCI) indicated that adding the three properties that were suggested by staff to the list of comparables while excluding others which were more representative of the size, nature and location of the property at 199 Wentworth Street East was problematic. The three properties that were added were all significantly smaller properties in prime markets outside of Oshawa and they all had significantly larger office components. See Attachment 1.

 PCVI estimated the value of 199 Wentworth Street to be between $4.3 million and $5.2 million. This range of values is based on 17 comparable properties including all 9 of the properties included in the final appraisaf obtained by staff. This range of values is also substantially lower than the $6.016 million reported in the final appraisal report which was used by staff to prepare the proposed agreement for purchase and sale.

 As the difference in estimated value for the property is significant, the Auditor General engaged Puckrin & Company Inc. (formerly Durham Appraisal Services Inc.) to obtain a second opinion. They agreed with the conclusions reached by PVCI. See Attachment 2.

52(3)(3)  ====

 Failure to manage the City's real estate services effectively would have major repercussions on the City if policies and directions are not followed including the potential of thousands of dollars in additional costs to the City if work is not done accurately. Improper or inappropriate advice about real estate transactions would also jeopardize the City's image and reputation of staff.

 According to her job summary, the Director of Economic Development is responsible for overall management of the Corporation's real estate portfolio and negotiating land transactions. She had direct involvement in the decision to provide additional information to the appraiser in order to obt~in a revised report with a higher estimated market value, She led the City's negotiation team for the proposed acquisition of 199 Wentworth Street East. She recommended the City make an initial verbal offer of $5.8 million based on the initial appraisal of $5.510 million. She also recommended the City make an offer of $6.3 million based on the final appraisal of $6.0 million.

4  The Director of Economic Development's emails indicate that she clearly understood that the amount of the City's final offer for the property would be determined by the estimated market value in the appraiser's final appraisal report and she discouraged the vendor from getting their own appraisal done.

 On July 11, she advised the vendor's real estate agent "/ will have offers for both properties later today to present to you. We are just finalizing the wording on a couple ofconditions and waiting for the final number on the appraisal for 199 Wentworth, which will be in this morning."

 On July 12, she advised the vendor's real estate agent "You mentioned yesterday that given the price we were offering, you thought the College might undertake to have an appraisal done. May I suggest that before they do that, that they come back with a counter offer to the City that we can look at. If we feel that we simply can't justify it, then they could go ahead and do the appraisal. I would hate to see them spend money ifit is something that can be negotiated."

 If is recommended that the City establish formal processes for appraising property for the acquisition, disposition and leasing of real estate.  1~('f}, 1~(2)(f), 1~3)(g), 52{3)(3}

 It is recommended that the failure to ensure adequate safeguards were in place to protect the integrity of the real estate negotiation process be referred to the Commissioner of Development Services for review.

Other Considerations

 The completion of this review was complicated by the fact that City staff were deleting emails on an ongoing basis. Emails are corporate records which should be retained rather than deleted.

 It is recommended that all City staffreceive training in the corporate document and retention policy and data ownership.

Ron Foster Auditor General

C.C. Bob Duignan

5 Special Review of the Completenes. J Accuracy of Reports CM-12-32 and CM-13-29 Confidential Attachment 10 to AG-13-09 - Revised

CM~12-32 Proposed Acquisition of Land CM-13-29 Proposed Acquisition of Land Complete Page 3 of CM-12-32 indicates that the Auditor General Page 8 of the report indicates that "by not being able to waive -ness commissioned an independent review of the above the conditions in the P & SA by April 8, 2013, the City will be appraisal and obtained a lower value for the 199 incurring a risk that, should it materialize, will impact on the Wentworth site. Page 3 indicates that the review City's ability to secure Parcel 1, and will thereby terminate the obtained by the Auditor General identified an estimated COC initiative. market value of up to $5.16 million for this property. Staff did not disclose that the property's 2012 assessment value Staff did not disclose that the property's 2012 for tax purposes was only $5.026 million. assessment value for tax purposes was only $5.026 million. The report does not provide a proper assessment of the risk of another purchaser putting an offer on the property for $5.9 I 14(1 ), 14(2)(i) J million or more. To assess risk, one needs to assess both the are shown at in the Attachment A to this report likelihood and the impact of the risk. excluded from the report. These edits included the lower range of the estimated market value of $4.3 A current appraisal of the property's value was required to million for the 199 Wentworth site. assess the likelihood of another purchaser bidding $5.9 million or more from the property between April 8 and May 31. Staff did The Auditor General signed off on the report with the not obtain an independent appraisal so could not objectively reasonable assumption that the City Solicitor's edits assess the likelihood of the risk. Staff also did not consider that would be included since both the City Solicitor and the another bidder would be unlikely to be able to complete a Auditor General were of the opinion that it would be condition audit and environmental assessment on the property misleading to exclude them. before May 31.

During the Auditor General's status meeting with the Staff did not complete an accurate assessment of the impact of City Manager on July 19, 2013, the City Manager another buyer coming forward. If they had, they would have received a call from the President of Durham College. determined that the inherent risk was high but that the residual During their call, the City Manager gave the President risk was low since the City could have effectively mitigated the of Durham College his personal assurances that most impact of this risk by exercising its right of first refusal. members of Council would approve CM-12-32 at the upcoming Council meeting on July 23, despite the Page 7 indicates that "Staff is of the opinion that the City will not valuation concerns ·identified by the Auditor General as be able to exercise a "first right of refusal" as the time allotted by the $6.3 million purchase price was within the capital Durham College for the City's response, is unlikely to be budget approved by Council. sufficient for staff to bring a report with recommendations before Council. Special Review of the Completenest. J Accuracy of Reports CM-12-32 and CM-13-29 Confidential Attachment 1O to AG-13-09 - Revised

A number of staff that were interviewed by the Auditor General were not of the same opinion as the "staff' who were cited on page 7 of CM-13-29. Durham College advised Legal Services staff that the City would have a few days to respond if they received another offer for their property. According to Legal Services staff, the City would have 3 to 5 business days to exercise its "first right of response" which provides sufficient time for staff to bring a report with recommendations before Council.

The report does not identify other options available to the City or the risks/opportunities inherent in these options. For example, the City could have refused to waive its conditions and not have extended its offer beyond April 8. It could then have submitted a new offer for, say, $5.7 Mor $5.4 Mor $5.2 M to cover more of the deficiencies on the property. The likelihood of success of these options varies but is not insignificant given the limited market for large buildings with a 53% to 47% mix of office and warehouse space. The impact of these options is low to moderate given the opportunity to potentially close the deal for $200K to $700K less than the amount recommended by staff.

The Auditor General indicated in his audit attachment that "it is highly unlikely that the owner of the property of Parcel 1 will find a purchaser who is willing to pay more than $5.9 million for this property prior to May 31, 2013."

In September 2011 , the Auditor General requested an opinion from Puckrin and Company Inc. on the review provided by PVCI. Puckrin indicated they were in agreement with the conclusions reached by PVCI.

On April 11, 2013, the Auditor General obtained an updated valuation report from PVCI which indicated the value of the property at 199 Wentworth Street was still $4.3 to $5.2 million or $50 to $60 p.s.f. This report is provided at Attachment C. Special Review of the Completenes:. .J Accuracy of Reports CM-12-32 and CM-13-29 Confidential Attachment 1O to AG-13-09 - Revised

- At the Council meeting on fy1arch 20, 2013, Council requested that all of the appraisals be provided to members of Council. 14(1), 14(2)(i) • I J After consulting with Legal Services, the Clerk released the draft appraisal to members of Council. Accuracy Page 3 of the CM-12-32 indicates that "Staff verbally When the City needed to extent the closing date for the property presented an offer of $5.8 million to the owners of the at 199 Wentworth Street East to complete its due diligence work 199 Wentworth Street facility, but were rebuffed. The on the 8 acre property, the City Solicitor cautioned the City owners made it known and staff have validated that Manager not to discuss the purchase price during his discussion there are other purchasers who have shown serious with the President of Durham College. interest and countered with the original asking price of $6.5 million." In February 2013, senior City staff met to discuss the City's acquisition strategy and agreed that the City would seek a The City Manager advised the City's acquisition team $905,000 reduction to the purchase price for the full value of the in a meeting in July 2012 that the Region of Durham deficiencies identified at 199 Wentworth Street East had made an offer on the property at 199 Wentworth Street East. On February 19, 2013, City staff met with Counsel for the College and the owner of the 8 acre property to provide an The Freedom of Information Request shown at update on the due diligence process. At the meeting, the Attachment B indicates that the Region of Durham did Auditor General advised Counsel for the College that the City not have an offer on the property at 199 Wentworth would be in touch to discuss the deficiencies identified and the Street East. Discussions with City staff indicated that purchase price for the property. the only interest the Region of Durham had in the property was for a potential lease for some of the office On February 22, the City Solicitor wrote to Counsel for the space on the property. College to advise them of the deficiencies and to request a $905,000 abatement of the purchase price for the full value of The Auditor General interviewed the former Works & the deficiencies as shown within Attachment D. Transportation Director, Director of Economic Development, Commissioner of Community Services, On February 20, Counsel for the College sent the fax at Commissioner of Development Services, Real Estate Attachment E to the City Solicitor and advised the City in the Manager and City Manager. These interviews last paragraph on page 2 that "Your request for a $500,000 indicated that there were no other parties interested in reduction is unacceptable." ourchasino or leasing all of the property at 199 Special Review of the Completenes\. J Accuracy of Reports CM-12-32 and CM-13-29 Confidential Attachment 10 to AG-13-09 - Revised

Wentworth Street East. Community Services staff The Auditor General interviewed all senior members of staff who discussed the potential for sub-leasing some of the were on the City's acquisition team and determined that only the office units in the building to Regional staff but no I 14(2)(i) was in communication with the vendor of 199 agreement was reached. Wentworth Street East.

In late February, Counsel for the College wrote to the City and offered a $500,000 abatement if the City waived its conditions by April 8 or a $300,000 abatement if the City waived its conditions by May 31. The College offered the City the "first right of refusal" to the end of May 31 but indicated that it would put the property back on the market on April 9 if the City had not waived its conditions by April 8.

14(2)(i)

opening position was to negotiate for a $500,000~- abatement-·---- to- the purchase price rather than the $905,000 originally agreed upon by the City's acquisition team.

The College subsequently offered the City a $400,000 price abatement which was recommended to Council by the City Manager in CM-13-29. Con­ Due to r 14(1) , 14(2)(i) Due to the absence of a current appraisal of the value of the clusion I and the property at 199 Wentworth Street East, President of the College as well as the omission of the f 14(1 ), 14__( _2)_(i)~----,------~____,, $4.3 million lower end ofthe appraised value of the 1-~--,--,----,---~..,...,.. , and failure to provide information property and the inclusion of incorrect or incomplete on all of the options available to Council, this report is information about the presence of other purchasers, misleading. this report is materially misleading. I 14(3)(g) !. They failed to obtain a I f4(3)(g) .) . When valuation current appraisal of the property to objectively demonstrate that concerns were identified by Development Services staff there was a significant risk of not waiving its conditions and that with the draft appraisal from Lack Real Estate another purchaser would buy the property for $5.9 million or Appraisers and Consultants Inc., they should have more without imposinQ their own conditions. Special Review of the Completenes J Accuracy of Reports CM-12-32 and CM-13-29 Confidential Attachment 10 to AG-13-09- Revised obtained an independent appraisal from another firm. Staff recommended that the City pay $0.7 million to $1 .6 million 1 14(1) more than the market value estimated by PVCI and Puckrin.

When the valuation issue was identified by the Auditor The Auditor General advised Council in his audit attachment that General, he obtained an independent appraisal from "it was highly unlikely that the owner of Parcel 1 will find a PVCI. If staff didn't agree with that appraisal, they purchaser who is willing to pay more than $5.9 million for this should have obtained another appraisal. r 14(1) J property prior to May 31, 2013. The Auditor General advised I I Council verbally that he had obtained another appraisal that confirmed the value of the property subject to acquisition was Staff recommended that the City pay $1 .1 million to only $4.3 million to $5.2 million. $2.0 million more than the market value estimated by PVCI. Council relied on misleading information I 14(2)(i) l [ and approved the recommendations within In his audit attachment to CM-12-32, the Auditor the report. General cautioned Council about the valuation issues but advised them that there were other purchasers who have shown serious interest in the property.

Like Council, the Auditor General was mislead by r 14(2)(i) Istatement that the Region of Durham had made an offer on the property at 199 Wentworth Street East.

Council relied on misleading information r ! r 14(2)(i) and approved,,_t~he____, recommendations within the report. Staff's Assessment of Risk within CM-12-32

High

IMPACT

Low High 0 1 2 3 LIKELIHOOD Inherent Risk (IR)- The potential risk of another purchaser coming forward and bidding more than $6.3 M for the property. Staff implied the risk was high, however, they had insufficient information to assess the likelihood of this risk as they did not obtain another appraisal to determine the real value of the property subject to acquisition. Therefore, the likelihood could be Low, Moderate, High or somewhere in between.

Residual risk = Inherent risk since the City was not in a position to exert controls over other purchasers who had an interest in the property Auditor General's Subsequent Assessment of the Risk within CM-12-32 after completing Special Review

High IR

21------41------

_ IMPACT

Low High 0 1 2 3 LIKELIHOOD

Inherent Risk (IR) - The potential risk of another purchaser coming forward and bidding more than $6.3 M for the property. Puckrin supported the $4.3 M to $5.2 M value estimated by PVCI. The FOi request with the Region of Durham and interviews with City staff revealed no serious purchasers.

Residual risk = Inherent risk since the City was not in a position to exert controls over other purchasers who had an interest in the property Staff's Assessment ofRisk within CM-13-29

High

2

IMPACT 1

Low High 0 1 2 3 LIKELIHOOD Inherent Risk (IR)- The potential risk of another purchaser coming forward and bidding $5.9 Mor more without reference to the City's right of first refusal. Staff had insufficient information to assess the likelihood of this risk as they did not obtain a current appraisal ofthe property subject to acquisition. Therefore, the likelihood could be Low, Moderate, High or somewhere in between.

Residual risk= Inherent risk since some staff did not feel the City would have sufficient time to exercise its right of first refusal. Auditor General's Assessment of Risk within CM-13-29

High 3

Low 0 1 2 3 High LIKELIHOOD

Inherent Risk - The risk of another purchaser coming forward and bidding $5.9 M or more without reference to the City's right of first refusal. On April 11/13, the Auditor General obtained an updated appraisal from PVCI indicating the property was still worth only $4.3 M to $5.2 M on March 20, 2013.

Residual risk - The risk that exists of another purchaser coming forward and bidding $5.9 M or more with reference to the City's right of first refusal which the AG believed would fully mitigate the inherent risk of another purchaser coming forward. Note the residual risk is not Osince the City would have to match a higher offer from another purchaser. Starrs Assessment of Opportunity Associated with Submitting a lower offer after April 8th

High 3

IMPACT

Low 0 1 2 3 High LIKELIHOOD

Inherent Opportunity (10) - The opportunity ofsubmitting a lower offer after April 8th without reference to staff's risk tolerance that could reduce or eliminate this opportunity.

Residual Opportunity (RO)- The opportunity of submitting a lower offer after April 8th with consideration of staff's low tolerance for risk and uncertainty due to the lack of a current appraisal of the property subject to acquisition. Auditor General's Assessment of Opportunity Associated with Submitting an offer for $5.2 Million after April 8th

High 3

IMPACT

Low 0 1 2 3 High LIKELIHOOD Inherent Opportunity (10)- The opportunity ofsubmitting a lower offer for, say, $5.2 M after April 8th without reference to the purchaser's risk tolerance that could reduce this opportunity.

Residual Opportunity (RO) - The opportunity ofsubmitting a lower offer for, say, $5.2 M after April 8th after considering tolerance for risk after obtaining an updated appraisal ofthe property subject to acquisition. Auditor General's Assessment ofthe Opportunity Associated with Submitting an offer for $5.4 Million after April 8th

High

IMPACT

Low 0 I 2 3 High LIKELIHOOD Inherent Opportunity (10)- The opportunity ofsubmitting an offer for $5.4 M after April 8th without reference to the purchaser's risk tolerance that could reduce this opportunity.

Residual Opportunity (RO) - The opportunity of submitting an offer for $5.4 M after April 8th after considering tolerance for risk after obtaining an updated appraisal of the property subject to acquisition. Auditor General's Assessment of Opportunity Associated with Submitting an offer for $5.7 Million after April 8th

High

IMPACT

1

Low 0 1 2 3 High LIKELIHOOD Inherent Opportunity (10)- The opportunity ofsubmitting a lower offer for $5.7 M after April 8th without reference to the purchaser's risk tolerance that could reduce this opportunity.

Residual Opportunity (RO) - The opportunity of submitting a lower offer for $5.7 M after April 8th after considering tolerance for risk after obtaining an updated appraisal of the property subjectto acquisition. AG .. 11-01.) Ron Foster r.nt:.f1

Jffl: David Potts Sent: Wednesday, July 18, 2012 5:29 PM To: Chris Harper Cc: Jag Sharma; Ron Foster; Craig Kelly; Kelly Gravelle Subject: CM-12-32 Operations Centre terms of conditional offer July 12 (2).doc

Chris: Attached is the draft. I've limited further review to the highlighted passages which you advise are the only revisions to the draft that Craig distributed yesterday. Just a couple of comments in the attachment. I defer to others' good judgment respecting the relationship between appraised values and the negotiated purchase prices. As discussed, I think the key is to ensure that council is informed and note the revisions toward to that end.

I had recommended earlier that the actual offers be attached and that the report be limited to the acquisition of the land, with any additional information advanced in a separate open session report, if necessary. Those recommendations continue to apply, although I acknowledge that the report may not be consistent with those recommendations.

I hope this helps. Please do not hesitate to contact me if you wish to discuss further.

- Dave

CM-12-32 i:rations (Ent...

1 ~Oshawa· Report

C To: Council in Committee of the Whole Item: Date of Report: CM-12-32 July 17, 2012

From: Bob Duignan File: Date of Meeting: City Manager E-1200 July 23, 2012

Jag Sharma, Commissioner Communitv Services Deoartment Subject: Proposed Acquisition of Land CLOSED MEETING

Closed Meeting Authority

0 Security of the D Personal matters (8J Proposed or 0 Labour relations or property of the about an pending employee City identifiable acquisition or negotiations individual disposition of land

0 Litigation or D Advice subject to O Authority under potential solicitor-client another Act litigation privilege

1.0 PURPOSE

The purpose of this report is to seek Council authorization to enter into Agreements of Purchase and Sale for the acquisition of two adjacent properties located at 199 Wentworth Street East and 945 Ritson Road South for the proposed development of an Operations Centre, conditional upon the terms and conditions set out in Attachment 2 to this report. Authorization is also sought to sole source the professional services to undertake the necessary due diligence required to acquire the properties.

Attachment 1 is a copy of Report CM-12-30 which was approved by Council on June 25, 2012.

Attachment 2 is the set of terms and conditions that form part of the Agreements of Purchase and Sale.

Attachment 3 is the memorandum containing the Auditor General's comments. Report to Council In Item: CM-12-32 Committee of the Whole (Continued) -2- Meetl~g Date: July 23, 2012

2.0 RECOMMENDATION

It is recommended to City Council.

1, That the Mayor and Clerk be authorized to execute Agreements of Purchase and Sale for the properties described in ConfidenUal Report CM-12-32 dated July 17, 2012 consistent with the terms and conditions outlined in Attachment 2 and in a form and content satisfactory to the City Manager and the City SoUcitor;

2. That the expenditures ouWned in the Confidential Report CM-12•32 relating to the refundable deposits that will accompany the offers to purchase the properties be approved;

3. That staff report back to Council after completion of the due diligence work set out in the Agreements of Purchase and Sale for direction on the closing of the Purchase and Sale transactions: and

4. That the requirements of the Purchasing By-Law be waived to allow staff to sole source the professional services required to Independent Project Managers (1PM). 1PM will perform the due dillgence work necessary to satisfy the conditions in the City's sole discretion set out in the Agreements of Purchase and Sale for the benefit of the Ctty with the cost not to exceed the amount set out in Confidential Report CM-12-32.

3.0 EXECUTIVE SUMMARY

 Not applicable

4.0 INPUT FROM OTHER SOURCES

4.1 General

 Corporate Leadership Team  Economic Development Services  Legal Services  Works and Transportation Services  Director, Corporate Initiatives and Special Projects

4.2 Auditor General

j., The Auditor General's comments are shown in Attachment 3 Report to Council In Item: CM-12-32 Committee of the Whole (Continued) -3- Meeting Date: July 23, 2012

, The Auditor General will provide his comments in this report to Council in a separate report prior to the meeting on June 23.

5.0 ANALYSIS

 At its meeting of June 25, 2012, Council received Confidential Report CM-12-30, Potential Acquisition of Land, dated June 21, 2012 (Attachment 1) which outlined the recommended location for the City's Operations Centre on adjacent properties located at 199 Wentworth Street East and 945 Ritson Road South.

 The recommended sites provide the best opportunity for the City to realize a consolidated depot at the lowest cost. In comparison other alternatives would cost more than double the identified development costs and would result in a depot with far less consolidated services

 Staff has received appraisals for both properties. The 199 Wentworth Street East property has been appraised at approximately $6.0 million and the 945 Ritson Road South property has been appraised at approximately $1.7 million.

 The Auditor General Independently commissioned a peer review of the Initial appraisal where a lower value for the 199 Wentworth site was noted. The Peer review promulgate';. a value )n the range of $5,200.000 +/1J~~_yjr.9. ~.Aiff..~r~i:i.~.J~..Y.~!!-!.~ Comment (OJP1]: SS 16 nulhon is the upper ~opinion" of1'1'800,000+/-.I end ofar:ngc 1ho1 the "l'Orl indic.tlOS was S4 3 lo $5. I 6million. The phr.uc, "in the ransc oUS,2000 ~,... maybe misleadini

 As the building is a mix of both industrial and office space with a total reported square Comment [DJP2]: Simil&rly, Ibis could be L'S footage of 86,000 square feet, finding comparables to assess market value proved 8J'CAl u SI 7miUion 10 the rercrtncc 10 SSOOK may difficult for the appraisers which may In part explain the difference In market value as be rnisl

 The office component of the facility also contained significant leasehold Improvements made by the previous tenant who operated a full time call centre In the facility. Comparing the 199 Wentworth office components with that of large industrial facilities whose purpose Is only to serve and support the industrial component may not be an accurate comparison in value.

 Notwithstanding the differences in appraised values, the City is recommending moving foiward with the purchase due to a number of factors as detailed below.

• The value of the stated purchase price for the 199 Wentworth office component building represents $73.00 per square foot compared to an estimated cost to build of $275.00 -$300.00 per square foot. Less than one-third of the cost to build a new office facility.

• The current Ritson depot facility Is deteriorating exponentially requiring ever increasing costs just to maintain the facility to a reasonable standard as well; there Report to Council In Item: CM-12-32 Committee of the Whole (Continued) - 4- Meeting Date: July 23, 2012

are significant health and safety issues which will need to be addressed immediately if an alternate facility is not found. As per item CM-12-30, •staff have estimated that an expenditure of approximately $200,000 Is required immediately and an additional $700,000 will need to be spent on the Ritson deport over the next five years,"

• Staff verbally presented an offer of $5,800,000 to the owners of the 199 Wentworth Street facility, but was rebuffed. The owners made it known that there were ot'1er purchasers who have shown serious interest and countered with the original asking price of $6,500,000.

• Staff negotiated with the agent representing the owners and through the process arrived at an owner supported purchase price of $6,300.000 as detailed below.

 The negotiated purchase prices of the two properties at 199 Wentworth Street East and 945 Ritson Road South are $6.3 million and $1 .63 mlllion respective.

 The balance of the lilegotiated key terms and conditions are outfined in Attachment 2.  During the negotiation process staff learned that offers have been made to purchase and lease parts of 199 Wentworth Street East. Hence there is a small window of opportunity for the Cfty to advance an offer on the Wentworth property.

 It is therefore recommended that the Mayor and City Clerk be authorized to execute Agreements of Purchase and Sale for the properties described in Confidential Report CM-12-32 dated July 17, 2012 consistent with the terms and conditions outlined in Attachment 2 and in a form and content satisfactory to the City Manager and the City Solicitor.

5.1 City's Due Diligence Responsibllltles

 In accordance with the terms of the Agreements of Purchase and Sale, it is necessary that the City carry out the required work to confirm suitability of the properties for the Operations Centre project through soils and environmental testing, building condition audits and design investigation to confirm feasibility of the depot project, This work will need to be carried out quickly and consequently staff seeks the authority to waive the requirements of the Purchasing By-Law to sole source the coordination of this due diligence analysis to Independent Project Managers (1PM}. 1PM has been identified as the preferred project coordinator due to .

• Their extensive knowledge of 199 Wentworth Street East as 1PM was the project manager for Durham College's repurposing of the site; • 1PM was the project manager for the Ajax Depot project and therefore has great expertise; and • tPM is project manager for the Pickering Depot project as well. Report to Council In Item: CM-12-32 Committee of the Whole (Continued) -5- Meeting Date: July 23, 2012

 The due diligence analysis will provide additional confidence that the $25 million project envelope will be sufficient.

 It is anticipated that this due diligence work will take approximately four months to complete with a closing date of January 15, 2013 to allow for real estate and legal proceedings.

 Prior to the end of the conditional period, staff will report to Council on the results of the testing and investigations conducted in relation to the properties. Based on the results of the testing and investigations, staff will seek approval from Council to waive the conditions in the Agreements of Purchase and Sale and acquire the properties.

6.0 FINANCIAL IMPLICATIONS

 The Agreements of Purchase and Sale both require deposits: $315,000 for 199 Wentworth Street East and $81,500 for 945 Ritson Road South . In the event that the City's conditions set out in the agreements are not met to the City's satisfaction in Its sole discretion, the deposits will be refunded to the City without interest or deduction. Alternatively if the City decides to close the agreements the deposits will be applied to the cost of the purchase.

 The estimated cost of the due diligence work is approximately $90,000.  These expenditures will be charged to the existing project account. Should Council not ultimately approve the project, a funding source for this cost will be required.

 The total estimated cost for the purchase of these properties and renovation and construction of various facilities on these properties is preliminarily estimated at no more than $25 million and is provided for in the Financial Strategy.

 The Financial Strategy, to be presented to Council on September 14, 2012 and available to each member before the end of July, outlines the funding sources, specifically approximately $6 million will be funded from the Major Facility Reserve with $200,000 from the Gas Tax Reserve, reducing the net debenture requirement to $18.8 million.

 This project can be phased-in so that expenditures can be spread over three years.

• Year 1 - $11 million

- Property acquisition - Retrofit of office and warehouse space enabling the relocation of Fleet and some office staff Report to Council In Item: CM-12-32 Committee of the Whole (Continued) -6 - Meeting Date: July 23, 2012

• Year 2 - $10 million

- Consolidation of Roads, Traffic, Waste and Parks operations - Vehicle storage and remaining outdoor structures

• Year 3 -$4 million

- Repurposing of the Ritson Road and Simcoe Street sites and further refinement of the office/warehouse space

 This phased-in approach is affordable within the Financial Strategy being presented to Council.

 Note that a condition of the closing is that Council is satisfied with the project funding strategy. It is therefore recommended that the land development costs for the properties as set out in Confidential Report CM-12-32 be endorsed in principle and be referred to the City's Financial Strategy for confirmation and final approval.

 The final design for the Operations Centre could possibly result in a temporary surplus of office space in the buildrng at 199 Wentworth Street East. Should this occur, staff would seek to find an appropriate tenant(s) to lease this space with the intent of reducing the City's operating costs, providing the tenant's use of the space is compatible with the City's plan for the building.

 Industry Canada has announced a new funding program for infrastructure projects. Staff investigated this opportunity and this project does not meet the required specifications. Staff will continue to seek other funding opportunities.

7.0 RESPONSE TO THE COMMUNITY STRATEGIC PLAN

 This report supports Goal C3 ; "Taking Action and Ensuring Accountability·

Jag Sharma, B.Sc., M.B.A., Commissioner Community Services Department Report to Council In Item: CM-12-32 Committee of the Whole (ConUnued) -7- Meeting Date: July 23, 2012

Bob Duignan City Manager

Attachments ~ONFIDENTIAL ltG'-· tj·· OCJ August 13, 2012 J.+~qchm~n+ B

Ronald Foster 14(,--,1... ) -~ ...... The Regional Municipality of Durham

Clerk's Department Request for Information under the Municipal Freedom of Information 605 ROSSLAND RD. E and Protection of Privacy Act (MFIPPA) - Our File: A20-2012-027 POBOX623 WHITBY ON L1 N 6A3 CANADA I have been advised by our Finance and Works Departments, that we 905-668-7711 have no records with respect to offers or agreements for the property 1-800-372-1 102 Fax: 905-668-9963 located at 199 Wentworth Street East, Oshawa between January 1 , 2012 E-mail; [email protected] and July 15, 2012. www.durham.ca

Pat M. MadUI, A.M.C.T.. CMM Ill Regional Clerk 14(1r

P.M. Madill, A.M.C.T., CMM Ill Regional Clerk/ Municipal Freedom of Information and Protection of Privacy Coordinator

:jc

c: J. Fice, Manager, Financial Reporting & Analysis, Finance Department J. Demanuele, Director of Support Services, Works Department

"Service Excellence for atir Communities"

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Property Valuators/Consulting Inc. Toll Free NCI 1.800.465.0627 Toll free COAi 1.800.619.8258 www pvci.ca 401 Bay Centre, 1600-401 Bay Street, Toronto, ON MSH 2Y4 416.646.67S6 Fax: 416.363.0406 182 Wellington St W., Bawmanville, ON l1 C 1W3 905,623.6023 Fax 905.623.8185 lnfoOpvd.ca 213-126 Wellington St. W., Aurora, ON L4G 2N9 905.503.1939 Fax 905.503.1937 coaOpvd.ca

April 11, 2013 Our File: #2131114

Clty of Oshawa 50 Centre Street South Oshawa, ON L1 H 327

Attention: Ron Foster, Auditor General

Dear Mr. Foster:

Re: 199 Wentworth Street East. Oshawa, Ontario

In accordance with your reques~ we have completed an update on the letter we sent to you dated July 18, 2012. We have completed a search to find all sales of lndustrlal buildings within Durham Region which have sold since the beginning of 2012. It should be noted, due to time constraints, we did not Investigate all of the comparable sales beyond what we know from our own files. However, we have appraised about half of the comparable sales in recent years, and our flies are extensive. It should be noted that we did not investigate land use Issues. Our findings are summarized below.

------Sales Comparison - Durham Reg:on Industrial Buildings Floor Area Site Office Year Sale Location Dale Price (S) (s.f.) Density Area Constructed S/s.f. 1 1850 Clements Rd., Pickering Dec-12 3,685,790 149.417 21% 20% 1965 25 2 119 Consumers Dr., Whilby Aug-12 2,215,000 59,448 40% 10% 1976 37 3 880 Farewell St, Oshawa Jun-12 1,100,000 28,912 18% 7% 1967 38 4 17-29 Clgas Rd., Clarington JuJ-12 1,750,000 44,070 12% NIA 1986 40 5 460 Finley Ave., Ajax Feb-13 3,300,000 65,647 45% 7% 1974 50 6 153 Crown Crt.. Whilby Oec-12 2,150,000 41,136 39% 19% 1982 52 7 680 Granite Crt., Pickering Sep-12 5,300,000 95,950 47% 4% 1979 55 8 895 DIiiingham Rd., Pickering Mar-12 1,700,000 30,000 39% 20% 1974 57 9 940 Thornton Rd. S., Oshawa Jan-13 6,350,000 108,659 21% 5% 2005 58 10 555 Beck Cres., Ajax Feb-12 5,748,000 99,600 30% 3% 1987 58 11 72 Orchard Rd., Ajax Feb-12 1,310,000 22,000 17% 14% 1978 60 12 1732 Baseline Rd., Clarington Jun-12 1,800,000 27,200 46o/o NIA 1989 66 13 651 Haiwood Ave. N., Ajax May-12 6,750,000 102,000 47% 5% 2011 66 14 232 Fairall SL, Ajax Jun-12 1,800,000 26,248 55% 7% 1953 69 15 200 Statton St., Ajax Jul-12 2,250,000 29,600 48% 30% 1980 76 16 252 Hunt St, ,AJax Sep-12 1,700,000 20,620 22% 15% 1959 82 1970; addition In Sub'ect NIA NIA 86,017 45% 52% 2003 NIA City of Oshawa April 11, 2013 Mr. Ron Foster

Re: 199 Wentworth Street East Oshawa, Ontario

The three closest comparable sales discovered show a range of $55 to $58 p.s.f. However, ii should be noted that none of the sales are truly identical in all aspects with few having an office component greater than 20%. However, based on the information and data at hand, our previous estimate of value of $50 to $60 p.s.f. is unchanged.

Respectfully submitted,

PVCI Inc.

14{1) 1.:l(1)

Derek Williams, AACI, P.App. Murray Visser, AACI, P.App President

File Number2131114 I PVCI Inc t.1111 ' Sale 7: 680 Granite Court

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Property Detalls Location Pickering Year Constructed 1979 Date of Sale September 2012 Sfte Density 47% Purchase Price $5,300,000 Office Space 4% Floor Area 95,950 sJ. Vendor Investors Group Price I S uare Foot $55 Purchaser Premier Brands Comments Building is

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File Number2131114 I PVCI Inc. Sale 8: 895 Dillingham Road

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Property Details Location Pickering Year Constructed 1974 Date of Sale March 2012 Site Density 39% Purchase Price $1 ,700,000 Office Space 20% Floor Area 30,000 s.f. Vendor 613113 Ontario Inc. Price/ Square Foot ~ $57 Purchaser 1579386 Ontario Lid. Comments Single storey, multi-tenant industrial building was vacant at the time of sale but previously occupied by Rockwood Furniture, Micron Securi and JYS Enler-'"-il"""""'-- rise. ------,1'"1

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FileNumber2131114 I PVCI Inc. - Property Details Location Oshawa Year Constructed NIA Date of Sale January 2013 Site Density 21% Purchase Price $6,350,000 Office Space 5% Floor Area 108,659 s.f. Vendor 940 Thornton Rd. Holdings Ltd. Price I Square Foot $58 Purchaser Del Monte Fresh Produce Comments

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FileNumber2131114 I PVCI Inc . ... AG .. lj-09 1.JJo.<:h>t,l.li,f" City Manager's Office Legal Services

Friday, February 22, 2013

Our File No. D-4650-0526 2012

Via Facsimile: 905-721-0868

Kitchen Legal 95 Simcoe Street South P.O. Box 82 Oshawa, ON L1 H 7K8

Attention: Ronald J. Kitchen

Re: (1) Oshawa (Cfty) plf The Durham College ofApplied Arts and Technology - 199 Wentworth St. E. D4650 0526 2012 (2) Oshawa (City) p/f 8 Acre Properties Inc. - 945 Ritson Rd. S. 04650 0527 2012

Thank you for your letter of February 20, 2013 and for meeting with City staff, the principal of 8 Acre Properties Inc. and its legal counsel. This letter and the meeting on February 19, 2013 are without prejudice to the parties' rights under the agreements of purchase and sale, time in all respects remaining of the essence.

Wrthout timitation, the City's due diligence investigations have revealed issues that require the City to negotiate amendments to the City's agreement with 8 Acre Properties Jnc. ("945 Ritson Agreement") and to investigate the possibility of acquiring additional land from a third party. As well, by letter dated September 18, 2012, the City's consultant, Independent Project Managers ("IPM"), forwarded to Ralph April on your client's behalf IPM's report outfining issues respecting buildings on your client's property. Resolution of these issues requires additional time.

Further, we thank you for advising that your client is in possession of two environmental reports. You have advised that one report dated August 1, 2002, "Project Brief on Conceptual Site Remediation Plan and Costing - 945 Ritson Road South, Oshawa. Ontario", was prepared by Decommissioning Consulting Services Limited and is addressed to The Durham District School Board. You have advised that it does not relate to the lands the subject of our client's agreement respecting 199 Wentworth St. E. ("199 Wentworth Agreement"). If so, r agree with your conclusion that the 199 Wentworth Agreement does not compel your client to produce It. However, you have undertaken to release a copy of that report on conditions set out in your letter. The City agrees to those terms and looks forward to receipt of the report as soon as is practicable.

During our meeting, you advfsed of a second environmental report prepared for your client by Barenco Inc. before your client acquired its property. We will appreciate delivery of that report and any other reports in your client's possession pursuant to the 199 Wentworth Agreement.

The Corporation of the City of Oshawa, 50 Centre Street South, Oshawa. Ontario L 1H 327 Phone 905·436·3311 1·800·667·4292 Fax 905·436·5689 www.oshawa.ca In the circumstances, staff are intending to recommend to Council and will appreciate your -:Ii~ s agreement to amend the 199 Wentworth Agreement on the following terms, all other .erms and conditions remaining the same and time in all respects remaining of the essence:

1. Purchase price to be revised to $5,395,000.00; 2. Purchaser's conditions date extended to May 31 , 2013; 3. Completion date extended to (date following extended purchaser's conditions date]; 4. New Schedule A, paragraph 6(b.1}: "the acceptance of an offer from the Buyer to purchase from a third party land adjacent to the property"; 5. New Schedule A, paragraph 6{b.2): "the amendment of the Buyer's agreement to purchase 945 Ritson Road South on terms acceptable to the Buyer"; and 6 . Amend Schedule A, paragraph 6{c) to add reference to third party land adjacent to the property and to revise completion date to a date following the extended Purchaser's conditions date.

We will appreciate confirmation of your client's agreement to these terms so that we may report to Oshawa Council.

You~ truly,

Key Ass1 nt City Solicitor Legal Services

:mo j tHlLPl.NOUn PfW.JfCT ll?M MAtMGt"RS

September 18, 2012

Mr. Ralph April Associate Vice President, Facilities & Ancillary Services Durham College 2000 Simcoe Street North Oshawa, Ontario L1 H 7K4

c/o Mr. Christopher Harper Real Estate Manager City of Oshawa 50 Centre Street South Oshawa, Ontario L1 H 327

Re: Agreement of Purchase & Sale, 199 Wentworth Street East, Oshawa Project No. 12005

Ralph,

We have been engaged by the City of Oshawa to perform a due diligence study of th above noted transaction to assist in satisfying all conditions associated with the reference agreement

Attached is a summary of the Issues that have arisen during the process.

In order to advise·the City of Oshawa regarding removal of the conditions at the designate, time limit, we feel it prudent to draw your attention to the concerns as listed.

Please advise of any actions you are prepared to consider to alleviate these concerns.

Should you wish to discuss this in greater detail, please feel free to contact me by ce phone at (905) 718-9127.

Sincerely, 14(1)

Denis O'Connell Project Manager 6 K1ng Street West Su1te 201 DOC/Ip Oshawa. Ontario LlJ 2J9 P: 905 723 9300 F: 905 723 9394 www.1pmanagers,ca 12005L180912 wpd I NIJl.PUJflUJT PH(hH.CT •:J?M MANMirnS

SUMMARY OF ISSUES Agreement of Purchase & Sale 199 Wentworth Street East, Oshawa

Project No. 12005 September 18, 2012

Condition 1. (bl:

With reference to the above, the following items have been highlighted by our building envelope specialist, BVDA Facade Engineering Ltd., in their Condition Assessment of Building Envelope Systems dated August 22, 2012 (attached):

1. Failure of the curtain wall glazing may require calling upon an existing warrantee Issued to Durham College. In the absence of this deficiency being addressed by Durham College prior to occupancy by the City of Oshawa, costs to the City could be in the $200,000+ range, inclusive of soft costs.

2. Other miscellaneous items outlined in the report that require remediation total approximately $65,000. Is the College willing to rectify these problems?

3. The original office/warehouse roofs require immediate attention for local deterioration at an estimated cost of $20,000. Is the College willing to rectify this problem? Further, the report states these roofs will require re-roofing in 2 - 5 years at an estimated cost of $620,000. Is the College willing to assist regarding some of this estimated cost?

4. Please provide service information regarding the generator (i.e. when was it last started/tested)?

5. Please provide service information for the HVAC units, boiler and pumps (particularly, the in-line boiler re-circulation pump #1 which appears to require attention).

6. There appears to be live redundant equipment disconnects in the existing boiler room for "Battery Room Charger" and in the adjacent room for miscellaneous unlabelled disconnects. No battery room could be located. It is recommended that these be de-energized and/or removed. Is the College willing to rectify this problem?

7. Please provide all maintenance manuals for on site equipment, together with any training videos that are available. 16 "i ng Street West Suite 201 •hawa, Onta r1 o LlJ 2J9 P: 905 723 9300 F: 905 723 9394 www.ipmanagers.ca 12005 ExisUng Building Condilions wpq I NO[Pr.trnr.rn PfW ,H CT :J?M MMU1Gf RS

SUMMARY OF ISSUES Agreement of Purchase & Sale 199 Wentworth Street East, Oshawa

Project No. 12005 September 18, 2012

Condition 2 & 3:

We have acquired a Designated Substances Survey dated September 10, 2012 as prepared by Golder Associates Ltd. (attached).

We anticipate no issues with the future removal of environmental conditions.

16 !ling Street West Suite 201 1awa. 0ntar1o llJ 2J9

P: 905 723 9300 F: 905 723 9394 www.1pmanagers.ca 12005 Existing Buildlng Conditlons.wpd AG- 1'1- O'}

p ...,, Foster Cm1/,'J,.);~ I J..J..lach11un./ E'

._rom: David Potts Sent: Wednesday, February 20, 2013 3:06 PM To: Bob Duignan; Tom Hodgins; Jag Sharma; Ron Foster Subject: Depot • Durham College Utachments: Durham College.pdf

Please see Ron Kitchen's letter attached I'll be circulating draft e-mails to each of the solicitors that address the particulars of our requests, as discussed. I've a few comments in the interim

First, it was not intended to set out a dollar f19ure for the Durham College abatement because that detail was not, to my recollection, discussed at the recent meeting and had yet to be discussed. I see, however, that Ron has referenced it as being $500K and rejected that sum. Curious.

Second, on the strength of Ron's representation that the ODSB report wdoes not relate to the lands that [Durham College is] selling", the three conditions proposed by Ron are not unreasonable. Please confirm that I may request it on that basis (including, particularly, the copying costs}.

Third, their expectations about the timing and conditions in which Council will decide to proceed or to not proceed will be lowered somewhat by the fact that we're requiring them to now afford the same due diligence process for a third property that has been applied to the process for the current two properties.

Regards David J. Potts I City Solicitor & Head, Legislative and Regulatory Directorate I Oshawa I (905) 436 3854 ~ e-mail is co11fldential, solely for those to whom 11Is addressed and must not be otherwise diStribuled. copied or disclosed If you are not an addressee lilied above. please Immediately delete all copies and notify the sende<

j KITCHEN

RONALD J. KITCIIEN J'H• 905-436-8787 FX: 905•721•0868 tldtelleu@kl1wn1osa1 c:11

Our File Number: 2160

February 20, 20l3

Mr. David Potts, City Solicitor City ofOshawa 50 Centre Street South Oshawa, ON LlH 3Z7

Dear Sir:

Re: City of Oshawa purchase from Durham College 199 Wentworth Street. Oshawa, Ontario

Thank you for the opportunity to meet with you and other members of City staffon February 19, 2013 to discuss thjs transaction. Arepresentative ofthe owner of 945 Ritson Ro~d South, Yvene Lagrois, and the owner's lawyer, Jason Schmidt were present at the same time.

In the course ofthe meeting I disclosed that we are in possession ofa "Project Brief on Conceptual Site Remediation Plan and Costing - 945 Ritson Road South, Oshawa, Ontario" prepared by Decommissioning Consulting Services Limited, dated August l, 2002. This report is addressed to The Durham District School Board. My client, Durham ColJege, obtained a copy ofthis report in connection with its interest in this property. The report was obtained with the consent ofThe Durham District School Board. Since this report does not relate to the lands which we are sc1ling, we do not believe that we have a contractual obligation to provide it under our Agreement ofPurchase and Sale.

My client has no objection to releasing a copy ofthis report to you upon the following terms and conditions:

(a) That we r~eive a letter, addressed to my client and this law firm, confinning the consent ofThe Durham District School Board to the further.release ofthis report to the City of Oshawa.

(b) That this disclosure will be considered as part ofyour legal file with the intention that it will not be compellable under aFreedom oflnformation Request.

95 SIMCO£ST. S. P.O. BOX 82 OSHAW/\ ON LIH 7K8 ·KITCHEN

Page2 (c) That the City will reimburse us for the cost ofmaking acopy ofthis report for our records. We intend to retain 11 copy shop for that purpose.

We are also responding to your request for an extension ofthe key dates related to this transaction. My client agrees to the extension ofthe conditional period in our agreement to Friday, March 22, 2013. Further, we agree to an extension ofthe completion date to March 26, 2013.

However, my client wishes to express the following expectations concerning this transaction. First, ifyou are una.ble to settle the tenns ofII revised agreement with the owners of945 Ritson Road South, that you will promptly advise us so that our contractual relationship could be terminated by agreement. We understand that the City ofOshawa would not proceed to acquire the property owned by the College on its own. Therefore, it would be in our mutual interest to bring the agreement to an end so that the College may pursue other options.

Second, we anticipate that the City of Oshawa will request some abatement ofthe purchase price in respect ofcertain building conditions which it has identified. Specifically, we are aware ofconcerns in connection with the roof ofthe older section ofthe building and some of the windows in the newer section of the building. Your request for an abatement of$500,000 is unacceptable. However, we are quite willing to explore an objective determination ofthe costs ofremedial work. We ask your co-operation in specifically and promptly addressing the issue ofthe abatement so that the matter can be finaJly settled during the conditional period.

Yours very truly1 14(1)

RONALD J. KITCHEN RJKJkm BY FAX ONLY

Copy To: Mr. Don Lovisa

TOTAL P.02