$25 million in Ornge money unaccounted for
March 1, 2012 By The Toronto Star
March 1, 2012, Toronto - Roughly $25 million dollars raised by Ornge with Ontario taxpayers’ help cannot be accounted for.
Investigators, financial and criminal, are digging into the case to see if the money was blown on a spending spree, bad business decisions or if some of it lined executives’ pockets.
The money comes from $275 million that Ornge raised from Canadian investors in 2009 to purchase new airplanes, helicopters and an office building. Ontario taxpayer money is repaying the investors.
The Toronto Star has reviewed documents related to the deal and Ornge payments and can account for only $250 million of purchases. They include the following:
• $150 million for 12 AgustaWestland helicopters and the high-tech medical interiors
• $46.8 million for 10 Pilatus single-engine airplanes, including medical interiors and communication equipment
• $16 million to purchase and renovate the office building employees have dubbed the “Crystal Palace”
• $30 million for Ornge’s purchase of a fleet of aging S-76 Sikorsky helicopters from Canadian Helicopters, which had the air ambulance contract for years in Ontario.
• Roughly $6 million in assorted payments, including the purchase and renovation of a Thunder Bay hangar; new tractors to pull the helicopters in and out of the hangars; the lease on a Hamilton hangar that was not used for 14 months; and purchase of rarely used ground ambulances.
• $1.3 million in fees to the financial company that handled the transaction
In total, the Star and ORNGE insiders who have looked at the same documents can find $250 million clearly accounted for. In addition there were legal fees but even including $2-3 million for those leaves the known expenditures far short of the $275 million that came flooding into Ornge in 2009.
An ORNGE spokesperson said that due to the OPP probe, these and other questions cannot be answered.
“We are unable to provide the information you requested as it may or may not fall within the parameters of the OPP investigation,” said ORNGE spokesperson James MacDonald.
ORNGE already receives $150 million a year from Ontario taxpayers to run the air ambulance service, which uses helicopters for emergency calls and airplanes to transfer patients between hospitals.
Historically, Ornge’s predecessor (Ontario Air Ambulance) contracted with Canadian Helicopters and a series of small air carriers to deliver the service.
When former health minister George Smitherman and Dr. Chris Mazza created Ornge in 2005, that began to change. By 2007, Mazza was moving ahead on plans to change Ornge from an air ambulance coordinator to an air ambulance company. The problem he faced was how to purchase aircraft while still using the province’s annual $150 million to deliver the service.
With the help of former Fasken Martineau counsel Alf Apps, the newly created “Ornge Issuer Trust” issued debentures in a private placement, selling $275 million in $1,000 units. With interest of 5.72 per cent, and the knowledge that taxpayers money would repay investors (payments of interest and principal) the debentures sold quickly. According to a Fasken Martineau news release the deal closed in June 2009.
“Ornge Issuer Trust intends to use the proceeds from the financing to, among other things, fund essential infrastructure required for Ontario’s air medical transport service, including the purchase of new rotary and fixed-wing aircraft as well as the acquisition and improvement or expansion of certain related aircraft infrastructure. Ornge Issuer Trust will lease or license such aircraft and infrastructure to an affiliate of Ornge that provides the aero-medical transport services to the Province of Ontario,” the release states.
Apps, who previously told the Star the deal was one of the most successful of its kind, recently left Fasken Martineau after stories in the Star revealed high legal fees paid from Ornge to the law firm.
Ornge insiders say ministry of finance investigators and now the police are trying to determine where money that has come into Ornge was spent, including money from the debentures.
As the Toronto Star continues its investigation, we have learned that, in the words of a former Ornge accountant, money was spent “like water.”
The question for police is: were there simply bad business decisions or was it something more sinister?
In the former category, the Star has found numerous examples of unusual decisions. What is not clear is the source of funds for the examples that follow (and others) and where additional funds were spent.
For example, Ornge’s chief operating officer (aviation) Rick Potter, who lives in Thunder Bay, and works in Mississauga, is flown each week at Ornge expense back and forth to Thunder Bay. Ornge pays his weekly accommodation bill in Mississauga. Ornge told the Star that Potter does work for the air ambulance firm in Thunder Bay when he is there.
In another example of wasted money, ORNGE will by this October have paid about $760,000 in lease payments for its long empty former offices and to get out of a lease early. A new tenant was finally found last December, but as part of the deal Ornge is still paying half the rent until October. ORNGE purchased the “Crystal Palace” and moved in more than a year ago, leaving behind an empty and nicely renovated series of offices.
For the police and financial investigators, the difficulty will be sorting through Ornge’s two streams of revenue — the $275 million in private financing and the $150 million in annual public funding. Then investigators need to determine where the millions went.
Insiders say they are probing the expense accounts of Mazza and other executives, as well as looking into $1.2 million in no-interest loans and a cash advance to Mazza.
Detectives will also be confronted with large travel expenses, including executive trips to Switzerland, France and Brazil, typically first class air fare and the finest hotels. Those trips were taken to visit aircraft suppliers and also to try and kick start Ornge’s for-profit companies, which have now been shut down.