City Manager Paul Schulz reported a $1.2-million budget shortfall due to staff errors at the regular council meeting, Feb. 6.
The mistakes were made in the capital budget for building two fire halls, the King’s Heights and Chinook Winds stations. A significant error was made regarding cost projections used in a May 2010 council report, which was not noticed until December.
“When this error was brought to our attention, we took it very seriously and took full responsibility,” said Schulz.
“These errors should not happen. Since learning of this issue it has taken highest priority. Our goal was to complete an autopsy… find out what happened, make sure it doesn’t happen again and find a way to fund the shortfall.”
The $1.2-million mistake consisted of $765,000 for the site work done by City crews, $216,000 for fibre installation for the Main Fire Hall (in Chinook Winds) and $300,000 for future engineering costs.
Schulz attributed the error to incorrectly determining the required budget amount, a lack of internal controls over the construction change order process and other oversights by staff.
“At the end of the day, our systems in terms of procurement did work,” said Schulz.
“It’s how the project error was caught. Unfortunately, it’s too late. This is a tremendous learning experience for this organization and will result in enhancements to our system. I’m very thankful we have a solution that does not affect the 2012 budget or the tax base.”
Schulz recommended the $1.2 million be funded by Alberta Municipal Infrastructure Program (AMIP) grant. According to Director of Corporate Services Jana Jaeger, savings in 2011 capital projects, switching grant funding for various roadway projects and earned grant interest have worked towards freeing up the necessary dollars.
“I’m concerned about the financing of this,” said Alderman Murray Buchanan.
“Only a couple of months ago we debated the budget and when I suggested moving MSI (Municipal Sustainability Initiative) funding from Bert Church Theatre to Genesis Place Phase Three, I was told I shouldn’t do that because MSI is tight. How did we find $1.2 million?”
Jaeger said in December when the budget was debated, City staff did not know about the AMIP funds or the amount of savings from 2011 capital projects.
The report recommended a number of steps to ensure a similar mistake doesn’t happen again. The City will now use a major construction project control sheet for detailed reporting for major construction projects.
Amendments will be made to change orders and the process, staff will conduct a review of the budget warning process and budget adjustments between projects will be scrutinized.
In total, the report recommended 12 steps to make sure doesn’t happen again.
Buchanan asked Schulz if he ensured checks and balances were in place when he took over the City’s top position.
“When you became City manager, did you just assume the last City manager had controls in place or did you test the system yourself?” he asked.
“Certainly (project management) is the No. 1 gap where you could have the highest liability. Did you check to see if the previous manager left you an a good position?”
Schulz said because he was part of the senior team, he assumed the proper checks were in place.
“I hadn’t experienced any issues with the many large projects I had helped work on,” he said.
“I was part of the senior team and we worked with the system. Up until today, I had no reason to think there were significant gaps.”
Buchanan was also concerned about the number of recommendations required to ensure the oversight never happens again.
Schulz said it was a significant mistake that forced the City to inspect its system on all levels.
Alderman Allan Hunter said he was concerned about the City’s ability to manage large projects.
“We are only going to get bigger with the annexation and our projects are only going to get bigger,” he said.
“I am getting the sense we are not really good at managing big-dollar projects. When the budget came out, we needed to get money from taxpayers and now we come back and say we found $1.2 million. The fact we found the money raises some really interesting political scenarios. I read the report and there was nothing I could see that was malicious but we really need to up our game on large capital projects. We need to raise some things that I don’t think were addressed in this report.”
Mayor Peter Brown said this incident will decrease the public’s confidence in the City.
“Although we found the money in grants, it is still taxpayers’ money,” he said.
“This is going to be a hit to the confidence from a community perspective. I have a concern with the issue of the people making the mistakes coming up with a solution. Obviously this is a discouraging time.
You can see a lot of sad faces in this room. I respect everyone for the efforts they have put in to rectify the situation. Hopefully we will rebound quickly and let the residents know we are responsible for our actions.”
Buchanan voted against the motion to amend the 2011 capital budget to fund the $1.2 million through grant dollars.
“I didn’t think it was acceptable,” he said.
“I don’t think we got to the root of the problem. We need to accept responsibility and it shouldn’t be pulled from grants, we should make cuts to the 2012 budget. We were assured in November that the project was on budget and yet we find out it was not. I was very disappointed to find out that controls weren’t in place.”
