Health ministry staff 'utterly tone deaf' on Ornge warnings

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The Ontario Ministry of Health ignored for three months last fall an explosive draft report from the provincial auditor outlining a series of irregular financial transactions at Ornge.

The final version of the report, released on Wednesday, harshly criticized the ministry for failing to oversee an out-of-control air ambulance service that strayed well beyond its mandate. Ornge created a "mini conglomerate" of private entities that enriched former senior officers and left taxpayers on the hook for $300-million in debt, the auditor said.

Auditor-General Jim McCarter said he sent a draft copy of his report to senior ministry officials last September. Despite the number of red flags in it, including concerns about patient safety, the officials were not "immediately convinced" that there were problems, he said in an interview.

Mr. McCarter described Ornge as a "textbook example" of what happens when the ministry doesn't exercise proper oversight. Government funding for Ornge climbed 20 per cent over four years, while the number of patients it airlifted actually declined.

"The ministry didn't do its job in making sure that taxpayers' interests were being protected," Mr. McCarter told reporters.

Health Minister Deb Matthews first talked to the auditor about his draft report last December. During an often heated news conference, she did not respond to questions about when her ministry staff alerted her to the draft report. But her predecessor, George Smitherman, pointed the finger at the ministry, accusing staff of being "utterly tone deaf" on Ornge.

"A minister can't act if the early warning system is silent," Mr. Smitherman told The Globe and Mail.

Ornge serves as a cautionary tale for financially strapped governments that are looking at shifting more services from bureaucrats to the private sector. The scandal has exposed what can happen when these ventures operate with little transparency or oversight.

Wednesday's revelations also cast an unflattering light on some of Canada's most prominent investment bankers, legal advisers and accounting firms, which advised Ornge when it borrowed $300-million from pension funds and other investors. It is now up to taxpayers to repay those loans, Mr. McCarter said.

A key adviser on these transactions and the creation of a complex web of Ornge affiliates was Bay Street law firm Fasken Martineau. Mr. McCarter said he was surprised by Faskens' legal bills, which he said totalled between $9-million and $11-million.

A Faskens spokesman said the firm welcomes the auditor's report and will continue to co-operate with the investigation.

At a time when the province is grappling with a $16-billion deficit, putting the health care system under pressure to curb rising costs, Ms. Matthews said she finds the issues raised at Ornge "very disturbing." The government introduced legislation on Wednesday to tighten its oversight on Ornge.

"I am sickened when I see people in a position of trust abuse that trust," Ms. Matthews said. "We're talking about people who chose to take money [from]the taxpayers of this province, to take money out of health care, so they could put it in their own pocket."

The auditor's 39-page report highlights a lease transaction on Ornge's head office that Mr. McCarter said "didn't pass the old smell test."

A subsidiary of Ornge bought the head office building in Mississauga for just over $15-million and then leased it to Ornge at a rate 40 per cent higher than fair market rent, according to an independent appraiser retained by the auditor.

As first reported by The Globe, the inflated lease enabled the Ornge subsidiary to borrow $24-million by using the building as collateral. At the time of the audit field work, Ornge was planning to lend the $9-million difference to a for-profit company controlled by the air ambulance's senior management.

During the first five years of the 25-year lease, the audit says, Ornge is paying $2-million above the going market rate.

But much of the paper trail went cold for the auditor because former management and board members blocked his access to transactions involving the private, for-profit entities.

Getting information from the lawyers and executives, Mr. McCarter said, was "like pulling teeth."

Opposition members again called for Ms. Matthews' resignation over the Ornge affair. "The lack of oversight has put essential frontline patient care at risk," Progressive Conservative MPP Frank Klees said.