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Convoluted transactions inflated value of Ornge's head office

The head offices of air-ambulance service Ornge are shown in Mississauga on Feb. 16, 2012.

J.P. Moczulski for The Globe and Mail/j.p. moczulski The Globe and Mail

An audit to be released on Wednesday raises questions about a lease on the Mississauga head office of Ontario's embattled air ambulance service that is well above the going rate for neighbouring buildings.

The publicly funded Ornge pays $1.4-million a year to one of its subsidiaries to lease the sprawling, two-storey building, documents show. The lease is among controversial financial transactions designed by former insiders of Ornge to create $9-million in surplus value that they in turn lent to one of their private, for-profit companies.

Ontario Auditor-General Jim McCarter questions why Ornge is paying a "premium" over similar buildings in the area to lease its head office, according to people familiar with his audit.

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Ornge signed a 25-year lease in January, 2011, agreeing to pay $19.45 a square foot for the 75,000 square foot building, land title documents show. The going rate for office space in Mississauga ranges from about $12 to $15 a square foot.

The lease inflated the value of the building – an Ornge entity had acquired it two years earlier for $15.6-million – and provided the collateral for a $24-million mortgage loan, the documents show.

The mortgage financing is one of a number of convoluted transactions that have made it challenging for investigators to trace the flow of money at the ambulance service. One of the toughest puzzles has been finding the $24-million raised in the mortgage financing.

According to people following the money trail, the former insiders diverted $9-million from the mortgage financing to Ornge Global GP Inc., a company created to pursue the medical transport business outside Canada.

The Globe and Mail has reported that $5.6-million that Ornge Global GP spent is the focus of a separate Ontario Provincial Police investigation.

Taxpayers are now on the hook for the mortgage loan as well as $275-million in debentures. Ornge was created in 2005 to manage all aspects of the province's air ambulance service. It receives $150-million a year in government funding but also raised money from private investors, many of them Canadian pension funds.

Ornge was marketed to investors as a quasi-government entity that compared favourably to other public sector borrowers, helping it secure a top credit rating for its debentures.

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Ornge's new management has concluded that the air ambulance has no choice but to repay the money, even though the government never guaranteed this obligation.

"Walking away is not a good option," said a person familiar with the situation. "All you really do then is harm the private sector that did nothing wrong."

The Health Ministry is expected to be harshly criticized in the auditor's report for failing to use its powers to oversee Ornge. In the legislature on Tuesday, the Progressive Conservatives and New Democrats joined forces to pass a motion calling on the McGuinty government to appoint a committee to investigate Ornge.

Former Ornge managers and board members refused to co-operate with the auditor, Canadian Press reported.

Amid all the scandal swirling around the organization, the biggest challenge for the new management is trying to retain crucial paramedics, pilots and other air ambulance workers at a time when morale is low.

In such an environment, it is impossible for an organization that provides a life-saving service to hire new employees, said the unnamed person.

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"We've got a fragile organization," he said. "Our brand in the marketplace is mud."

With a report from Celia Donnelly

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