1998 Arena Deficits

The Audit Committee recommends that:

(1)the following report (September 17, 1999) from the City Auditor be adopted; and

(2)the issue of arena operating budgets be forwarded to the Chief Administrative Officer for consideration as part of his report on Agencies, Boards and Commissions, in terms of eliminating duplication, reducing deficits and increasing revenue.

The Audit Committee submits the following report (September 17, 1999) from the City Auditor:

Purpose:

To respond to the request of the Budget Committee in regards to the operating deficits of certain City operated arenas.

Recommendations:

It is recommended that:

(1)no further action be taken with respect to the operations of the George Bell Arena and the Ted Reeve Arena as it has been determined that the 1998 operating deficits are attributable to one time unusual events;

(2)the present practice relating to the preparation of non-audited financial statements of the Leaside Memorial Gardens Arena be discontinued and the City Auditor be required to conduct an audit of the accounts of the Leaside Memorial Gardens Arena for all future fiscal periods;

(3)the City Auditor report to the next Audit Committee on the operations of the McCormick Arena upon completion of the 1998 audit; and

(4)this report be forwarded to the Budget Committee for their information.

Background:

During 1999 budget deliberations, the City Auditor was requested to review revenues and expenditures of those arenas with large deficits and report back to the Budget Committee with recommendations on how those deficits may be reduced.

The City Auditor has completed the audit of six of the eight arenas which operate as Boards or Committees of Management.

The operating results for the year ended December 31, 1998 are as follows:

(Deficit) Surplus

19981997

George Bell Arena($ 14,299) $10,491Ted Reeve Arena($ 30,056) ($13,229)

Forest Hill Arena $ 80,040 $91,888

Moss Park Arena $ 23,635 $12,582

North Toronto Arena $ 16,612 $17,145William H. Bolton Arena $ 11,756 $13,436

McCormick ArenaNot available( $97,254)

Leaside Memorial Community Gardens($251,455)( $259,419)

The City Auditor has not been able to access the records of the McCormick Arena due to computer hardware problems experienced by the arena which have impacted their financial system and delayed their completion of the 1998 records for audit purposes. It is anticipated that these problems will be resolved shortly thus enabling the City Auditor to complete the 1998 audit.

The Leaside Memorial Community Gardens is a local board which was operated by the former Borough of East York. Historically, these financial statements were not audited by the external auditors of the Borough of East York. Rather, the financial statements were the subject of a limited accounting review by an independent firm of Chartered Accountants. This practice continued for the year ended December 31, 1998. Consequently, audited statements for the Leaside Memorial Community Gardens have not been prepared.

Comments:

Specific comments on these arenas with deficits are as follows:

George Bell ArenaDeficit of $14,299

The 1998 deficit is attributed entirely to an unbudgeted expenditure of $34,479 related to past service pension costs as a result of the enrollment of arena employees in the OMERS pension plan. The Committee of Management approved this plan and, in consultation with City Budget staff, the funding was to be applied from the arena's $69,500 accumulated surplus from prior years which had not been remitted to the City as required. Although a local board is permitted to join OMERS under the Municipal Act, it is not permitted to incur expenditures not previously approved by Council. Excluding this unusual expenditure, the arena would have generated a surplus of approximately $20,180. The additional ongoing expenditure attributed to the OMERS plan is approximately $2,000 above previous expenditures made for employee personal RRSP contributions. This will become an approved budgeted expenditure and the arena should continue to generate an annual operating surplus.

Ted Reeve ArenaDeficit of $30,056

The deficit of the arena is attributable to circumstances which appear to be isolated to the 1998 fiscal period and should not present a recurring problem. The former arena Manager retired during 1998 and by arrangement with the Committee remained on staff after the hiring of the new Manager for a seven month period from February to August 1998. While this overlapping period facilitated the transition of the new Manager, it resulted in increased salary and wages by some $26,000. While the Committee of Management approved this overlapping expense, the additional amount was not submitted with the 1998 budget estimates and was never approved by Council.

Revenue from ice rentals was above budget by $4,000, however, snack bar operations were almost $12,000 below budget due to a major renovation to the snack bar which was not anticipated in the budget. Other revenues offset this reduction and overall revenues from operations are only $2,500 below budget.

The major renovation to dressing rooms and snack bar operations was funded through private donations, a City contribution and approximately $12,000 from arena operations. Favourable variances in other expenditure areas offset all but $2,000 of these additional renovation costs. This combined with the $2,500 reduction in revenues from budget and the $26,000 negative variance from overlapping salary and wages accounts for the 1998 deficit of $30,056. Providing there are no additional disruptions to service as a result of 1999 renovations, the arena should be capable of generating a surplus from existing operations.

Leaside Memorial Community Gardens Deficit of $251,455

The Leaside Memorial Community Gardens is an arena that was created under the former East York Council. Unlike the operations of the other arenas, the facility consists of the arena, a banquet hall and a twenty-five metre indoor swimming pool in an adjacent building. All revenue from this pool accrues to the Parks and Recreation Division, however, all expenditures related to the pool are recorded in the records of the Leaside Memorial Community Gardens. In addition, management of the arena is responsible for the administration of its own major capital expenditure program including the related debenture funding and costs. Consequently, the financial statements of the operation of this particular arena include debt service on capital debentures and expenses related to the pool.

A reasonable comparison to any other single pad arena can only be made by excluding the pool operation and the debenture interest. The remaining operations which include the ice rental, the snack bar, the vending and auditorium rental are comparable to that of other arenas. Combining the results from these remaining areas reveals that the operation has an annual deficit for 1998 of $59,032. Revenues from ice rental at $306,000 appear to be comparable to similar size operations such as the George Bell Arena at $317,000 and the Ted Reeve Arena at $269,000. However, it is not possible to provide additional comment on other aspects of staffing and expenditure levels which may have contributed to the deficit position of the arena without conducting a more detailed audit of the operation. It is suggested that this audit be conducted by the City Auditor for future fiscal periods.

Conclusion:

There are opportunities for cost savings in all arenas, particularly in the administrative areas. This particular issue has been addressed in our report dated August 30, 1999, to the Audit Committee entitled, 1998 Management Letter Summary - Community Centres and Arenas.

The review of the 1998 deficit positions of both the George Bell Arena and the Ted Reeve Arena indicates that the losses are a result of one time unusual events which should not impair either operations ability to generate surplus positions in 1999 and future years.

A further report will be prepared and forwarded to the Audit Committee on any deficit position relating to McCormick Arena on the completion of the 1998 audit. An audit on the Leaside Memorial Community Gardens has not be conducted for a number of years. A further report will be submitted to the Audit Committee on the completion of the audit of the Leaside Memorial Community Gardens.

Contact Name and Telephone Number:

Steve Harris, Senior Audit Manager, 392-8460