'Unsettling' audit says city overspends on consultants and fails to manage their work

An alarming new audit of the city's use of consultantsshows drastic cost overruns, multiple budgeterrors, poor oversightand about $34 million in capital coststhat were incorrectly categorizedas consultant expenses.

The system is broken. There's no doubt about that.- Coun. Chad Collins

The auditor's reportshows the city overspent on consultants by 67 per cent last year, and 101 per cent the year before.

In some cases, expenses for operational issues such as computer costs were filed as consulting expenses. In other cases, the opposite is true, with consultant expenses being charged to operating and capital budgets.

One of the largest examples was with a major biogas enhancement and digester upgrade project. The report says$30,900,000in construction costs over a six-year period were coded asconsulting expenses in the city budget. It happened on 11 other projects too, including $1,820,000in construction costs at the Glanbrook landfill from 2013 to 2015.

The report raises too many questionsto list, said Chad Collins, Ward 5 councillor.

"The system is broken," he said. "There's no doubt about that."

'It's unsettling'

Overall, the audit showed there's "a lack of corporate governance" over the hiring and management of consultants. That includes "business cases, significant cost coding errors,unbudgetedexpenditures, cost overruns and project changes."

It's not pretty.- Coun. Lloyd Ferguson

Collins said he doesn't think money is stolen or missing. And the city says there'sno indication departments are hiding cost overruns in their consultant expenses.

But Collins said thisshows the city needs more rules around whichconsultants are hired, when they're hired and for what purpose.

Right now, he said, staff often spend money on consultants that councillors never hear about.

One noteworthy aspect, he said, is around "gapping." That term describesmoney saved when a position is unfilled, or a staff member goes on sick leave or maternity leave. The report says in two cases, worth a combined $185,000, departments used that money to hire a consultant.

"It's a troubling document," he said of the report. He's a member of the audit, finance and administration committee, which will discuss the report Monday.

• Read the auditor's report on the use of external consultants
• Read the staff report, which will be presentedMonday

"I think this report will come to a shock, probably to a person, around the (council) table."

It surprised Lloyd Ferguson, Ancaster city councillor. "It's not pretty," he said.

He wants to talk to city managers about the report. "It all may be legitimate." But on the surface, "it's unsettling. We need to hear from senior management right away because of the magnitude of the problem."

'Too early to say' if employees will be disciplined

City councillorsasked for the performance audit, which was done by Charles Brown, the city's new director of audit services.

Certainly, the report presents a number of red flags that need to be addressed.- City manager Chris Murray

City manager Chris Murray said the report is important, and he's taking it seriously.

"Certainly, the report presents a number of red flags that need to be addressed."

It's "too early to say" if any employees will be disciplined based on the information, he said.

"If there's anything here that leads us to believe that people have acted in any kind of way that requires discipline, of course we will do that."

City spent $40M on consultants last year

The report says in 2014, for example, city officials hiringconsultants "on an ad hoc basis" cost about $700,000, none of which was part of the council-approved budget for consultants. (For operational consultants, that budget is $1 million per year,although the report shows that's exceeded year after year.)

The report makes severalrecommendations. Those include looking into methods to electronically track vendor performance and change orders.

As for the biogas enhancement and digester upgrade project, there's an explanation for that, said Dan McKinnon, public works general manager. He's the former head of Hamilton Water, which was in charge of the project.

Because of a tight timeline, McKinnon said, the consultant who designed the project also built it. So construction costs were coded as consulting expenses. In hindsight, he said, the department could have coded it differently.

Overall, the city spent $40,300,000 on operational and capital consultants in 2016.

samantha.craggs@cbc.ca | @SamCraggsCBC