The head offices of Ornge in Mississauga, Feb. 16, 2012. The Ontario Provincial Police were asked by the Ministry of Health to investigate financial transactions involving Ornge and a series of private, for-profit entities it created.J.P. Moczulski for The Globe and Mail
An Ontario Provincial Police investigation into the province's air ambulance service Ornge is centring on a $24-million mortgage loan that was borrowed last year against its Mississauga head office.
According to people familiar with the criminal probe, police are particularly concerned with $5.6-million of the financing that was diverted to an affiliated holding company that paid compensation to a number of the service's former senior officers. The affiliate, Ornge Global GP Inc., was forced into bankruptcy proceedings in February after it was discovered that the unit had no money or assets to repay the $5.6-million it borrowed from the air ambulance service.
"The money is gone and the OPP are trying to find out what is was used for," said one person familiar with the investigation.
If Ornge is unable to recover the missing money, Ontario taxpayers could be on the hook for the unpaid $5.6-million because the government-funded service is currently operating with a deficit. According to the provincial public accounts, Ornge reported a $9-million deficit for the fiscal year ended March 31, 2011.
Ornge Global GP is one of nine for-profit companies that were launched under the direction of former chief executive officer Chris Mazza to create a new profitable business and an additional revenue stream for the Ontario government by selling air ambulance services outside Ontario.
The bold vision disintegrated into a political scandal earlier this year, however, when revelations surfaced that the for-profit companies were paying Dr. Mazza and a number of his senior officers lavish paycheques and other benefits. Ornge's directors, Dr. Mazza, and most of his senior executives have left the service. Ontario's Minister of Health Deb Matthews called for a police investigation last month after she said she had been misled about Ornge's use of taxpayer's money.
Ontario's Auditor-General is expected to issue an audit report next week that sharply criticizes the provincial government for its failure to properly oversee Ornge, which was founded in 2005 to centralize the province's fragmented and costly system of air ambulance services.
Ms. Matthews said in a statement last week that the government is moving to strengthen its authority over Ornge.
The short, controversial life of Ornge's $24-million mortgage highlights the potential risks of allowing taxpayer-funded public agencies to mix their business with private-sector companies. As governments increasingly turn to private contractors to provide public services more efficiently, the tale of Ornge's missing money underlines the importance of strong oversight and financial transparency when public- and private-sector resources are combined.
The governance challenge is particularly acute for sprawling departments such as the Health Ministry, whose annual $47-billion budget accounts for 42 per cent of the province's program spending.
"Health has so much money sloshing around that if the governance isn't pristine there will be a lot of opportunities for things to go wrong," said the person familiar with the investigation.
The most puzzling thing about Ornge's $24-million loan is that it was made at all. According to records obtained by The Globe and Mail and interviews with sources, Ornge purchased its head office on Mississauga's Explorer Drive in 2009 for $15-million with a loan from an insurance company.
The building is directly owned by Ornge Global Real Estate, an Ornge unit that was largely dormant until January, 2011. That month was a turning point for Ornge. On Jan. 24, Ornge's chairman Rainer Beltzner and legal adviser, former Liberal Party president Alfred Apps, sat down with half a dozen senior officials from the Ministry of Health to outline plans to create a for-profit division that would expand air ambulance services into new markets.
Mr. Beltzner could not be reached and Mr. Apps declined to comment.
According to presentation materials, the Ornge team promised it would fund "the bulk of its working capital" through a private sale of $20- to $30-million of private equity in Ornge Global GOP. A small portion of funds, the presentation stated, would come from a $9-million "surplus" on its head-office property.
That surplus, was in fact a new $24-million head office mortgage, arranged with the Toronto Dominion Bank, that sharply raised the value of a property acquired two years earlier for $15-million. The loan was signed seven days after the meeting with Ontario officials. Several weeks after the loan was signed, sources familiar with the transaction said an Ornge subsidiary sent the money over the wall to its private sector affiliates by making a $5.6-million loan to Ornge Global GP.
What was billed to Ontario officials as a minor investment, in fact became Ornge Global's primary source of funds. The promised equity sale of more than $20-million never materialized, said one person familiar with the offering, "because investors wouldn't bite."
When Ornge's new management learned in January, 2012 that Ornge Global had no assets to repay the loan, the unit was pushed into bankruptcy proceedings.
With a report from Celia Donnelly
Editor's note: The Bank of Nova Scotia did not lend money to Ornge as part of a mortgage financing syndicate. Incorrect information appeared in an earlier version of this story.