Edmonton councillors fume at 'slush fund' mismanagement

City councillors are fuming at the way a city department mismanaged its money — and the fact that they're only hearing about it now.

About $30 million from a reserve fund was misused since 2013 - and city council is only finding out now

Mayor Don Iveson and Coun. Mike Nickel express frustration at money mismanagement. 0:54

City councillors are fuming at the way a city department mismanaged its money — and the fact that they're only hearing about it now.

An investigation by city auditor David Wiun has revealed that tens of millions of dollars from the city's current planning reserve fund were misused, in which expenses were "insufficiently documented" or "didn't provide appropriate value for money."

On Wednesday, Wiun told the city's audit committee it was not clear who was responsible for addressing the risks.

"Total lack of oversight," Coun. Mike Nickel told media outside the meeting. "I'm just appalled." 
Councillors in the city's audit committee are baffled why they're only now hearing about the a reserve fund's mismanagement. (CBC)

Nickel calculates the mismanagement amounts to more than $30 million since 2013, including salaries that were inexplicably paid to staff in other departments. 

"When $33 million can go floating around the corporation for years and they say they don't know, this is just gross managerial negligence," he said. "Everyone should be outraged."

The single largest loss was more than $8.5 million on an eServices project between 2012 and 2015. 

In April 2015, branch management found a perceived conflict of interest with the contracted project management staff.

City manager Linda Cochrane told councillors that nobody was disciplined or fired because of it.

"Which I find both infuriating and unacceptable," said Mayor Don Iveson.

"I understand," Cochrane replied.

Cochrane became the city manager after the incidents occurred.  

'Slush fund'

"Things went in, things went out" and management wasn't tracking the flow, said Coun. Bev Esslinger. "It was kind of operating like a bit of a slush fund."

Wiun said there wasn't proper oversight or proper accountability in terms of roles and responsibility.

"I'm not going to disagree with your terminology," Wiun said to Esslinger.

Coun. Andrew Knack cited 10 different meetings over three years during which the problem could have been flagged. 

We don't have a handle on it yet.- City manager Linda Cochrane

"I am struggling with the fact that this was never brought forward formally."

Coun. Tony Caterina also wondered why he hadn't heard about problems in the past. A member of council since 2007, Caterina said he does not recall administration having ever said the reserve fund was a concern.

"We've been reactive, waiting for you to go in and identify some of those risks," Caterina said to Wiun.

How the fund works

Individuals and companies pay fees to the city for construction permits. This money goes into the reserve fund.

It is designed for use during an economic downturn, when less revenue is coming in but the city has to continue processing permits and providing services. 

When the economy took a dive in 2015 and expenses continued to climb, the planning branch drew on the reserve to cover expenses in other departments. 
Coun. Mike Nickel calls the behaviour of the current planning branch “gross managerial negligence." (CBC)

Andrew Usenik, chair of the Urban Development Institute, which develops raw land into lots for home builders, said it's apparent the fund wasn't being balanced. 

"The whole idea behind managing the fund is making sure the peaks and valleys are levelled out so you have a consistent level of performance," Usenik said.

Usenik said delays in the city's permit processes have cost his organization money.

"Any sort of delay in the approval process that doesn't have merit along with it is a big concern for us."

In 2012, the reserve was on track at $26 million. Five years later, at the end of 2017, the fund was sitting at just $6 million — a far cry from the $47 million that was expected to be in it.

Culture of silence? 

Iveson said it's troubling that it took three years for council to learn about the conflict of interest allegation related to the eServices contract. 

"If something is happening in a workplace anywhere in the city of Edmonton or anywhere in public service that doesn't pass the smell test, that needs to be reported." 

Iveson said that's why the city has whistleblower protection and a confidential phone line for staff to contact the city auditor to report incidents. 

Cochrane said the city has centralized its project management operations, and had been making improvements in that area before the audit was started in 2017.

"We continue to stress over and over again that if we have bad news, we want to declare, not hide," Cochrane said.

But, "we don't have a handle on it yet," she admitted to councillors.

Knack said he's worried the culture exists that discourages employees from reporting problems. 
The city's current planning reserve fund was projected to reach $47 million in 2017. Instead, it was sitting at $6 million. (City of Edmonton)

"Somehow, somebody didn't feel that it was worth bringing forward," Knack said, wondering if fear may have been a reason.

Nickel believes mismanagement is a trend in city management.

"This is our second black eye," he said, referring to a December audit on the Metro Line which revealed major failures in the system.

"I'm into trust-but-verify mode," he said. "I trust they're going to try but now they're going to have to prove it."

Nickel said for four years he has asked for a report on the fund and was told everything was fine.

City administration is expected to return to council in May and report on steps taken to improve the management of the fund.

About the Author

Natasha Riebe

Journalist

Natasha Riebe landed at CBC News in Edmonton after radio, TV and print journalism gigs in Halifax, Seoul, Yellowknife and on Vancouver Island. Please send tips in confidence to natasha.riebe@cbc.ca.

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