Government removes board of Agriculture Financial Service Corporation, suspends three top executives

The Alberta government has removed the Agriculture Financial Services Corporation board of directors, suspended three senior executives, and referred an internal audit to police for potential criminal investigation after an anonymous tip exposed improper sole-source contracts, expense claims and lavish gifts.

Audit uncovered improper sole-source contracts, expense claims, lavish gifts

Oneil Carlier, minister of agriculture and forestry, held a news conference Monday to announce the government has removed the board of directors of the Agricultural Financial Services Corporation. (CBC)

The Alberta government has removed the Agriculture Financial Services Corporation board of directors, suspended three senior executives, and referred an internal audit to police for potential criminal investigation, after an anonymous tip exposed improper sole-source contracts, expense claims and lavish gifts.

At a news conference Monday, Agriculture Minister Oneil Carlier said an audit by the government's chief internal auditor revealed a "culture of entitlement in the last administration that Albertans firmly rejected in the election."

The three senior executives have been suspended with pay while a new interim board, comprised of senior government officials, determines what, if any, further disciplinary action may be taken and what, if any, further investigation needs to be conducted.

Carlier declined to name the three executives but CBC News has confirmed the three are: president and managing director Brad Klak; chief operating officer Merle Jacobson; and Wayne McDonald, the vice-president of innovation and product development.

The Agriculture Financial Services Corporation provides crop and animal insurance for farmers, and lends money to both urban and rural entrepreneurs in the agricultural industry.

The investigation by Alberta's chief internal auditor revealed numerous violations of AFSC policies for the acceptance of gifts, expense claims and contracts.

Crop and animal insurance provided by the AFSC is backed by secondary insurance offered by large reinsurance companies, most of which are in the United States. The AFSC relied on a broker to obtain this reinsurance.

Lavish gifts

The audit found that between 2008 and 2016, a brokerage firm gave lavish gifts of travel, golf, concert and sports tickets for such events as major league baseball games, meals and drinks to senior AFSC executives, "a significant violation of AFSC's procurement policy and Code of Conduct."

In 2014 alone, Klak received meals, drinks, tickets or rounds of golf on more than 50 separate days; McDonald took the same gratuities on 45 days, while Jacobson accepted the freebies on 14 separate days.

At the Calgary Stampede, also in 2014, the broker spent $12,700 on alcohol, meals, and golf for 17 AFSC staff and board members. The broker also gave gifts to senior AFSC executives and board members. The AFSC also spent more than $32,000 for these events.

The audit found 30 instances in 2014 and 2015 alone where senior executives claimed per diems when the broker had already paid for the meals.

The senior AFSC executives travelled frequently to the United States to meet with the broker, even though the audit found the broker could have travelled to Alberta or there were already contracts in place.

Of 15 trips reviewed by the auditors, "we noted four trips where there were no scheduled meetings on the agenda for one or more days at the beginning or end of the particular trip," the report states. "We noted time was recorded as worked on those days."

The audit found the senior executives claimed travel expenses totalling nearly $350,000. Klak travelled out of province 29 times between 2011 and 2015 at a cost of nearly $180,000. McDonald and Jacobson both took 17 trips at a total cost of about $165,000.  

Improper expenses

The auditors also examined expenses that would fall under the AFSC's own employee expenses policy and found numerous claims "that were clearly not reasonable or necessary in performing work duties, including:

  • $19,144 paid to a consultant for a one-quarter share of Edmonton Oilers luxury box tickets for 10 games in 2011. There were no receipts to support an additional claim of more than $650 for food and beverages at the game, and no list of those who attended at AFSC expense was available.
  • $1,880 for limousine trips in November and December 2011, including $720 for Klak to take a limo from Edmonton to Lacombe, where AFSC is headquartered, to attend its Christmas party. "The charge included a four-hour wait for the limo."
  • $1,506 for limousine service between Feb. 23, 2012, and April 7, 2012, again incurred by Klak. Nearly $1,200 was to attend hockey games, and dinner and a concert at Rexall Place.

Auditors also found several problems with the AFSC's administration of contracts. The corporation repeatedly sole-sourced a consulting contract even though a competitive bid process was required.

"Procurement was not conducted through fair, open, competitive and transparent processes," the report states, "with privilege/favour in selection of the successful vendor."

The AFSC paid for services after the contract's end date, and services were provided where there was no contract.

Contract policy not followed

An analysis of the 15 successful vendors paid between 2013 and 2015 revealed eight of the vendors — more than half — had one or more contracts or purchase orders that were not compliant with the AFSC's procurement policy. The non-compliance problems included a lack of competitive bid process, a lack of minimum number of quotes, and the use of proposals or statements of work rather than contracts.

For one contract related to reinsurance, AFSC paid the successful broker nearly $300,000 more than the pricing stipulated in the broker's request for proposal, which was to be used in the contract.

"Management was not able to explain why the pricing in the (vendor's) response was not used in the contract," the report says.

Carlier told reporters he did not know how much oversight the board provided or how much it knew about the problems identified in the audit. The AFSC board has traditionally been stacked with Conservative party supporters, including former Tory MLAs George Groeneveld and Carol Haley. Klak, the now-suspended president, is a former executive assistant to a Tory minister.

In 2015, CBC News revealed Klak was paid more than $670,000 in 2013-2014, triple the salary of Alberta's premier. Seven other AFSC executives were paid between $237,000 and $384,000 in 2013-14.

Opposition parties called for a complete review of all of Alberta's several hundred agencies, boards and commissions, which the new NDP government is undertaking in several stages.

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