City needs better rules for funding agreements, auditor finds
'Not able to determine' if Ukrainian museum project should have got $1M grant in 2014
The city needs to do a better job of tracking the work on projects that get grant money, city auditor David Wiun says in a new report.
The recommendation comes after an investigation into a $1 million payment from the city to the Ukrainian Canadian Archives and Museum of Alberta (UCAMA) could not determine if the money should have been paid.
In 2003, the organization bought two historic properties on Jasper Avenue at 96th Street — the Brighton Block and the Lodge Hotel next door. The hotel was intended to be the future home of a museum.
In February 2012, the city signed an agreement with UCAMA to provide $3 million to help fund construction of the museum.
The money was to be paid out in three instalments: $1 million when construction was 30 per cent complete, another $1 million at 60 per cent complete, and the final $1 million at 90 per cent complete.
There was no problem with the first $1 million forwarded to the group in August 2013 based on the progress of construction, Wiun wrote in a report released Thursday. But a concern was raised about the second instalment, which the group received in May 2014.
Email raised concern
On March 22, 2018, the office of the city auditor received an email from the director of urban renewal.
"The director informed us that they had been provided with information alleging that the city had made a $1 million payment — based on false information — to the Ukrainian Canadian Archives and Museum of Alberta," the report says.
The citizen who complained was alleging that the payment should not have been made because the project had not reached the required construction milestone.
The scope of work described in the funding agreement identified general construction activities related to the Lodge Hotel.
But there were no construction milestones in the agreement that would have allowed the city to independently assess the project's progress, and to validate information provided by UCAMA, Wiun wrote.
Wiun's report said his office was "not able to determine" if the city should have made the 2014 payment, because UCAMA sold both buildings, and construction activity had taken place on both sites.
"Therefore, it is now difficult and costly to determine what percentage of the project UCAMA had completed at the time the city made the second progress payment," the report says.
The city didn't make the third and final $1 million payment "due to the lack of construction progress," the report says.
Wiun recommends that the city develop a standard approach to setting criteria and an accountability framework for funding agreements. He also says the provincial and federal governments should be notified of the city's investigation.
In addition to the $2 million in grant money from the city, UCAMA received $3.125 million each from the federal and provincial governments and raised $1.75 million from private donors and other sources.
"Cost escalations" put the project in foreclosure in 2018, UCAMA president Paul Teterenko said Friday.
Tying in a new support structure to a historic building led to greater than anticipated construction costs, he said.
"Every time you go past another month is more costs, right? So that escalated the cost of the contract," Teterenko said. "We were unable to raise the money so we had to stop construction."
The Brighton Block was sold in October 2017. The Lodge Hotel was listed as a judicial sale in November 2018 and the sale was finalized in March of this year.
The building is now owned by LEDR Developments, which took on about $6 million in construction debt, LEDR president Lorraine Bodnarek said.
Museum hopes still alive
UCAMA is no longer involved in the development, but the plan is to continue to create a museum space inside the building, Bodnarek said.
Six groups in the city's Ukrainian community are currently working together to develop a business case to lease the space, she said. Any agreement would include the option to purchase the building down the road, she said.
"They're working on fundraising plans, so as of now the original intent is still what we would love to see happen," Bodnarek said.
The hope is to have a lease agreement or letter of intent signed by the end of summer, she said.
Construction on the base building is expected to be completed in October, then work can begin inside to create the museum space, she said.
"I would just love to see it be what the intention was because the plans are amazing, the vision was great," Bodnarek said.
Wiun's report goes to the audit committee June 13.