Review paints bleak picture of Exhibition operations
By Lethbridge Herald on November 26, 2024.
An independent third party review of the Lethbridge & District Exhibition has been presented to city council acting in its capacity of Economic and Finance Standing Policy Committee.
Herald photo by Ian MartensAl Beeber – LETHBRIDGE HERALD – abeeber@lethbridgeherald.com
A damning independent third party review of the Lethbridge & District Exhibition has been turned over to the Economic Crimes Unit of Lethbridge Police Service.
The review by Deloitte Canada LLP paints a sordid picture of expenses by former Chief Executive Officer Mike Warkentin and the board that were non-compliant with policy, additional costs and strategic planning that wasn’t sufficient to support the major investment in the LDE and the total absence of a project charter.
The review was a key element in a Memorandum of Understanding signed by the City of Lethbridge and LDE earlier this year. That MOU included the City agreeing to fund the LDE’s operations in 2024 and taking over governance of the organization.
The 268,000 square foot Agri-food Hub and Trade Centre, which opened in summer of 2023, cost $70 million with funding from the provincial and federal governments, the City of Lethbridge and Lethbridge County. Within a short time of it opening, financial problems were being experienced and by late fall of 2023 it was on the verge of shutting its doors.
Deloitte’s team spent five months reviewing background documentation during its review.
Among recommendations by Deloitte is that the LDE transfer ownership of facilities to the City and the City assume all maintenance costs which the report says is in the best interests of the City “due to the significant financial liability that the facilities represent if not properly maintained. By assuming control, the City can ensure these assets are maintained and used for the highest and best use.”
The LDE should maintain ownership of those facilities until 2027, however to comply with the terms of a provincial funding agreement. And the report says the City should return governance to the LDE only once the organization is financially sustainable. At this time, without another viable funding source, the report says the Exhibition will become insolvent and need to cease operations in the short term without City support.
The report states that prior to council approving $25 million of City funding for the Agri-Food Hub and Trade Centre project there were “gaps and inconsistencies in the communication of key information to council” throughout the process, with LDE management on numerous occasions referencing the work of a third party without providing critical context on the scope, assumptions and restrictions on use of that work.
The LDE started planning the Hub in 2013.
Deloitte can’t verify if city council and administration received supporting analysis requested prior to making a decision to approve funding.
“While not included in the scope of the original CIP submissions, LDE did not proactively communicate more than $27 million in additional costs ($11.3 million for demolition and $15.7 million for parking refurbishment) that were uncovered by the City despite the significant impact these unanticipated costs would have on LDE’s financial sustainability,” said the report adding “there are indications that initial project budgets significantly underestimated the costs of pavilion demolition and parking lot refurbishment due to a lack of diligence.”
The reports presented to the Economic and Finance Standing Policy Committee of city council shows that many expenses incurred by the LDE weren’t allowed under policies or were good value.
Of 35 examples of expenses incurred by the CEO, all were identified as non-compliant with LDE policies with $32,270 spent on purchases including alcohol at private events, car washes and televisions.
CEO expenses were also submitted without appropriate forms, supporting evidence or appropriate approvals. Board expenses weren’t supported in accordance with policy.
Of 12 board expenses tested, six were identified as being non-compliant with purchases of alcohol at private events, catering and rodeo tickets to the tune of $60,778.
The report notes that more than $81,000 was spent on a grant-funded trade mission without appropriate support for return on investment. Of that money, more than $21,000 was spent on gifts and more than $18,000 on luxury hotels.
There were also gaps in the board’s compliance with key policies including evaluation of CEO compensation, monitoring CEO performance and an annual evaluation of that performance.
Of 14 change orders to the scope of the project that were tested for appropriateness – the total for those being $1,021,065, five for a total of $298,479 were found to be non-compliant with LDE policies.
And while Deloitte’s report says the overall cost per square foot of the Agri-Food Hub was reasonable, some items were identified as avoidable cost overruns including $331,568 spent on custom reclaimed wood furniture and fixtures made from trees that were cleared from the site. Another $296,000 was spent to close off a space intended for a quick-serve restaurant due to design issues.
The report says there were a lack of procurement processes surrounding the architect/designer and project manager which were procured through sole-source contracts dating back to as early 2013. It notes project budgets and forecasts were inconsistent and lacking in detail and initial estimates for parking lot refurbishment and pavilion demolition costs weren’t supported by third-party quotes or appropriate diligence.
There was also a lack of documented approval of functional design changes.
City manager Lloyd Brierley said in a press conference that the report will also be addressed today when City Chief Financial Officer and treasurer Darrell Mathews talks to the SPC starting at 9:30 a.m.
Brierley and mayor Blaine Hyggen both expressed their alarm about the findings, Hyggen who discussed his frustration during the meeting that he was unable to acquire information about the project.
Deloitte is recommending the LDE continue to be operated as an agricultural society, prioritizing ag events and activities. But it recommends the City of Lethbridge establish a new subsidiary to consolidate event attraction activities across the community with LDE continuing to manage all signature agriculture events while the City assumes responsibility for community-focused events.
“This will allow the City to bring economies of scale while maintaining the unique connection LDE has with the broader regional stakeholders and agricultural sector,” states the report.
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