Alberta's energy war room under fire in auditor general's annual report

The UCP government's controversial energy war room has been scolded by Alberta's auditor general for financial oversight issues, including the awarding of $1.3 million in sole-sourced contracts without adequate justification or documentation. 

The Canadian Energy Centre (CEC), a provincial corporation, is among several government agencies scrutinized in an annual report released Thursday by Auditor General Doug Wylie.

In the report, Wylie details more than $1.7 billion in adjustments to the government's budget, triggered largely by accounting errors and inaccurate projections.

The auditor general highlights "significant audit findings" relating to crude-by-rail contracts, Keystone XL pipeline agreements, the Sturgeon Refinery and the province's Assured Income for the Severely Handicapped and Income Support programs (AISH).

'Significant' errors

In an interview Thursday, Wylie described the errors as "significant" and concerning. 

"We had errors and what we need is good sound processes in place to prevent those errors," Wylie said. 

"The real thrust of our report is reinforcing the importance of ensuring you have good sound financial controls in place and more importantly, following the processes you have established.

"The numbers of errors we addressed in this audit were significant.

"We have no evidence to indicate that any of it was deliberate. The nature of the errors are dealing with estimates and what's being recorded in the financial statements." 

Wylie recommends the CEC improve its contract management processes by bringing in controls to ensure contracts are "valid, supported and adequately approved."

Wylie also says the centre should improve documentation so it can show that contracting decisions "are justified and providing value for money." In statements released later Thursday, the province and CEC said the government coporation has since adopted all of Wylie's recommendations. 

The review details improper hiring practices for the CEC's team of writers, website developers, photographers and campaign managers tasked with combating what the province considers misinformation on Alberta's oil and gas industry. 

The provincial corporation freely awarded sole-sourced contracts without documentation, spent money without board approval and paid contractors before their contracts were signed, auditors found. 

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The CEC was part of the "fight-back" strategy Jason Kenney and the United Conservative Party campaigned on during the April 2019 election. 

The idea was for the government to set up a communications "war room" to counter what the government considered to be incorrect information about Alberta's oil and gas industry.  

Since it was established in October 2019, the centre has been embroiled in a series of public gaffes, including a copyright infringement spat and a series of tweets targeting the New York Times, which prompted an apology from the CEC's managing director.

Wylie details a series of financial management issues at the CEC.

Auditors found it lacked adequately-documented contracting policies. Some expenses were incurred without appropriate approvals. Appropriate documentation for contracts, most of which were sole-sourced, was not maintained.

During the fiscal year ending March 31 that was examined by auditors, external contractors accounted for about $1.3 million of the organization's $2 million in operating expenses. 

"The CEC relies upon contractors to perform many of its main business activities," the report says.

"This includes activities like website design and development, story writing, custom photography, media awareness campaigns, as well as the provision of services for supporting corporate functions, such as accounting and information technology." 

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Unlike open bidding, sole-sourcing is a non-competitive process. Provincial procurement guidelines dictate that sole-sourced contracts are only permitted when only one known source exists, or when a specific contractor has specialized expertise.

Sole-sourced government contracts of $10,000 or more are generally made public by the province but because the CEC is incorporated, much of its operations remain secret and are not subject to freedom-of-information legislation.

Wylie found that CEC contracts were being awarded without adequate evidence that the successful bidders were solely qualified for the work, or that the services would be provided at a reasonable cost.

"The AG found instances where there was insufficient documentation to explain how a vendor was chosen based on proposals provided," the report says.

Auditors found a draft expenditure and procurement document but the policy had not been approved by the board and none of the policies described in the document were being implemented.  

The audit also found two instances where expenses were incurred prior to obtaining the required board approval for contracts exceeding $75,000, and three instances where expenses were incurred before a contract had been signed by both parties.

"Albertans need assurance that the amount of money invested into the corporation is appropriate and well spent," Wiley said in the report. 

"Ineffective contract management processes may result in wasted time and public funds, potential or perceived conflicts of interest, and an increased risk that Albertans are not receiving the best value for the investment of public dollars in the organization." 

A statement from the press secretary for Energy Minister Sonya Savage said, during the CEC's first fiscal period March 31, 2020, external contracts accounted for about $1.3 million of the organization $2 million of operating expenses.

The largest contract, in the amount of $400,000, can be associated to an urgent national ad campaign for the Teck Frontier mine proposal, the statement said.

"A well established national firm, Edelman, was contracted given the tight timelines required. When the Frontier project was withdrawn, the planned campaign was rolled into the When We Work Canada Works campaign that ran elsewhere in Canada over a number of months," the statement said. 

The Canadian Energy Centre has improved its contract management process policies and aligned it with government "best practice," the province said.  

"The Board of Directors of the Canadian Energy Centre are committed to ensuring that fiscal reporting is comprehensive and transparent," reads the statement. 

In a statement issued on Twitter on Thursday evening, the CEC said it now has all the necessary policies and systems to ensure its spending decisions "continue to be made appropriately and are well-documented." 

"We have reviewed the Auditor General's report and we accept all the recommendations put forward to improve our internal processes and financial controls," reads the statement. 

"Moving forward, we will continue to tell the true story of Canada's world-class energy sector. It can and will play a critical role as we continue to face the challenges of the COVID-19 pandemic."

Opposition NDP leader Rachel Notley said the auditor's findings about the CEC were "quite a doozy."

"This government created a black hole run by a UCP partisan to spend Alberta taxpayers' money with no public oversight," Notley said. "Taxpayers are getting no value from the war room. In fact, their incompetence is hurting our international reputation."

She called on Premier Jason Kenney to release a list of every contractor who received funding from the CEC, and repeated her call for the government to shut the centre down.

Other issues highlighted in the audit include: 

• A $637-million expense unaccounted for when the government reported it has divested of 19 crude-by-rail contracts. At year end of 2019-20, it still held 11 of those 19 contracts

• $100 million spent on purchasing the Keystone XL pipeline that had gone unreported for 2019-20. In March, Kenney announced Alberta was buying a $1.5-billion stake in the pipeline and would offer a $6-billion loan guarantee

• An increase of $795 million in costs for the Alberta Petroleum and Marketing Commission related to the Sturgeon Refinery. The auditor said the commission didn't adjust its assumptions about oil prices after global values plummeted in early 2020

• The government excluded $102 million in payments for the Assured Income for the Severely Handicapped (AISH) program and $50 million in income support program expenses that should have been accounted for the the 2019-20 year. The auditor said the government only counted payments for 11 months of the year. Last spring, the government moved the payment date for benefits from the end of the month to the first date of the next month