Council hears concerning results from third-party LDE review

Lethbridge City Council has received a summary report of results from the third-party review of the Lethbridge & District Exhibition (LDE). This review was a central part of the Memorandum of Understanding (MOU) signed between the City of Lethbridge and LDE earlier this year, which also included the City agreeing to fund the 2024 operations and assume governance of LDE.

After five months of work, Deloitte Canada, the professional services firm that conducted the LDE review, presented their findings to City Council today. The review revealed significant issues across five key areas: strategy and planning, project execution, governance, use of funds, and council communication by LDE throughout this project process.

“While our Council and Administration continue to review the report's findings, I can say this: we are alarmed and incredibly concerned with Deloitte’s findings of what appears to be a significant level of mismanagement,” says Mayor Blaine Hyggen. “The report shows Council was lacking information from LDE throughout the planning and construction process, preventing fully informed decision-making and sound oversight of the project. This is extremely concerning given this was a taxpayer-funded project.”

From 2021-2023, LDE constructed the new 268,000-square-foot Agri-food Hub & Trade Centre with more than $70 million in funding from the Government of Alberta, the City of Lethbridge, Lethbridge County, and Government of Canada. In 2023, it was discovered that despite the project being completed, LDE was experiencing significant financial challenges, and was on the verge of having to shut down operations. Deloitte’s report has identified several issues that led to this.

“Our residents expect the City to be responsible stewards of public dollars,” says City Manager Lloyd Brierley, who took over as co-chair of the LDE Board when the City assumed governance of the organization in January, 2024. “We need to ensure this never happens again. While more work is needed, the findings from this report provide valuable insight into the changes that are required going forward.”

Looking ahead, Deloitte’s report also identified recommendations to support future decisions regarding this project and ensure that subsequent investments have substantial oversight to support informed decision-making.

“Now, with this summary report in hand, our Council is ready to continue the critical work ahead of us,” says Mayor Hyggen. “We will be establishing safeguards through new policies and procedures that enhance existing due diligence. This will ensure accountability from all organizations receiving City funds, particularly in strategic planning and financial reporting. I have complete confidence in the City Administration's ability to address the recommendations in the report.”

Deloitte’s review included stakeholder interviews and site visits, as well as reviewing background documentation on planning, budgets, policies, procedures, meeting minutes, and correspondence. This information was then compared to common practices for similar organizations.

Since the change in LDE governance this year, the operating deficit has already been reduced by over $2.4 million in less than a year as efforts continue to identify efficiencies while increasing revenue opportunities.

The report has also been turned over to the Economic Crimes Unit of the Lethbridge Police Service for further investigation. City Administration may also initiate deeper examinations of the findings.

Backgrounder

This backgrounder highlights the key findings of the third-party review of the Lethbridge & District Exhibition’s Agri-food Hub & Trade Centre as reported by Deloitte. View the report here.

Retrospective Review

Looks back on what caused the current situation and what could have been done differently.

Strategy & Planning

Strategic planning activities undertaken were not robust enough to support to the major investment in LDE.

Strategic plan targets used to support the funding of the Agri-food Hub project were not aligned with historical results of LDE, comparable organizations, or other reasonable support.
The strategic plan was not updated or adjusted despite significant changes like the COVID-19 pandemic.
Future operational costs associated with the Agri-food Hub & Trade Centre were not incorporated into the financial forecasts.

Project Delivery and Execution

The capital project delivery and execution failed to align with standard practice for a project of this size.

A project charter was not prepared or approved.
Procurement policies were not sufficiently detailed and consistently implemented to achieve desired results.
Lack of formal procurement process (public RFP or alternative) to engage the Architect/Designer and Project Manager roles.
Procurement processes for the Construction Manager were not followed in all cases and were not aligned with common practice.
Project budgets and forecasts were inconsistent and lacking in detail.
Initial estimates for parking lot refurbishment and pavilion demolition costs were not supported by third-party quotes or appropriate diligence.
Change orders lacked detail or included missing or delayed approvals.
The functionality of the building changed significantly compared to the initial development plan without appropriate analysis or consideration.

Governance

Effective governance structures were not in place to provide oversight throughout this development.

Gaps in Board composition hampered oversight.
City representative withdrew from LDE Board during critical period for Agri-Food Hub, reducing transparency and accountability.
CEO expenses were submitted without appropriate forms, supporting evidence or approvals.
Board expenses were not supported in accordance with policy.
Expenses for grant-funded advocacy trips were not supported by appropriate documentation or assessment of return on investment.

Use of Funds

LDE incurred expenses that were not allowable under policies or of good value.

100 per cent of the CEO expense samples tested and 50 per cent of the Board expenses samples tested were not in compliance with LDE policy.
More than $81,000 spent on a grant-funded group trade mission without appropriate support for return on investment including $12,000 on gifts and more than $18,000 on luxury hotels.
While overall construction costs per square foot were reasonable, Deloitte identified several areas of avoidable cost overruns totaling $660,000 including:
1. More than $330,000 on custom-made, reclaimed wood furnishings,
2. More than $296,000 on close-off space due to design issues, and
3. More than $30,000 to address ventilation issues with server rooms.

The pattern of spending identified had a significant impact on LDE, as each incremental expenditure contributed to the overarching financial challenges during a time where fiscal restraint was needed.

Council Communications

Deloitte identified instances where the presentation of the project plans and budgets to City Council was not clear and consistent.

On numerous occasions LDE Management referenced the work of a third-party without providing critical context on the scope, assumptions, and restrictions on use of that work.
We could not verify that City Council or Administration received supporting analysis requested prior to making a decision to approve funding.
There were inconsistencies in the format and structure of financial information communicated to the Council contributed to confusion about the overall project scope.
LDE did not proactively communicate to the City more than $27 million in additional costs ($11.3M for demolition and $15.7M for parking refurbishment) that were uncovered by the City, despite the significant impact they would have on LDE’s financial sustainability.

Current State

This section of the report examines what is working and what needs to be improved for LDE to become sustainable. Deloitte evaluated eight key functions against leading-practice research from Alberta’s agricultural societies and a cross-section of convention and trade show organizations. The report identified:

LDE’s governance and operational practices are immature compared to similar organizations.
This presents many opportunities to increase financial sustainability by enhancing governance and operational policies, procedures, and systems.

Deloitte observed that many of the recommendations from the retrospective review have been underway since the City assumed governance of LDE in January 2024. Some of these changes include:

Addressing staffing and operational gaps to stabilize the organization
Renegotiating and/or terminating problematic vendor contracts
Enhancing service in areas such as food and beverage
Obtaining new quotes to better understand the future cost of deferred maintenance and other capital projects, such as the parking lot refurbishment and demolition of the old buildings
Advancing initiatives to better use and monetize revenue-generating spaces

Future State

The future state recommendations examined LDE's mandate and options for operating and governance models. The city will contemplate these recommendations in greater detail over the coming months.