Weak leadership from Westlock County council and administration on the Horizon North deal created an environment ripe for chaos, according to the findings contained in the municipal inspection report released Aug. 30 by Municipal Affairs.
Weak leadership from Westlock County council and administration on the Horizon North deal created an environment ripe for chaos, according to the findings contained in the municipal inspection report released Aug. 30 by Municipal Affairs.
The county entered into a lease agreement April 1, 2015 with Horizon North Camp and Catering Partnership for an 8.55-acre lot in the county industrial park as a laydown yard.
As part of the one-year agreement, Horizon North would pay $2,500 a month to the county, with rent continuing on a month-to-month basis after March 31, 2016.
The report noted that the work was mostly completed by August 2015. However, county council didn't officially sign off on the deal until July 28, 2015, and administration under former-CAO Peter Kelly didn't sign until September.
'Anomalies were found were council approved the lease four months after the effective date of April 1," said inspector Shari-Anne Doolaege, a consultant with Strategic Steps Inc., the firm contracted by Municipal Affairs to conduct the investigation.
'Without a formal council approval, a council resolution in hand, or approved 2015 budged expenditure, we found that Mr. Kelly acted outside of his authority in approving the site development work on the Horizon North leased lot."
Doolaege said site costs were initially estimated at $55,000, but once all the work was said and done, the project costs ballooned to $375,707 - a price tag that wasn't approved in the 2015 budget or by council resolution.
'In apparent enthusiasm for economic development, Kelly acted without proper authority and failed to advise council of their legislative responsibilities," the report said.
Kelly told inspectors that he was acting on advice provided in camera from council. He also said in the report that he was aware that project costs were approximately $190,000 but didn't know it had gone beyond that.
The report referred to officials that said Kelly was kept informed when the project went over $100,000 in 2015, as he was the key point of contact with Horizon North, assisted by the county's public works supervisor.
'Staff informed the inspectors that former CAO Kelly directed action on this project, such as prioritizing public works staff and equipment to work on the Horizon lot, which delayed other remediation projects that were underway at the same time," the report stated.
It went on to say that county directors felt out of the loop as Kelly directed the public works supervisor to set up the site work and instructed the office clerk to write, edit and cancel related project invoices.
'We heard that Westlock County's former chief administrative officer Peter Kelly was largely directing the activity on this project, often bypassing subordinate staff, such as his directors of planning, infrastructure and finance," Doolaege said.
Inspectors said that correspondence showed both county council and Horizon North appeared to be left in the dark at times due to poor communication.
The lack of communication continued in November of that year when Horizon North received a surprise $190,000 invoice in the mail, having expected a $55,000 bill as per the agreement.
'When asked by council in a July 2015 council meeting, former-CAO Kelly apparently did not properly inform the council, although an update had been anticipated and a former director had diligently prepared this update for him and council," the report mentioned.
Amended lease agreement
Inspectors were told that Horizon North offered to construct a gravel pad on the lot, considering they were in the business and had the tools, but the report said the county offered to match Horizon's budget. Horizon officials told inspectors they continue to have concerns with the quality of the work.
Due to growing costs, an amended lease agreement for Jan. 1, 2016 to Dec. 31, 2018 was created, with monthly payments increasing to $6,170.47 and an option to purchase the land for $30,000 per acre.
That December, council approved the three-year lease in principle, though inspectors said officials couldn't find a signed and approved copy of the meeting minutes that approved the agreement - the draft minutes were eventually found last month and approved by council Aug. 8.
The motion in the meeting minutes stated that Horizon North would pay $56,000 upfront, and the final balance, plus GST and 3.5 per cent interest would be paid over the next three years.
Inspectors said Coun. Bud Massey informed them that council was 'largely at fault for approving an open-ended motion without setting a maximum amount to be spent on site servicing."
Horizon North has been paying the higher monthly payments since June 2016. With that being said, an amended agreement hasn't been brought back for council approval.
Lot price
The original agreement also contained a 'right of refusal" for Horizon North to buy the land if the county made an offer.
Land values were also noted by inspectors as inconsistent since council approved a $35,000-per-acre sale price for other lots, but a $30,000-per-acre price for Horizon North.
The report called the management of the Horizon North lot's land value and the resolution to set the lot price at 'no less than $35,000" as irregular.
However, correspondence between Kelly and Horizon North referred to a $30,000 per acre value.
'Mr. Kelly informed inspectors that he was acting on council's direction which was provided in--camera and that he was working hard to promote county interests," the report said.
Horizon North signed a deal for $30,850 an acre, but inspectors say that at the time of this report, county management was aware of the unsigned agreement and efforts were being made to locate the documents and 'confirm the intentions of the parties."
Additional irregularities were noted on the county potentially selling land for less than market value and without properly advertising the sale, as required by the Municipal Government Act.
'Weak leadership in both council and administration created an environment that was ripe for chaos, with site development work being completed and commitments being made without proper authority or council approval," the report said.
Various officials told inspectors that project cost estimates ranged from $375,000 to $426,000, and that a write down to sell the land was about $234,000. Other properties in the industrial park received costly site improvements at the county's expense several years ago.
Legal advice obtained by former CAO Duane Coleman, after Kelly's tenure, recommended council approve the unbudgeted work. On June 28, 2016, that's what council did and retroactively approved over $375,800 in expenses.
'The actions of council appeared to clear Mr. Kelly of previously spending money without proper authority," Doolaege said.
As the matter remains outstanding, inspectors recommended the county seek legal counsel and financial advice to correct the land sale and formalize unsigned agreements.
As well, the report said proper decision-making would require a formal proposal to council and a well-researched staff recommendation that would take into account legal, operational and financial considerations. That recommendation would then go to council or budget for approval.
Former CAO denies claims
Kelly denied any wrongdoing regarding signing off on expenses for the Horizon North deal.
'A salient point regarding the Horizon North project is that Westlock County council unanimously passed the following two motions, giving direction through resolution to administration to enter into a lease," Kelly said, referring to motions passed July 28, 2015 and Dec. 15, 2015.
However, both motions were made after the work was finished or close to completion.
'The investigators, to my knowledge, did not provide any written documentation that I supposedly authorized or signed off on $375,000 worth of expenditures," he continued. 'This amount is contrary to documentation provided to me by senior staff concerning costs for the project."
Kelly denied being made aware by any senior staff of expenses more than $190,000.
'Staff did advise that the original budget of $55,000 had cost overruns exceeding $100,000, which eventually I was advised totalled $190,000 for the complete project cost, which was the amount billed out to Horizon North," he said.
He also referred to a specific clause in the lease agreement, the Landlord's Work, which outlined what work the landlord would undertake and how the tenant would reimburse the Landlord for all costs incurred.
'This clause, for whatever reason, was overlooked and/or not commented on by the investigators," Kelly said. 'These actions were given unanimous approval by council. These unanimous resolutions enabled administration to incur public expenditure and to proceed with the project."
