CITY OF CHESTERMERE, Alberta
City to investigate financial irregularities at Chestermere Utilities Inc. (1538974 Alberta Ltd)
July 20, 2022
The City of Chestermere has instructed its Finance Department to fully investigate a series of financial irregularities involving millions of dollars at its troubled utilities corporation. The financial irregularities, spanning over a decade and two previous city administrations, were discovered by staff, who had prepared a report for a public hearing yesterday on the Dissolution of the Chestermere Utilities Inc. (CUI).
Details of the financial irregularities have also been passed on to Alberta’s Ministry of Municipal Affairs, with the city requesting a provincial probe on the matter.
Council voted unanimously to accept the Dissolution of the Chestermere Utilities Inc. report tabled yesterday and authorized the city’s Finance Department to hire outside experts to assist in its investigations into the irregularities and accounting practices at CUI, pending the utility company’s final dissolution.
Council also wanted to know why the financial irregularities were not flagged by the city’s auditors over the last 10 years.
· Chestermere Utilities Incorporated (CUI) was established in 2010 and began operations two years later as an arms-length corporation responsible for delivering utilities-related services to residents and businesses within the community. The city-owned company had a mandate of providing water, sewer, waste, and recycling services. CUI’s secondary purpose was to move the Utility debt from the City, enabling the city to circumvent the Provincial Government's maximum debt limit regulation.
· In 2016, over 5,400 Chestermere residents signed a petition to the Alberta government, asking for the province to step in because they had lost confidence in their then mayor, Patricia Matthews, and her councillors’ ability to govern. Residents were also enraged after the then CEO of CUI, alerted customers they had been undercharged for water, wastewater, garbage, and recycling services for roughly three years. The result was a sudden 25 per cent hike to utility bills — causing rates to jump much higher than what residents in nearby Calgary were paying. The request for an inspection and investigation in 2016 by almost the entire adult population of Chestermere was denied by Municipal Affairs. https://calgaryherald.com/news/local-news/chestermere-delivers-5400-name-petition-demanding-council-probe
· In 2017, Mayor Matthews and her entire city council left en masse and did not seek re-election. A new team of councillors led by Mayor Marshall Chalmers took office with a key mandate to get to the bottom of what could be done about CUI, a corporation that had become embattled by complaints about rates and operations.
· In 2019, the City under Mayor Chalmers took over control and supervision of CUI. The city, as sole shareholder, appointed its municipal councillors as the directors of CUI and the decision was made to rename the utility services company to 1538974 Alberta Ltd instead of dissolving it. In 2019 CUI’s building was closed, but the City continued to maintain this entity as a vehicle to hold debt, while misleading residents by telling them CUI was dissolved when it was not.
· In Oct. 2021, Chestermere elected a new mayor – Jeff Colvin – who vowed to eliminate the troubled CUI and investigate financial irregularities involving the corporation. Incumbent councillors Mel Foat and Ritesh Narayan were re-elected, alongside newcomers Shannon Dean, Blaine Funk, Stephen Hanley, and Sandy Johal-Watt.
· By November 2021, the new City Council passed a motion to direct administration to completely dissolve the municipal controlled company, 1538974 Alberta Ltd. and roll the numbered company’s assets and liabilities back into the City.
· The new city council remains uncomfortable with having a numbered company to essentially hide debt, which is contrary to its platform of transparency and accountability.
Key financial irregularities at CUI to be investigated before it is completely dissolved by the City of Chestermere.
1. Irregular city transactions which are shown as city expenses.
2. In 2017, CUI showed 11 million dollars in Retained Earnings. As of 2021 that amount was at $6.8 million dollars. About $4.2 million is missing and/or unaccounted for.
3. Questionable accounting practices that show the city crediting CUI equity for the utility company’s losses amounting to $3.8 million in 2017, $700,000 in 2018, $2.5 million in 2019 and $2.5 million in 2020.
4. In 2021, CUI’s Financial Statement showed a $235,000 loss, yet had a profit of 2.4 million. CUI did a rate swap for cash with the city for $835,000. There is no accounting for the remaining $600,000.
5. In 2021 CUI’s cash in bank showed $1.5 million at the beginning of the year and $6.6 million by the end of the year. The $4 million was cash in the bank and the balance of $2.6 million is in a restricted cash account (offsite levies). Why was the numbered company 1538974 Alberta Ltd (previously CUI) publicly maintaining to taxpayers it does not have cash in the bank?
“All aspects of this investigation into the financial irregularities at CUI, that have been identified by staff, will be made public. We promised to govern with transparency, accountability and integrity and that is what we will be doing. I hope current councillors who sat on CUI’s board and management team will assist in the investigations.” – MAYOR JEFF COLVIN