Westerner Park’s financial crisis resulted from inflated assumptions being provided to the board — including seat counts for the Canadian Finals Rodeo and a hoped-for contract with the Red Deer City Soccer Association.
An independent audit of the Westerner Exhibition Association’s finances by Deloitte found two main things tipped the organization over the financial edge: the construction of a new exhibition hall during a recession, and over-optimistic projections for ticket sales to the Canadian Finals Rodeo.
But it was a lack of ongoing communications between administration and the board that was the root cause of these problems. According to the Deloitte audit, the board did not receive in a timely fashion some bad-news revelations.
“We found no misrepresentation of information at the time of board approvals,” Gina Campbell, a partner with Deloitte, told city council on Tuesday — just over-optimistic projections.
But new information was not passed on in a timely manner, she added, ”and some internal processes and controls were not followed.”
City councillors react to the auditor’s report
The former CEO, who left the position in September 2018, had told the Westerner’s governance board that a contract for use of the new exhibition hall would soon be signed with the Red Deer City Soccer Association.
The board was still under that assumption when it approved construction of the hall on Nov. 23, 2017. At the time, the CEO had presented a report to the board showing that $165,000 to $355,000 could be projected over a 14-week period.
“This was one of the items that convinced the board that the construction of the hall should be completed,” reported Deloitte auditors in their report to the City of Red Deer.
Auditors learned that the situation later changed and the soccer association wanted to pay far less for the facility, but there was no evidence that this was relayed to the board. Ultimately, the multi-year contract with Red Deer City Soccer was not formalized.
Auditors concluded there wasn’t a concerted effort made to market the new hall 18 months before it was completed, leading to the Westerner’s “poor financial performance.”
The Westerner’s governance board was similarly in the dark about the actual seating capacity for the Canadian Finals Rodeo.
The former CEO told board members that the available spectator seats for the CFR were anticipated to be between 8,423 and 7,851, and ticket sale revenue projections were based on those numbers.
During the first CFR hosted by the Westerner, it became apparent only 6,690 seats could be sold. Deloitte auditors found no evidence suggesting up to 8,423 seats were ever a possibility.
The drop in available seats resulted in a projected revenue reduction of between $401,000 and $625,000.
“We did not identify communication to the board regarding updates to projected numbers of seats available for sale prior to the actual CFR event,” the Deloitte auditors concluded.
Part of the communications breakdown resulted from a decision by the board in November 2016 to become more of an oversight body and have less operation and managerial involvement.
This change, as well as “the culture at the (Westerner) resulted in a severing in communication between senior managers … and the board, with the main point of contact being the CEO.”
While several Red Deer city councillors sat on the Westerner’s governance board, they were bound by the privacy rules of in-camera meetings from revealing some of the financial issues at the Westerner to the rest of city council without receiving permission from the board chair.
But at least one other member of the Westerner board was under the assumption that the city representatives would share information as necessary with city council.
Finally, the auditors concluded that staff turnover in the Westerner Exhibition Association’s finance department, compounded by some inexperienced staffers, also led to a “deterioration of the accounting controls and processes.”
The Deloitte forensic audit was requested by the City of Red Deer earlier this year after it took over financial oversight of the Westerner Park.