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Top-level executives of the provincial energy regulator repeatedly snubbed expense account rules by taking questionable flight upgrades, circumventing cash bonus laws and avoiding taxes on subsidized parking, Alberta’s Auditor-General said on Thursday.

Auditor-General Doug Wylie’s report said executives at the Alberta Energy Regulator (AER) green-lighted their own expenses, claimed thousands in mileage with no oversight, and cash bonuses of $21,000 each were awarded to two senior executives in spite of a provincial law that eliminated such payments for public officials. He said the abuses were pervasive throughout the top levels of management.

“This is what happens when the tone at the top does not support the rules,” Mr. Wylie told The Globe and Mail in an interview on Thursday.

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For example, Mr. Wylie said, the audit, which covers the year ended March 30, 2019, shows that the regulator’s then-chief executive officer, Jim Ellis, was reimbursed $22,000 in less than a year to fly from his B.C. home to meetings in Calgary, even though he had no signed long-distance work agreement. It also said another executive was reimbursed $10,000 for such travel, also without an agreement.

The audit of AER’s books comes after three provincial investigations found Mr. Ellis set up a pricey side project that diverted resources, money and employee time from the agency while concealing many of the details from the board of directors. Alberta’s UCP government fired the AER board in September and announced a review of the regulator’s mandate, operations and governance. Three top executives left the agency soon after as the body dealt with the fallout from revelations about ICORE.

In one of the investigations, Alberta Public Interest Commissioner Marianne Ryan found Mr. Ellis grossly mismanaged public funds when he set up the International Centre of Regulatory Excellence (ICORE), and mismanaged public assets and services by misappropriating intellectual property.

“Mr. Ellis’s actions constitute a willful and reckless disregard for the proper management of AER funds,” her report said.

But Mr. Wylie’s report throws into question exactly who knew about ICORE, which is estimated to have cost the AER $5.4-million.

After sifting through AER financial statements, e-mails and meeting records, Mr. Wylie’s office found up to 50 staffers were involved in building or operating the centre. Further, he wrote, the board knew about ICORE and sanctioned its set-up.

AER has said it never controlled ICORE and it was merely a side-project set up by a few employees acting in their personal capacity.

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“Our overarching conclusion was this was an organization that was sanctioned by AER proper,” Mr. Wylie said.

“Although the board was not made aware of all the activities, they certainly were involved in initiatives that, if they didn’t ask questions, they certainly had an opportunity to ask those questions.”

Mr. Ellis, who left the regulator in January, 2019, could not be reached for comment after the release of Thursday’s report.

Mr. Wylie’s office also found the AER intentionally avoided assessing taxes on employer-subsidized parking, costing the regulator $1.3-million, and that Mr. Ellis authorized a plan for one top executive to work at a non-profit for six months while continuing to receive salary and benefits.

The Auditor-General’s report also said staff bought multiple upgraded flights, including business-class airfares and seat upgrades for which the auditors did not find any reason.

The AER’s budget is set by the provincial government, but it is funded through fees paid by the oil and gas industry.

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Government watchdog investigations into ICORE detailed how the most senior executives at the energy regulator were distracted from the agency’s crucial tasks of vetting and approving energy projects as the industry’s financial fortunes dwindled amid a lengthy downturn. At the same time, the province struggled to deal with a rising tide of environmental liabilities related to aging oil and gas wells.

According to the public interest commissioner’s report, Mr. Ellis established ICORE in July, 2016, with the intent of providing training to other countries on energy regulation. He and his allies subsequently set up affiliated entities, including a not-for-profit corporation to deliver the services. Mr. Ellis was a director.

Although Mr. Wylie’s financial audit of AER was a separate exercise to his report on ICORE, taken together the two demonstrate the ineffectiveness of controls and the tone at the top of the organization, he said.

“This is atypical of what we find in the public sector and it clearly does not send a good message to people of how things operate,” Mr. Wylie said.

"I hope there’s some good, solid learnings out of this and improvements will be made."

The first test will come when Mr. Wylie’s office conducts a follow-up audit in the coming months.

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“We’ll see how this new board deals with our recommendations. I think that will be a pretty good signal about their willingness to look at things from a different perspective.”

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