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The Alberta government has shut down a private Christian school association responsible for roughly 30 per cent of the province's home-schooled children after concluding hundreds of thousands of dollars were inappropriately diverted, with problems ranging from withholding money that was supposed to go to parents and expenses tied to a funeral.

Alberta Education on Tuesday revoked the Trinity Christian School Association's registration and accreditation as a private-school operator after finding money was allegedly directed to a third party, Wisdom Home Schooling Society.

The government has given Trinity roughly $5.5-million in annual funding. Trinity, in turn, outsourced its home-schooling operations to Wisdom. Trinity's bricks-and-mortar school in Cold Lake, Alta., hosted 13 students and it registered roughly 3,500 kids for home-schooling this year. The government alleges that in addition to inappropriate expenses, Wisdom kept $988,000 that was supposed to go to parents to fund their children's education over the last three years.

Related: More Canadian parents opting for home-schooling: report

"The decision to cancel accreditation and registration for Trinity Christian School Association was made out of respect for taxpayers and the many families who entrusted this school to properly account for the funding granted for the purposes of their children's education," David Eggen, Alberta's Minister of Education, said in a statement Tuesday.

Mr. Eggen ordered the government's audit. "The information provided through this review was alarming," he said. Asked whether this is a case of fraud, Mr. Eggen said: "Certainly it is financial impropriety."

Alberta will try to "aggressively" recoup the money meant for students, he said. Alberta handed the information to the RCMP. "I think that the RCMP and Canada Revenue [Agency] will take an interest in the circumstances here," Mr. Eggen said.

A man who identified himself as an administrator at Trinity said the organization was surprised Tuesday afternoon when it received the news.

"This is a complete and utter total shock," he said, noting that he knew the organization was under audit but believed that to be normal.

The government released a 37-page financial management and administration review of Trinity's operations. The names of the parties the government believes acted inappropriately are redacted, but the document contains enough information to conclude Alberta believes two families – both tied to both Trinity and Wisdom – are responsible for the alleged mismanagement.

Kenneth and Marlane Noster founded Wisdom in 1995. Mr. Noster is also the associate principal at Trinity.

The government said a number of allegedly inappropriate leases were part of the problem. For example, Wisdom leased its head office from Lone Spruce Farm in rural Alberta. It rented 2,616 square feet for a total of $493,800 over four years, according to the government's report. The telephone number for Lone Spruce Farm is the same as the Nosters' number.

The government report also detailed what it considers inappropriate leases tied to the Living Water College of the Arts. The Nosters founded the institution, according to one of its newsletters. Both are listed as directors and Mr. Noster is its president, according to its website.

E-mail and telephone messages left at the Nosters' were not returned.

The government was alerted to irregularities in Trinity's operations this summer. It asked questions but received inadequate answers, Mr. Eggen told reporters Tuesday. Then it sent auditors on-site.

Inappropriate expenses included alleged double-dipping on mileage as well as spending on food, alcohol, gift cards, presents, theatre tickets, babysitting, funeral costs and groceries, the report said. In December, 2014, for example, the audit found Wisdom used a Visa card to buy 16 gift cards for $1,200; alcohol and pizza for $334.47; and three more gift cards for $225.

Occasionally reimbursements cheques were written to the family members the government believes responsible for the expenses. Total alleged compensation to all members of these two families exceeded $2.76-million over the last three years, the report said.

The government is trying to quickly transition the 3,500 students under the Trinity umbrella to a new school system.