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A fence cordons off condemned houses Monday, June 2, 2014 that will be demolished one year after a devastating flood in High River, Alta.Jeff McIntosh/The Canadian Press

Alberta's beleaguered disaster-compensation system triggered warnings from federal auditors well before the worst flooding in provincial history swamped 30 communities, temporarily shuttered Calgary's downtown and forced more than 56,000 people to flee their homes nearly one year ago.

The warnings, undisclosed publicly until now, stemmed from audits of Alberta government requests for disaster aid in the wake of flooding in 2005 and 2007. Obtained by The Globe and Mail through access to information legislation, the reviews uncovered inadequate measures for substantiating more than $100-million in uninsurable damage. The bulk of these costs were ultimately footed by the federal government.

The auditors' findings add to the troubling questions that have swirled around the province's disaster recovery system since at least 2010. While some fixes were in the works, the financial aid program buckled under the magnitude of last June's flood, unnerving many homeowners and businesses who faced long waits for compensation to repair and rebuild.

Some residents have complained the redress being offered is too low and will leave their families in deep financial trouble and potentially bankrupt. Others are still waiting for their damage claims to be settled.

At the centre of the strain between the public and the Progressive Conservative government is LandLink Consulting, a private company hired by the province nearly two decades ago to evaluate disaster claims.

Nearly all of LandLink's business has been with the Alberta government. Its initial contract was sole-sourced, but in subsequent contracts, LandLink was the sole bidder. Alberta is the only provincial government that consistently outsourced the administration of disaster compensation, a canvass by The Globe shows. The move occurred during the cost-cutting years of the Ralph Klein regime, when safety services staff was slashed to 13 members from 200 in early 1995.

LandLink declined to comment, referring questions to the government when reached by phone. The company did not respond to an e-mailed list of questions.

The latest five-year deal with LandLink, from 2009 to 2014, was supposed to cost the province a maximum of $20-million. But figures provided by Municipal Affairs show the payout limit to the company was hiked three times and now sits at $56.5-million. The contract was increased because of major flood events, a government spokesman said.

In a surprise announcement in Question Period in March, the Conservatives revealed that Alberta is cutting ties with LandLink next year. Municipal Affairs Minister Greg Weadick told The Globe the province is preparing to take over and overhaul its disaster-compensation system. The private sector may still play a role, but a core staff of government workers will lead the program.

"What we've learned is that it's just physically impossible for a private company to keep the resources available that would be needed in a major event like this," Mr. Weadick said. "What we're looking at now is an internal solution."

A former LandLink employee offers a glimpse at what transpired as flood waters receded last June and the ruin became clear. Although the Edmonton-based company had administered more than 70 disaster-compensation programs on behalf of the government, the ex-staffer said LandLink was overwhelmed by the scale of the catastrophe. A shortage of experienced evaluators resulted in some recruits being sent to assess damaged houses with limited training. Not everyone was up to the task.

"If they weren't cutting the mustard after two weeks, they were let go," the ex-LandLink worker said, speaking on the condition of anonymity. "You kind of have to take a chance like that in a situation … where you desperately need workers. It's very hard to be choosy when you got this volume of people who need to get their life back in order."

Many lives are not yet back in order. Of the roughly 10,500 requests for compensation from residents and small business, about 7,600 applications have been completed, withdrawn or deemed ineligible and nearly $74-million has been paid out.

Flooding is the most frequent natural hazard in Canada. Yet the country is the only G8 nation without homeowner insurance for overland flood damage.

In lieu of flood insurance, publicly funded disaster programs have stepped in. Designed to help provinces and territories pay for disaster costs that could place a significant burden on their economy, the cost-sharing program has doled out $3.4-billion since its inception in 1970. Nearly 60 per cent of those payments have occurred in the past 10 years, as the frequency and cost of natural calamities rise.

The formula for reimbursing provinces and territories for up to 90 per cent of disaster costs is slated for review in the near future. At present, the program favours less populous provinces and does not take into account a government's wealth.

In federal audits obtained by The Globe, Public Safety Canada identified several weaknesses with Alberta's flood-compensation program.

For example, in reviewing a sample of 2005 flood claims, auditors found that insufficient proof was provided for damage costs related to municipalities and First Nations. They noted it was difficult to determine whether credits, tax rebates, donations and insurance payments had been subtracted from their reimbursement claims.

Alberta's process for verifying claims from businesses and homeowners was inadequate and the system for determining home ownership, primary residence and compliance with rules governing designated flood-risk areas was "weak or absent," states an audit report dated January, 2013.

Similar problems were uncovered in a more detailed review of damage claims linked to flooding in May, 2007. Alberta met only four of 11 audit criteria, while six criteria were partially met and one wasn't fulfilled at all, the 2012 report notes.

Despite these shortcomings, the federal government still covered a big chunk of Alberta's disaster costs, giving the province $3.2-million for the 2007 flood and $129-million for 2005.

Asked why Public Safety approved the payments, spokeswoman Josée Picard said in an e-mail that there was evidence the costs had been incurred, pointing to invoices and engineering reports.

The same conditions apply to all provinces and territories, she noted. When disaster-aid guidelines are not fully met, governments are provided with recommendations for improvements. Mr. Weadick said Alberta responded to those recommendations.

Complaints about LandLink surfaced long before last year, particularly in 2010, after flooding submerged portions of central and southeastern Alberta. Those events prompted the province to ask KPMG to examine the effectiveness of Alberta's disaster recovery program.

Completed in May, 2012, KPMG's recommendations – which included ensuring LandLink evaluators had the necessary skills and experience to assess flood-damaged properties – were not released until after last June's floods. A Globe request for a previous review, done in 2007 by the government's chief internal auditor, was rejected under the province's freedom of information law.

Documents obtained by the Alberta Liberals through information legislation detail the evolution of LandLink's contracts with the government. A timeline put together by Municipal Affairs indicates LandLink was "purpose built" to administer the disaster recovery program after flooding devastated southern Alberta in 1995, the year of government cuts to safety services. The contract was intended to be "one-time deal," the documents note.

For the Alberta government, there was a benefit to outsourcing: LandLink's fees were claimable under the federal cost-sharing program. In government-run systems, only staff overtime is eligible under administration costs.

As Alberta crafts a new disaster-compensation model, Liberal MLA Kent Hehr is calling for more transparency in how damage claims are handled. Wildrose Alliance Leader Danielle Smith, whose Highwood riding was hit particularly hard by flooding, supports the province's decision to return disaster recovery to the domain of government. Outsourcing was a mistake, Ms. Smith said.

For Sue Arlidge, improvements to the flood-compensation system can't come soon enough. The Exshaw resident is still waiting for her disaster application to be settled.

She believes her ravaged house needs to be demolished and rebuilt. But LandLink's engineering report contradicts the advice given by an engineer she hired. She said LandLink is recommending that her home be repaired.

Ms. Arlidge contends the proposed disaster aid won't be enough to fix her house and could push her family into bankruptcy.

"It's been horrific. It's taken a big toll on our family," said Ms. Arlidge, who is founder of a Facebook group called, "Albertans Left Behind."

Her message to the government: "Get us out this situation and get us back into homes."

Editor's note: A previous version of this article said incorrectly that LandLink Consulting's contracts with the Alberta government were all sole-sourced. The initial contract was sole-sourced. In subsequent contracts, LandLink was the sole bidder.