An Examination of the International Centre of Regulatory Excellence (ICORE)

In August 2018 the office received a complaint alleging a number of serious concerns with activities related to the International Centre of Regulatory Excellence (ICORE) at the Alberta Energy Regulator (AER).

After completing our due diligence to see if the allegation had merit, we determined there was much more to ICORE activities at AER than disclosed in the annual reports, board minutes and other publicly accessible information.

As a result, we determined that the allegations warranted detailed examination, we conducted a comprehensive examination of AER ICORE-related activities.

As originally conceived, the Centre of Regulatory Excellence (CORE) was an AER-focused training program that aligned with AER’s strategic direction and goals.

However, through a combination of deficient controls and poor implementation, CORE morphed into ICORE — a business venture focused on generating revenue from countries around the world through the delivery of services, like training and consulting.

The former AER CEO, along with other members of AER senior management, presented the concept of ICORE to the former Minister of Energy, the AER Board, and other AER staff, based on benefits, to AER.

In our examination, we found the actions surrounding ICORE tell a different story.

ICORE-related activities at AER provide a case study of how controls can be overridden, public money can be wasted, and harm can befall an organization when potential conflicts of interest are present, and weak processes exist.

The ICORE situation provides important lessons about how controls can break down when those charged with oversight fail to heed warning signs and improperly assess systems and risks.

It is essential for effective oversight that major provincial corporations in Alberta, such as AER, have boards of directors with the necessary skills mix, and a full complement.

Strong processes are necessary to support those oversight functions.

There were critical failures related to the use of resources, managing potential conflicts of interest, information management, compliance with legislation, and corporate culture relating to ICORE.

A prevalent finding in our examination was ineffective controls in relation to ICORE activities. Specifically:

• AER engaged in activities outside of its mandate and public money was spent inappropriately on ICORE activities.
• Controls and processes to protect against potential conflicts of interest failed.
• AER Board oversight was ineffective.
• Financial, information management, and human resource controls were ineffective.
• Controls to monitor and track expenses related to ICORE activities were at first non-existent and then poorly implemented.
• The tone at the top at AER did not support a strong control environment or compliance with policies.

The objective of our examination was multi-faceted, but perhaps the most important objective is to make recommendations for improvement that will assist AER in the future, and to communicate lessons learned that will also be of benefit to other board-governed provincial agencies and organizations.

To move forward, AER needs to ensure its organization focuses on restoring a culture of trust, particularly among and between the Board and senior management.

To that end, we are making four recommendations to the AER based on the findings of our examination.

First, we recommend that the AER Board improve its oversight by:

• ensuring the effectiveness of processes to evaluate corporate culture and senior executive performance
• obtaining formal and periodic assertions from management that activities comply with legislation and AER policies, including policies related to conflict of interest
• ensuring officers in key risk management, compliance and internal control roles are well-positioned and supported to provide complete information about AER activities
• reviewing and approving CEO travel and expenses
• ensuring the primary channel of communication to the responsible Ministers is through the Board
• establishing processes to engage with executive staff, and other staff within the organization, to gain comfort that all significant matters have been brought to the attention of the Board

Second, we recommend that AER perform sufficient due diligence to assess the risk of further waste of public resources not already identified.

Third, we recommend AER evaluate whether any additional funds expended on ICORE activities are recoverable.

And finally, we recommend AER staff are made aware of and are sufficiently trained on recent enhancements to AER’s whistleblowing process, consistent with Section 6 of the Public Interest Disclosure (Whistleblower Protection) Act.

A healthy corporate culture, including tone at the top, matters above all else.

A healthy corporate culture is paramount to ensure organizations remain focused on their mandate.

Accurately gauging corporate culture is not easy, but boards and management must find ways to obtain assurance that their organizations are operating in a safe, respectful and productive manner.

Directors need to be vigilant and ask challenging and probing questions of management, particularly when new risks to the organization emerge.

Directors routinely walk into a boardroom possessing less information about the organization than management.

They may therefore be inclined to defer to management, and there is a risk that directors are not always asking the right questions.

Each member of the board must be vigilant — even if the CEO and the Chair are seemingly aligned.

Directors should continue to probe and ask hard questions if they are not satisfied risks are being properly identified and mitigated.

Through this examination, it became clear that the former AER Board Chair’s and the former AER CEO’s confidence in ICORE deterred others from questioning ICORE further.

Because the CEO wields significant power within an organization, boards need to establish processes to engage with other executive and staff in the organization to gain comfort that all significant matters have been brought to the attention of the Board.

In pursuing new and innovative concepts, government organizations need to ensure any specific activities are an appropriate fit within their mandate.

The external environment tends to change much faster than governing legislation, and as government organizations seek to introduce operational innovation, it is important they confirm that new activities are within the mandate.

AER’s mandate is to regulate the energy industry within the province of Alberta through direct industry engagement and collaboration.

The original concept of CORE to develop AER staff proficiencies was arguably within its mandate; however, the development of ICORE and the diversion of resources to build a business focused on international revenue generation was not.

And finally …

Effective whistleblowing mechanisms are critical in uncovering undesired practices.

The events at AER further reinforce the importance of whistleblower processes to surface problematic activities within an organization.

Organizations need to ensure that staff are aware of whistleblowing processes and that internal processes are viewed as safe, secure and reliable.

The report, which was tabled on October 4, 2019 with the Members of the Legislative Assembly of Alberta, provides additional details about our examination and our findings.

Click here to see the October 4, 2019 joint news conference.