Province files statement of claim against non-profit, alleging execs pocketed millions

WINNIPEG — The Government of Manitoba is suing a non-profit organization in civil court over allegations that its executives pocketed one-third of the organization’s funding.

A statement of claim was filed on Nov. 26 against STEPS Resources Community Support Services Inc., which provided services to clients of Manitoba’s Community Living disABILITY Services Program. Others named in the lawsuit include directors Rick and Glenda Fyvie, as well as their accountant and financial advisor.

According to the legal document, the province entered into an agreement with STEPS and over the course of five years provided the non-profit with $11.7 million in funding.

The province is seeking special damages of $2,278,800, as well as general damages, punitive or exemplary damages, interests and costs. It also wants an order that certain funds or property from the defendants be subject to a constructive trust.

THE OPERATING SYSTEM

The statement of claim says the non-profit was leasing an operating system from a numbered company, owned by execs Rick and Glenda. The claim alleges between Jan. 1, 2016 and Nov. 1, 2017 the non-profit paid $178,800 for this lease. It says in November 2017, STEPS purchased the operating system at a total cost of $2.1 million and recorded it as an asset in its financial statements.

“The Lease and Purchase of the Operating System were fraudulent and unconscionable transactions,” the claim alleges.

It goes on to describe the purchase and lease as “non-arm’s length transactions” and alleges Glenda and Rick had a “direct” and “obvious” financial conflict of interest.

The claim also alleges that the defendants didn’t disclose in writing their material interest in the purchase and lease of the operating system, and the non-profit failed to have and maintain a conflict of interest policy, thus breaching its agreement with the province.

THE SALARIES AND THE SURPLUS

The statement of claim describes Glenda’s and Rick’s salaries and bonuses as “excessive and grossly disproportionate to the value of the work.” It says even though the board approved these high salaries, the pair was being paid even more than what was agreed upon.

“Over the duration of the Agreement, almost one third of all funding provided by Manitoba to STEPS was paid directly or indirectly to Glenda Fyvie and Rick Fyvie, including through salaries, bonuses, expense claims, contributions to retirement savings plans, and the Lease and Purchase of the Operating System,” according to the Statement of Claim.

The province also alleges the non-profit was chronically understaffed and consequently maintained an operating surplus, which was concealed from the government. The claim says that the surplus was not used to provide the services agreed upon, but rather to benefit Glenda and Rick.

“The Defendants’ concealment and misuse of STEPS’ surplus unjustly deprived Manitoba of the value of the services for which the surplus should have been used and the Defendants were correspondingly enriched without juristic reason,” the court document claims.

FRAUD AND NEGLIGENCE

The statement of claim goes on to allege that by conducting themselves in this matter the defendants caused STEPS to “breach its Agreement” with the province; “interfere with Manitoba’s economic relations by unlawful means;” “Fraudulently” or “negligently misrepresent the financial position of STEPS;” and “Defraud Manitoba of the value of the services that ought to have been provided under the Agreement.”

It alleges the board members of the non-profit “did not exercise reasonable care” and “acted negligently” in terms of STEPS’ "corporate and financial governance," and that Glenda and Rick “acted negligently” in respect to the non-profit’s "operations and finances."

“It was reasonably foreseeable that this negligence could result in harm to Manitoba. Manitoba was in fact harmed as a result of this negligence.”

ENDING THE AGREEMENT

In 2018, the province learned that STEPS recorded a significant asset in its financial statement, and had Ernst and Young conduct a forensic and performance audit.

According to the claim, the government served STEPS with a notice to terminate the agreement on June 24, 2019. After the agreement ended, the province had to arrange for new service providers for STEPS’ clients, and consequently incurred expenses arranging these services on a short notice.

None of the allegations in the statement of claim have been tested in court and no defences have been filed.

CTV News Winnipeg attempted to contact Rick and Glenda, but was unable to reach them.

A spokesperson for the province told CTV that the matter remains before the courts.