Crown corporation at risk of procurement fraud, says auditor general

A Crown corporation that handed out nearly $1 billion in contracts last year should be doing more to prevent fraud, says a report by Auditor General Michael Ferguson's office to be tabled in Parliament later this month.

Auditor Marise Bédard found a risk of fraud at Defence Construction Canada, and she identified fraud prevention at the Crown corporation as a "weakness."

"The corporation had rudimentary fraud-detection systems, which were manual and implemented regionally," she wrote. "Management was therefore unable to use the systems to detect and analyze broader trends that might reveal fraud (such as bid-rigging) that could be spread out over time, across regions, or among many suppliers. This kind of fraud, collusion, or corruption could take place even among contracts that, individually, appeared to have been awarded properly."

The report does not suggest that fraud has actually occurred.

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James Paul, president and CEO of Defence Construction Canada, said the corporation has begun acting on the report's recommendations. A new e-procurement system coupled with new business intelligence software will allow the Crown corporation to keep better tabs on the bidding process for contracts and detect fraud, he said.

While the report said there is a threat of fraud, Paul said it is a threat that has not materialized.

"We do 2,000-plus procurements a year. Our track record is exemplary in terms of instances of fraud."

That said, organizations can always do more, he added.

The special examination report looked at Defence Construction Canada, which provides a variety of services including procurement and construction for the Department of National Defence and other government departments. While it normally hands out between $650 million and $800 million a year in contracts, last year the total topped $900 million, said Paul.

While many of those contracts are for construction or repairs for buildings on military bases across the country, some are for other departments, such as a new super server centre for Shared Services Canada.

The auditor general's office routinely conducts a special examination of each Crown corporation every 10 years on average.

For the most part, the special examination found that Defence Construction Canada was well run. However, it also found that the nature of its mission means it has to be alert to the possibility of fraud.

"This weakness matters because no organization that safeguards public resources is immune to fraud risks," Bédard wrote. "If undetected, fraud can divert public funds to unrelated private interests or allow competitions to favour suppliers who provide less value for money. Moreover, a lack of measures to monitor and mitigate fraud systematically can undermine public trust."

The report recommended the corporation put in place more systematic training for employees to detect potential fraud.

Paul said the corporation is planning to improve training in addition to its new e-procurement system.

Elizabeth Thompson can be reached at [email protected]