A year after discovering a half-million-dollar case of vendor fraud, HRM’s procurement policies remain dangerously unguarded.
In a report presented Wednesday to the Audit and Finance committee, auditor general Evangeline Colman-Sadd says the municipality's oversite of contracts and tenders needs “significant improvement.”
Twenty percent of the 94 procurement files reviewed by the Office of the Auditor General
“One contract was extended seven months, with increased pricing, because the business unit did not have specifications ready for a new competition,” the audit reads.
In another case, expenses ended up being 10 times the maximum approved value because staff were “behind” on their work. “This contract was flagged in a monthly report for over two years.”
The audit comes almost a full year after a case of third-party fraud was uncovered by procurement staff. Last June, an employee flagged a one-time electronic transfer of $485,000 containing payment for three separate invoices.
The municipality alerted the Bank of Nova Scotia, which was able to intercept the withdrawal. Spokesperson Brendan Elliott says HRM has so-far recovered more than 90 percent of the money.
“We process over $700 million in transactions every year, with 70 percent of our payments made electronically,” states Elliott. “This is the first time in the history of the municipality that we have been victimized by a third-party payment fraud of this nature.”
Elliott wouldn’t disclose the vendor in question, under the advice of legal staff.
Wednesday’s audit says several improvements have been implemented in response to the fraud issue from last year, including a clear checklist for confirming any change in a vendor's banking information before authorizing a transaction.
But despite the new precautions, Colman-Sadd’s team found 65 percent of the time procurement staff were failing to confirm updated banking info with the vendor before releasing funds.
Monitoring of all those files is particularly weak, with 69 current and former employees having unauthorized access to purchase orders and vendor information. Procurement staff were also found to override policy and increase contracts without required approval.
A $2.5-million contract was approved by a business unit manager, bypassing both council and the CAO. Managers are supposed to only be able to approve tenders up to $100,000.
“To get the work through by skirting those controls is not acceptable,” said councillor Steve Craig in response to the OAG's findings.
Other problems outlined include missing conflict of interest disclosures—which are required under provincial law—and an opaque scoring system for tenders. Staff were unable to prove that 10 out of 32 cases examined went to the highest-scoring bidder.
“It would be remiss of me to not say that I’m highly disappointed,” said finance chair Bill Karsten. “I thought this committee had sent the message on previous occasions that procurement needed to be tightened up.”
Some of these same procurement issues were identified as far back as 2012, during a time when Halifax was dealing with the fallout from former CAO Dan English secretively approving an $8.1-million construction tender for the Washmill Underpass without council’s knowledge.
The city's procurement policies were updated last year, but the OAG says this latest audit shows staff seemingly don’t understand those rules or their approval limits.
Councillor Matt Whitman, who has been a vocal critic of procurement staff during past council meetings, asked what disciplinary penalties have been imposed for the uncovered blunders.
Chief administrative officer Jacques Dubé declined to get into personnel issues but told the finance committee that HRM management agrees with all 28 recommendations made by the auditor general.
Dubé will report back to audit and finance in three months with a progress update on implementing those proposals.
Last fiscal year, the city processed 50,000 purchase orders with a total value of just over $265 million.
