Health Canada handed out millions of dollars to a national eHealth agency without properly accounting for how the money was spent, a new audit says.
The finding raises doubts about Health Canada's own record of accountability even as it conducts due diligence before deciding whether to give Canada Health Infoway Inc. another half-billion dollars.
The internal audit examined a $400-million, five-year deal the department signed in 2007 with Infoway, created to ensure all Canadians have an electronic health record by 2016.
Infoway received its first cheque, for $38.7-million, in October 2007.
But the auditors suggest the deal was so badly crafted that Infoway was not required to provide enough information to Health Canada to ensure the money would be well spent.
"The information in support of the initial instalment of the new funding was inadequate to verify the validity and appropriateness of the projected expenditures under the terms of the agreement," says the newly disclosed audit, completed in May last year.
"In the absence of detailed project information, (Health Canada) cannot effectively assess the eligibility and reasonableness of reported budgeted costs."
The audit also disclosed that the Health Canada official who approved the $38.7-million payment did not have the authority to do so.
Auditors spotted the lapse, and the department fixed the problem 11 months later - by having an associate deputy minister retroactively approve a cheque that had already been cashed.
The weaknesses cited in the audit turn the accountability spotlight on Health Canada, which has frozen $500-million in fresh funding for Infoway for more than a year while it conducts what it calls "due diligence."
Other eHealth initiatives in Ontario and British Columbia have come under fire after allegations of misspending and poor oversight.
But Infoway, created in 2001 and given initial seed money of $1.2-billion, has emerged largely untarnished after close scrutiny by the Auditor General of Canada in a report last fall.
Sheila Fraser cited a raft of contracting and reporting problems at Infoway, including one contract that ballooned to $726,000 from $144,000 without competitive bids. Ms. Fraser also found 13 contracts in a sample of 35 that were signed only after the work had begun.
But her probe found none of the accountability nightmares that have plagued eHealth Ontario.
The latest Health Canada audit also found a few problems at Infoway, including travel that was not authorized in advance, as required.
The report also said Infoway's internal compliance audits were not fully objective and independent, but auditors nevertheless gave Infoway a generally positive review. No evidence was cited of improper spending.
Health Canada says it has since tightened the rules in its 2007 agreement with Infoway. A spokesman say a total $226-million has been released so far under that $400-million deal.
"Health Canada will include enhanced reporting provisions in future agreements as well as requirements for detailed information," David Thomas said.
But the $500-million promised more than a year ago has not yet been released, even though it was touted as part of the government's Economic Action Plan for responding to the global economic meltdown.
Asked when those new funds might be released, a spokeswoman for Health Minister Leona Aglukkaq said only that the department is working with Infoway to "improve internal controls and enhance its approaches to reporting on progress."
"We want to have concrete plans in place to ensure value for money and a prudent use of resources," said Josee Bellemare.
The head of the Canadian Medical Association, who has been pressing the government for the new funds, says the money won't flow until April at the earliest.
"We have been told by senior staff at Health Canada, Finance Canada and Industry Canada and in the respective ministers' offices, that the federal government will release the money only after the first quarter of 2010," Dr. Anne Doig said in an e-mail.
"This initiative for EMRs (electronic medical records) is important and represents an effective tool for physicians to provide optimal health care to patients. Postponing funding would be a missed opportunity for improved patient care."
The department is expected to wait until after Ms. Fraser releases her overview of six provincial eHealth audits, set for sometime in mid-April.
And with the Finance Department looking to significantly trim spending, there are fears in the health community that the $500-billion commitment to Infoway may disappear altogether.