Bondfield auditor resigned over fraud concerns, according to court documents

Open this photo in gallery:

An external auditor for Bondfield Construction Company Ltd. suspected possible fraud at the company six years before its collapse – prompting the firm to resign and warn its successor, according to court documents.

The allegations are contained in two lawsuits filed against PricewaterhouseCoopers – which audited Bondfield’s books for the fiscal years 2008 to 2012 – and Deloitte LLP, which took over as Bondfield’s auditor for 2013 to 2016.

One of the lawsuits was filed by Bondfield’s litigation trustee on behalf of the company, and the other by Zurich Insurance, which provided surety bonds for more than $1-billion worth of public-sector contracts awarded to Bondfield. Both lawsuits allege that the firms were negligent in auditing Bondfield’s books.

The suits also contain new claims that PWC allegedly detected fraud long before Bondfield filed for bankruptcy protection in 2019 and faced allegations that former executives funnelled money out of the company.

Court filings allege that during the audit of Bondfield’s 2013 financial statements, PwC suspected it had been provided with fraudulent evidence but was “stonewalled” in its efforts to probe deeper.

When Bondfield threatened a lawsuit and gave PwC a deadline of 24 hours to produce a clean audit report, the firm resigned and provided its replacement, a team from Deloitte LLP, with a letter documenting its concerns, according to the records filed in Ontario Superior Court of Justice.

The lawsuits also allege that PwC and Deloitte had a duty to inform Zurich about the reasons for the change of auditors, because they knew that the company would rely on Bondfield’s audited financial statements to provide bonds on its projects.

None of the allegations has been proven in court and no statements of defence have been filed in court.

A spokesperson for Deloitte said the company would not comment because the matters are before the court. “We are confident that the quality of our work and the diligence and integrity of our people is of the highest professional standard,” Tonya Johnson said in an e-mailed statement.

A spokesperson for PwC also said the company could not comment because the issues were before the court.

Bondfield is one of the largest contractors on public-sector construction projects in Ontario, and its insolvency has had ripple effects through numerous sectors of the economy – from construction suppliers to financial powerhouses on Bay Street.

Two of Bondfield’s hospital projects – St. Michael’s Hospital in downtown Toronto and Cambridge Memorial Hospital in Southwestern Ontario – are more than two years behind schedule. Zurich alleges it has had to pay out more than $200-million in claims to unpaid subcontractors. And now the scandal has touched two of Canada’s big-four accounting firms.

In 2018, Zurich began playing a more active role in the company’s affairs, and months later, Bondfield terminated the employment of its chief executive officer, John Aquino, the son of Bondfield’s founder, Ralph Aquino. Steven Aquino replaced his older brother at the helm. The company sought court protection from creditors in April, 2019.

The court-appointed monitor for Bondfield, Ernst & Young, launched a forensic probe last year, which alleged that John Aquino had participated in a scheme that siphoned $80-million out of Bondfield through the use of false invoices. The probe alleged that over an eight-year period, Bondfield paid millions to a number of companies, which don’t appear to have any real operations, for work that was never performed. Some of that money allegedly flowed back to three former Bondfield executives, including $5.2-million to John Aquino.

In an affidavit responding to Ernst & Young’s findings, John Aquino has stated: “I am implicated in a matter that I believe is without merit.”

Both of the claims against Deloitte and PwC argue that they should have uncovered the alleged scheme. “The stealing was done, in part, by dishonest senior management and certain co-conspirators using one of the most common, and also one of the most easily detectable, fraud schemes,” the claim launched by the litigation trustee alleges.

On June 16, 2014, PwC confronted Bondfield with concerns about the company’s 2013 financials, according to the claim launched by the litigation trustee for Bondfield. The audit team received information, which the claim does not detail, that contradicted information provided by Bondfield about the value of certain assets, the claim alleges.

On that day, PwC told Bondfield that it needed to do more work “to address its serious concerns,” the claim alleges. On June 17, Bondfield notified PwC that it would not permit any more “field work,” and demanded a clean audit report by 10 a.m. the next day, the claim states.

Two days later, PwC resigned.

On June 20, PwC informed Deloitte, in a letter, that it “suspected fraud," and that Bondfield’s threats to sue had “compromised” PwC’s independence, the claim alleges.

The Ontario Business Corporations Act requires auditors to obtain such letters before they replace a prior audit team.

The claims allege that Deloitte did not properly heed PwC’s warning, and that it should have probed further before issuing its clean audit reports from 2013 to 2016. The claims also allege that PwC was obliged to share its concerns with others, including Zurich and National Bank of Canada, which provided secured loans to Bondfield between 2008 and 2017.

The litigation trustee’s claim against Deloitte and PwC states that auditors should have been on high alert about John Aquino because he “was a domineering personality running a one-man show” and "could override any existing controls at will.” A lawyer for Mr. Aquino did not respond to e-mailed requests for comment.

In an e-mailed statement, Steven Aquino said both he and his father were unaware that PwC suspected fraud, that it had been denied access to records and that it resigned because of those concerns. “At no time were these issues ever brought to our attention, including by PwC or Deloitte. Had this been the case, and had we been aware of the concerns, we would have investigated and taken all necessary and appropriate action,” he said.