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Minister of Public Services and Procurement Jean-Yves Duclos and President of the Treasury Board Anita Anand, left, speak during a news conference on the government's actions to strengthen procurement practices, at the National Press Theatre in Ottawa, on March 20.Justin Tang/The Canadian Press

An internal review of federal contracting has found nearly $5-million in fraudulent billing by three private subcontractors, prompting the government to refer the cases to the RCMP, announce a new contracting oversight office and tighten conflict-of-interest rules for public servants.

The government said the fraudulent billing was uncovered through a mix of tips and advanced data analytics. In its announcement, the procurement department, which conducted the review, said that serious questions have been raised regarding the integrity of the federal procurement system, including the practice of certain suppliers.

Federal officials also said Wednesday’s announcement is the first wave of what is expected to be a series of discoveries related to fraudulent billing cases in the coming months. They said another five to 10 cases are being examined, though they did not provide a price tag on how much money may be involved.

The officials said a review found that between 2018 and 2022, three IT subcontractors fraudulently billed on contract work with 36 separate government departments and Crown corporations. Government officials said in one case, an individual contractor was billing multiple departments through various contracts for the same hours in a day.

Public Services and Procurement Minister Jean-Yves Duclos told a news conference on Wednesday that the three cases were referred to the RCMP in steps “over the last few weeks.” He also called it a “troubling outcome.”

When asked to comment about the government’s announcement, the RCMP said in a statement that it has received a complaint from Public Services and Procurement Canada. The police force declined further comment, “as this is an ongoing investigation.”

Officials said the three subcontractors are not connected to the ArriveCan app for international travellers.

Auditor-General Karen Hogan’s recent report on ArriveCan raised broader concerns about interactions between private contractors and government officials in the contracting process.

The federal government has previously announced that three IT staffing companies that worked on ArriveCan – Dalian, Coradix and GCStrategies – have all been suspended from federal contract work.

During Question Period Wednesday, Conservative Leader Pierre Poilievre said the announcement shows federal contracting problems go beyond ArriveCan.

“The $60-million arrive scam is just the tip of the iceberg. We now learn that there are $5-million in additional fraud that has been identified by the Department of Public Procurement,” he said, before asking Prime Minister Justin Trudeau how much more fraud will be found.

“The situation is obviously unacceptable, which is why authorities are looking into the procurement process,” Mr. Trudeau replied.

Months of parliamentary hearings into ArriveCan and related contracting issues have led MPs from all parties to criticize the federal contracting system. The testimony has included finger-pointing involving senior public servants as to who bears responsibility for contracting cost overruns and approving outsourcing plans.

Mr. Duclos said there had been a number of exchanges between his department and the national police force as information was gathered and as more details were sought by the RCMP.

The minister said the situation underscores how tools, such as those for data gathering, are starting to work. He said expertise in government is increasingly strong and this scenario sends a signal to “anyone who would like to be fraudulently billing the federal government.”

The procurement department said the security status of the subcontractors has been revoked but their identities will not be released in order to protect the integrity of continuing investigations. Efforts are also under way to recover payments from the subcontractors. Mr. Duclos said that “unethical business practices have no place in the Government of Canada’s business dealings.”

In a news release, the government said the internal review, along with recent reports by the Auditor-General and the Procurement Ombud, as well as parliamentary studies, “have revealed a need for action on many fronts to improve the management and integrity of Canada’s procurement processes.”

This will be addressed by a new Office of Supplier Integrity and Compliance that the government says will enhance the procurement department’s capacity to identify and respond to instances of supplier misconduct.

Speaking at a news conference with Mr. Duclos, Treasury Board President Anita Anand announced that her department is updating its management guide for public servants with responsibility for approving federal contracts.

Ms. Anand said the revision of the directive on conflict of interest is to reinforce that such disclosures must be made at the time of contracting and there is a continuing obligation to ensure employees disclose all conflicts throughout the term of their employment.

She said it is her understanding that David Yeo, the founder of Dalian Enterprises, a vendor hired by the federal government to work on its troubled ArriveCan app, did not make a disclosure related to any conflict of interest at the time of contracting.

During a parliamentary committee hearing on Tuesday, it was confirmed that Dalian was awarded a contract from the Defence Department the same day Mr. Yeo started working at the department as a full-time public servant.

He told MPs that the Defence Department had declared that there was no conflict of interest in his case.

A spokesperson for the Department of National Defence, Kened Sadiku, said Wednesday that DND has not made any specific statement related to Mr. Yeo and a conflict of interest, he is no longer employed at the department, and internal investigations are taking place.

Ms. Anand also commented on Mr. Yeo’s testimony.

“That is an explicit requirement under the directive on conflict of interest, that disclosure must be made,” the minister said. “To date, DND has found no evidence that he has submitted the disclosure that he mentioned he did.”

The government also pledged Wednesday to introduce a new process that will assess government-wide trends, risks and individual departmental performance.

The federal government’s Directive on Conflict of Interest is also being reviewed, specifically as it relates to employees who engage in outside employment, including contracts with the Government of Canada. In addition, this review will look at ways to increase the penalties for violating conflict-of-interest rules.

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