Public Accounts Committee on June 4th, 2024

[Karen Hogan]

The 96 cases were properly handled, so really what's concerning is the 90 that were not properly handled.

[Rick Perkins, Conservative, South Shore—St. Margarets, NS]

They're all concerning. Any conflict of interest is concerning. For the 90 it was $76 million. How much is the dollar value for the 96 conflicts of interest?

[Karen Hogan]

I don't have that number. We'll have to get back to you.

[Rick Perkins, Conservative, South Shore—St. Margarets, NS]

Can you table that?

In every single case of the 186 conflicts of interest, when that came to the board—because the board approves them all—there was a senior Department of Industry official present. Is that correct?

[Karen Hogan]

There was an assistant deputy minister as an observer at the board meetings of the foundation.

[Rick Perkins, Conservative, South Shore—St. Margarets, NS]

The answer is yes.

[Karen Hogan]

Yes.

[Rick Perkins, Conservative, South Shore—St. Margarets, NS]

Okay. I'll go over to Mrs. Block.

[Kelly Block, Conservative, Carlton Trail—Eagle Creek, SK]

Thank you very much.

In your report, you reference national master standing offers, otherwise known as NMSOs. It is my understanding that these are common procurement tools used by a government when a unique or ongoing service is required by government departments as a way of providing certainty.

Would that be a correct characterization?

[Karen Hogan]

Absolutely. A standing offer is meant to really be almost like a self-serve. Here are certain services or products that are regularly procured, and then a good price is put in a standing offer for departments, agencies and Crowns to then call up against.

[Kelly Block, Conservative, Carlton Trail—Eagle Creek, SK]

Thank you very much.

In this audit of McKinsey contracting, you found that the NMSO established by Public Services and Procurement Canada for them was done through a non-competitive process for benchmarking services, and they did not provide proper justification. I think you mentioned that this happened in a number of contracts.

I believe this calls into question whether it should have been established to begin with at all. Would you say that is accurate?

[Karen Hogan]

I think the procurement rules allow for national master standing offers to be put in place for either a competitive process or a non-competitive process. Prior to the issuance of this NMSO for McKinsey, there were others that had been issued to other vendors on a non-competitive basis, and this one was done on a non-competitive basis as well.

I found that Public Services and Procurement Canada's justification was really weak. Then the next step is when departments, agencies or Crowns use it. Each of them should have properly documented why the McKinsey national master standing offer was chosen versus another one where similar services might have been available.

[Kelly Block, Conservative, Carlton Trail—Eagle Creek, SK]

Thank you.

I know you didn't use these words, but the OPO said that there appeared to be clear “favouritism” when it came to how some of these contracts were structured. Would you agree with that?

[Karen Hogan]

I would tell you that we found six instances where we thought that the process was designed to suit or favour McKinsey—so six out of 97.

[Kelly Block, Conservative, Carlton Trail—Eagle Creek, SK]

Favouritism.... What we actually have here is a government setting up a pipeline to funnel tens of millions of dollars through a non-competitive process to one of their favourite companies, McKinsey—

[The Chair, Conservative, John Williamson]

Put a question, Mrs. Block, please.

[Kelly Block, Conservative, Carlton Trail—Eagle Creek, SK]

Would you agree with that?

[Karen Hogan]

I would tell you that McKinsey represents 0.27% of the dollars spent by the federal public service on professional services contracts. I think it's important to note that the government should properly document why contracts are needed, regardless of who they are issued to.

[The Chair, Conservative, John Williamson]

Thank you very much.

Mr. Weiler, you have the floor for five minutes, please.

[Patrick Weiler, Liberal, West Vancouver—Sunshine Coast—Sea to Sky Country, BC]

Thank you, Chair.

I want to thank the Auditor General and her team for the important work they've done on these reports and for being here today to answer our questions about them.

I want to ask some questions about your report on Sustainable Development Technology Canada. I know that the suspension of funding from this organization is causing a lot of challenges in our clean-tech sector in Canada, where we need to have access to finance to be able to compete with some of our international competitors.

There were some very significant findings that were made in your report, including 90 instances where funding for projects was approved when conflict of interest policies were not followed.

I would like to ask a question, though.

How many of those instances were related to the 5% across-the-board COVID relief payments that were delivered to all SDTC clients?

[Karen Hogan]

In the 90 cases, there were 63 of them that were linked to the two payments that were made around COVID relief.

[Patrick Weiler, Liberal, West Vancouver—Sunshine Coast—Sea to Sky Country, BC]

Were those just across the board without specifically choosing individual companies for those cases?

[Karen Hogan]

The way the COVID payments were done, I think, violated two things. One is the conflict of interest rules not being properly followed, since individuals who had conflicts of interest did not recuse themselves from the vote. Second, it was done in a blanket format, so it was all at once. The contribution agreement between the Government of Canada and the foundation does not allow for that. It requires that each individual contract and payment be looked at on a merit basis and awarded to a specific project. This violated not only the contribution agreement but their conflict of interest rules.

[Patrick Weiler, Liberal, West Vancouver—Sunshine Coast—Sea to Sky Country, BC]

Thank you.

Could you explain some of your recommendations related to conflict of interest in your report?

[Karen Hogan]

It starts with the fact the foundation really just has a poor system to manage their conflicts of interest and the mitigation measures. We believe that they should have a system...which they put in place near the end of, I think, 2022. However, again, we saw inconsistencies between what had been declared in minutes and what was maintained in this system.

I think they have a lot of work to do around managing conflicts of interest at the board. More specifically, they also have other conflicts of interest not covered by their policies that they should improve on, and we cited a few examples.

I would also point out to you that there was a recommendation around conflict of interest in our professional services contract. It's important to be much more proactive when it comes to conflicts of interest.

Mr. Hayes will maybe add something about one of the specific recommendations.