Federal Auditor General Finds Issues with Government’s Contracting and Green Tech Fund

OTTAWA – The federal public service consistently disregarded its own contracting rules when it awarded $209 million worth of contracts to consulting firm McKinsey, a symptom of larger issues with the government’s overall procurement practices, the auditor general says.

Auditor General Karen Hogan also found that one out of six projects funded by Sustainable Development Technology Canada (STDC) — the federal government’s green tech fund — to the tune of millions and reviewed by her office were ineligible and that the organization had serious governance issues.

Hogan published two scathing reports Tuesday on how the government manages taxpayer funds either though professional services contracts or funding granted by STDC.

A first audit of nearly 100 contracts awarded since 2011 to controversial consulting firm McKinsey & Company found “frequent disregard for procurement policies and guidance” and infrequent proof of value for money.

It also took a swipe at the government’s central purchasing agency, Public Services and Procurement Canada (PSPC), for failing to challenge other federal organizations when they issued contracts that appeared to overlap.

“Federal contracting and procurement policies exist to ensure fairness, transparency, and value for Canadians — but they only work if they are followed,” Hogan wrote.

Hogan audited 33 of the 97 contracts granted to McKinsey since 2011 and found that there were issues in over half (19) of them, such as why the contract was needed, what were the expected deliverables and if they were all provided, and whether the “ultimate intent” of the contract was met.

“All of the above meant that value for money could not be demonstrated for these contracts,” she wrote.

Hogan found that the total value of contracts awarded to McKinsey increased beginning in 2017-2018, though overall spending to the company since 2011 only represented 0.27 per cent of all consulting contracts awarded by the federal government.

In her report on STDC, Hogan says she found “significant lapses” in the foundation’s governance and how it managed public funds.

Between 2017 and 2023, STDC’s board approved $836-million worth of funding aimed at helping green technology projects start up, scale up, support their seed funding round, or develop partnerships and networks.

But the AG found that the foundation gave out dozens of funding awards — totalling nearly $60 million — to projects that didn’t meet its eligibility criteria, failed to follow its conflict-of-interest policies in nearly 100 cases, and that its board didn’t even have the minimum number of members required by law.

“It’s not always clear that funding decisions made on behalf of Canadian taxpayers were appropriate and justified,” Hogan added in a statement.

Her report makes 10 recommendations for STDC, including that the foundation clarify its guidance regarding project eligibility, improve its challenge function when assessing a funding request and reassess all the projects it approved since March 2017.

STDC said it completely agreed with all but the last two aforementioned recommendations, an unusual pushback since audited organizations generally agree in full with an AG’s findings.

STDC leadership said an evaluation conducted 6 years ago found it had a “substantial review and challenge process” already and argued that the AG’s findings with regards to certain projects are based on incomplete information.

“SDTC is of the view that these projects met the eligibility criteria set out in the contribution agreement but acknowledges that the OAG reached a different conclusion given that this additional perspective was not fully captured in the scope of the written information available to the OAG,” the foundation responded.

STDC has been in turmoil since media reported on internal whistleblower reports flagging significant governance and conflict of issues within the organization beginning in February 2023.

There are at least five ongoing or completed investigations into the STDC’s governance, labour practices and funding decisions, including by the AG and the federal ethics commissioner, which is ongoing.

The president of the board of directors, Annette Verschuren, resigned last year after being the subject of an investigation by the ethics commissioner. She admitted to having approved more than $200,000 in subsidies to the company NRStor, which she runs.

The president and CEO of SDTC, Leah Lawrence, also resigned. In a letter to the board of directors, she cited a “sustained and malicious campaign to undermine” her leadership.

With additional reporting by Catherine Lévesque.