Government Operations Committee on June 10th, 2024

[The Chair, Conservative, Kelly McCauley]

Thanks very much.

Mr. Genuis, you have five minutes, please.

[Garnett Genuis, Conservative, Sherwood Park—Fort Saskatchewan, AB]

Thank you, Chair.

Auditor General, we're here looking at the government's cozy relationship with McKinsey. Thank you again for your excellent work exposing significant problems and the $200 million in contracts that have gone to McKinsey under this government, most of which in some way or another did not adhere to the rules.

You have just mentioned the important role that PSPC, the government's contracting department, is supposed to play, and could have played, in challenging some of these procurements. In that light, I think it's interesting to note that the director of policy to the Minister of Public Services and Procurement, Mr. Boyan Gerasimov, had this critical role of director of policy in the public services and procurement minister's office during the critical period of the pandemic, from March 2020 until December 2021. He is McKinsey “alum”. He served with McKinsey for more than five years as an engagement manager. He went from working with McKinsey into this Liberal government in an important senior staff role. His LinkedIn specifically cites work he did in relation to major defence equipment procurements.

So in this critical role in government procurement in the public services and procurement minister's office, under then minister Anita Anand, you have a former McKinsey employee. You've highlighted that the government's contracting department that he was working for could have provided a greater challenge function and didn't. We have also seen how the defence department in particular had a very close, extensive relationship with McKinsey. This is quite concerning to me. It underlines the close relationships that exist between McKinsey and this Liberal government.

I wonder if you could share a bit more about what role the minister's office did play, or could have played, in providing a challenge function around this extensive procurement relationship that emerged, and what conclusions we might be able to draw about the role that the director of policy in then minister Anand's office should have been playing, could have been playing and did play in relation to these procurements.

[Karen Hogan]

Typically I would not expect ministers to be involved at all in procurement decisions that are made by departments. When we looked at these 97 contracts, we did not see ministerial involvement except for one where it was required by the rules. I would expect that PSPC would do a better challenge function in some of these contracts, and, in other areas that we saw, they did do a good challenge function.

I think ultimately it boils down to making sure that everyone who's involved in the procurement process understands the rules and applies them in a way to ensure fairness, transparency and good value for money for Canadians.

[Garnett Genuis, Conservative, Sherwood Park—Fort Saskatchewan, AB]

The function of the minister's office is to set a policy framework, and the director of policy plays a key role in that. You're saying that you wouldn't want to see them involved in micro-procurement decisions, but for them to have a function at all, presumably it's to set that policy framework that says how sharply they're going to exercise that challenge function or not—and there clearly were failures to challenge McKinsey procurement in cases where it should have been challenged by that department. Is that correct?

[Karen Hogan]

For sure; I think that PSPC should have done a better job at challenging some of the procurements that were brought to them for them to be able to issue contracts, but I would expect that that challenge function also exists in every department and agency, because not all contracts go through PSPC in order to be issued.

[Garnett Genuis, Conservative, Sherwood Park—Fort Saskatchewan, AB]

Right, and I think there are problems in other places for sure, but it stuck out to me that this particular person, Boyan Gerasimov, was the director of policy to the minister of procurement in the middle of the pandemic and that he is a McKinsey alum.

Madam Auditor General, in the time I have left, I note in your report that 45% of the contracts examined lacked sufficient documentation to justify the need for a contract. So in almost half of the cases of these contracts, there wasn't even evidence or sufficient evidence that there was any reason for the contract to happen in the first place, which is quite staggering in light of $200 million in contracts.

Is there anything more you can share about that 45% figure and what it reveals?

[Karen Hogan]

To me it reveals that, at the start, everyone should be taking a step back before they enter into a procurement process. You need to figure out if you are trying to fill a skills gap that doesn't exist in the public service, whether you need additional resources, or if you're just trying to get plurality of thought in trying to get something outside the public service to compare to.

Once you've justified that, you make an estimate for what you think you're willing to spend for that. Those are all requirements that are in the procurement policies that exist now. Then you go out and get a contract. I would expect that the default would be competitive unless there's a justification for its being non-competitive.

[The Chair, Conservative, Kelly McCauley]

Thank you very much.

Mr. Bains, please, you have the floor.

[Parm Bains, Liberal, Steveston—Richmond East, BC]

Thank you, Mr. Chair.

Thank you, Madam Auditor General and your team, for this major undertaking.

We have had the opportunity in this and other committees to look at a number of contracts and the vast expanse of contracts out there and how they're looked at, how they're done. We've had the opportunity to go back as far as 20 years. Some witnesses have indicated that the procurement process hasn't really changed much.

Then there's also the issue of, I think, in some of your findings, where there's a lot of familiarity amongst contractors and subcontractors, and it may be something that has become practice, and the familiarity may be a reason why things are overlooked. It's something we've seen. You've mentioned that there's a frequent disregard of the rules applied, and some of it may be because of that.

You also talked about people moving around. The changing of roles is very frequent, and there can be gaps. Is the work being passed along to some other people who are just picking up a file, not knowing what processes have been gone through and how to verify those kinds of things? I'm looking at all of those challenges that can happen in such a huge department where these responsibilities occur.

With the question around PSPC suspending departments' and agencies' delegated authority for professional services contracts in November of last year while new procedures and training were put in place, I'm not sure if you have had a chance to evaluate these measures yet.

When do you believe we will get a sense of whether those are working, those new measures that have been put in place?

[Karen Hogan]

I think you raised other possibilities for why the behaviour we're seeing might be happening. I think that's why the public service needs to take a step back and figure out what it is about procurement rules that are driving the behaviours we're seeing.

Regarding changes brought about after the audit period, I have not had an opportunity to look at those. I believe removing the delegated authority of a department is one way to ensure that Public Services and Procurement Canada can play a bigger challenge function and a more important role in that department's procurement strategy.

I expect they would be able to comment on how quickly they will see improvements or changes with the new rules that are there. One rule I really appreciate is where someone in charge of a procurement has to certify that they've done certain key steps. For me, that's the great reminder needed regarding the existing rules and how they should be applied.

[Parm Bains, Liberal, Steveston—Richmond East, BC]

Regarding the now-defunct national master standing offer mechanism, the government is working on a replacement for that. What are some of the characteristics you hope to see in there?

[Karen Hogan]

I look back at what a national master standing offer is meant for. It's meant to provide a group of services that are commonly purchased in a certain format. I guess I would call it almost a vending machine. There are certain things you can get, and you decide how often you want an item or how many you want. I expect a national master standing offer list would be created through a competitive process instead of a non-competitive process.

While both are allowed under the existing rules, I always default to competition, which should bring about the best value for Canadians. When possible, that process should be run this way. I would like to see that.

I would then hope that PSPC ensures none of the call-ups against those national master standing offers include services outside of the ones allowed for under the offer.

[Parm Bains, Liberal, Steveston—Richmond East, BC]

You indicated that you didn't see any political interference in these decisions and that the ultimate responsibility should lie with the deputy heads of each department.

How can government simplify the process to provide accountability and also streamline the process?

[Karen Hogan]

Andrew responded before, but I'll expand on the answer.

A deputy head is, through legislation, the accounting officer of an organization and ultimately accountable for all of the decisions made. This is delegated down through the organization. Everyone who has delegated authority has training about what it means. I think everyone needs to recognize that committing the government to a contract and signing off on the use of public funds come with accountability.

This has to be the culture throughout every organization—making sure there is a prudent use of public funds.

[The Chair, Conservative, Kelly McCauley]

Thank you very much.

Mr. Brock, go ahead, please.

[Larry Brock, Conservative, Brantford—Brant, ON]

Thank you, Auditor General and team, for your attendance.

I'm going to preface my questions with a comment.

Since you released your three reports last week, I've heard from hundreds of Canadians who have expressed their profound disappointment in this NDP-Liberal government, which, over the course of almost nine years, has consistently demonstrated a lack of adherence to basic procurement rules. To your point in this particular audit, you focused on whether or not procurement—in this case, with McKinsey—provided value for money for Canadians.

In your overall message, you indicate quite clearly that "Federal contracting and procurement policies exist to ensure fairness, transparency, and value for Canadians—but they only work if they are followed." I'm hearing that the auditor is making recommendations and department heads and organizations are saying, “Yes, we'll agree to follow those recommendations.” However, they already know what the rules are and they're not following them. Every audit that I have been privy to from your office consistently shows a pattern of disrespect for taxpayer monies.

The question to you is, how do you define “value for money” from an auditor's perspective?

[Karen Hogan]

That's not always a simple question to answer.

In this case, in paragraph 5.28, we listed elements that we were searching for to demonstrate value for money. I would have told you that value for money during the pandemic might have been evaluated in a slightly different way than it should be evaluated in the normal course of business.

However, we would have expected that departments clearly articulate the need for a contract, what the expected deliverables were, whether all the deliverables were provided, and whether or not the ultimate intent of that contract—the outcome—was achieved. For more than half, we could not see one or more of those being demonstrated.

[Larry Brock, Conservative, Brantford—Brant, ON]

The Government of Canada has published on its website that it must adhere to four fundamental principles of financial management: value for money, accountability, transparency and risk management. The Government of Canada previously defined “value for money” as follows: “Public funds are managed with prudence and probity, assets are safeguarded and resources are used effectively, efficiently and economically to achieve departmental and governmental objectives. It's a very specific definition.

I know that you indicated last week—and you've indicated this numerous times—that your mandate is also to refer criminality, should you suspect criminality, to the appropriate authorities. I believe you indicated, when a question was put to you, whether you discovered any element of criminality.... I want to confirm a couple of things. Your threshold for referrals is based on suspicion, and suspicion only. Is that correct?

[Karen Hogan]

It is very rare that we would refer something to the RCMP or to law enforcement before our work is made public, but we're always happy to talk to the RCMP once it's out there. We have not made a referral in this case.

[Larry Brock, Conservative, Brantford—Brant, ON]

Okay. Do you agree that the Government of Canada holds its position as a trustee over public funds?

[Karen Hogan]

Do I agree that it holds its position?

[Larry Brock, Conservative, Brantford—Brant, ON]

It performs the role of a trustee over public funds. Do you agree with that statement?

[Karen Hogan]

I agree that it should be using public funds in a way that brings the best value to Canadians, absolutely.

[Larry Brock, Conservative, Brantford—Brant, ON]

Okay. You don't agree that they hold a trust relationship with Canadians?

[Karen Hogan]

Well, absolutely. Every individual should trust their government.