PACP Committee Report

OUTSOURCING OF THE ADMINISTRATION OF THE PENSION PLAN

As with all other government employees, members of the RCMP are entitled to benefits under the RCMP’s pension and insurance plans. The RCMP pension plan is a benefit plan to which both members of the RCMP and government contribute. The pension plan is governed by the RCMP Superannuation Act. In April 2000, Bill C-78 amended the RCMP Superannuation Act so that contributions to the pension fund were to be transferred to an investment board and invested in the financial markets. Since the amendment, the management of the investments is now separate from the administration of the pension plan.

In May 2000, Dominic Crupi transferred from Public Works and Government Services Canada (PWGSC) to the RCMP as the Group Leader in the Pensions and Benefits Policy Group. In September 2001, Mr. Crupi was officially promoted to Director of the National Compensation Policy Centre (NCPC). In this position, Mr. Crupi oversaw the completion of the business case for the outsourcing of the RCMP pension administration. Mr. Crupi’s direct supervisor was Mike Séguin; however, the Committee learned through its hearings that Mr. Crupi circumvented the direct line of command and reported directly to Jim Ewanovich, the Chief Human Resource Officer.

After Bill C-78 was passed, the RCMP began to explore the need to outsource the administration of the pension plan because the plan’s current database greatly needed to be improved. In December 2001, the Treasury Board approved the RCMP’s submission to outsource the administration of its pension plan. The business case, which fully supported outsourcing the pension administration, was written by two consultants hired by Mr. Crupi: Anthony Koziol and Pat Casey, both of whom worked with Mr. Crupi at PWGSC. However, the Office of the Auditor General reviewed the business case that was used to justify the outsourcing of the administration of the pension plan and found that the business case was not a balanced one.

The Office of the Auditor General found that the options for outsourcing listed in the business case were supplied by Morneau Sobeco, the company that would be awarded the outsourcing contract. The Auditor General found that the business case was written in such a way that supported full outsourcing and provided little analysis of any other options for the administration of the pension plan. In addition to the Auditor’s findings, the Ottawa Police Service summary report noted that Mr. Koziol and Mr. Crupi both acknowledged that the facts and figures for the models presented in the business case were supplied by Morneau Sobeco. There was no collection of independent data. The RMCP accepted the estimates supplied by Morneau Sobeco without conducting additional reviews.

Nepotism and Contracting Irregularities

In addition to the discrepancies identified by the Auditor General with respect to the original outsourcing of the administration of the pension plan to Morneau Sobeco, several other investigations found questionable contracting practices. The Ottawa Police Service conducted a criminal investigation on the administration of the pension plans, and identified several significant problems involving the approval of contracts, including nepotism, directed contracting, contract splitting, and dubious dealings with Consulting and Audit Canada.

The various investigations into the administration of the pension plan found that as the NCPC Director, Mr. Crupi ignored normal staffing practices and hired friends and relatives of employees who worked at the NCPC to work on correcting data in the pension database. Most of the staff were hired as summer students; however the Federal Student Work Exchange Program was not used and the summer students were hired at higher than normal rates of pay. Human resources staff at the RCMP told the Auditor General that they allowed Mr. Crupi to hire casual employees on his own rather than following the regular staffing process because of work and time pressures. The Ottawa Police Service investigation found that of 65 casual employees hired by Mr. Crupi, 49 had friends or family that worked for the RCMP. The RCMP has since improved its staffing practices: starting in 2004, the RCMP required that the NCPC’s staffing action plan be incorporated into information provided to the Treasury Board Secretariat and reviewed by the Pension Finance Oversight Committee.

The Committee is concerned that the RCMP would allow employees who were completely untrained in the procurement process to engage in nepotism and to establish contracts valued up to $20 million. That this was going on for as long as it was is especially troubling given that Mr. Crupi’s questionable contracting practices were raised in a 2002 briefing note. Shawn Duford, who worked in the Corporate Procurement and Contract Services Directorate of the RCMP, discussed in this note the

questionable contracting practices relating to the pension reform project, and more specifically, related to Mr. Dominic Crupi, the project manager. Mr. Crupi entered into a number of service agreements with CAC totalling more than $2.5 million. Mr. Crupi does not have the delegation of contracting authority to enter into these agreements.¹

According to S/Sgt. Frizzell, this briefing note was brought to the attention of Mr. Crupi’s direct advisor, Mike Séguin, the senior procurement personnel in the RCMP and ultimately to Deputy Commissioner Paul Gauvin, the RCMP’s Chief Financial Officer. In addition, Jim Ewanovich, the Chief Human Resources Officer who was responsible for the management of the pension and insurance plans, and to whom Mr. Crupi actually reported, was advised of the contracting irregularities and was asked to remove Mr. Crupi’s contracting authority. According to D/Commr Gauvin, Mr. Crupi’s contracting authority was removed.² However, as S/Sgt. Frizzell noted, very little came of this briefing note.

The Committee wonders why D/Commr Gauvin, the Chief Financial Officer of the RCMP, was unable to completely and conclusively remove Mr. Crupi’s signing authority. S/Sgt Frizzell told the Committee that D/Commr Gauvin’s removal of Mr. Crupi’s signing authority was like “taking my driver's licence away so I can't go to Vancouver and then driving me to the airport.”³ He continued by saying:

Somebody from procurement still had an oversight role. Procurement still signed off on all the contracts. What was happening wasn't lost on anyone I spoke to from procurement. It was simply that nobody was doing anything about it.

The Committee was shocked to learn that the Chief Financial Officer of the RCMP was unable to prevent an RCMP employee from engaging in inappropriate contracting practices. Given the import of the position, the Chief Financial Officer of any government organization should put appropriate mechanisms in place to ensure that employees follow accepted contracting policies and procedures, and not try to place responsibility for problems on an outside organization, in this case Consulting and Audit Canada. It was not sufficient to simply take away the contracting authority and then allow Mr. Crupi to engage in contracts through another means. Once a problem had been identified, it was incumbent on the Chief Financial Officer ensure that the problems did not recur, which D/Commr did not do.

In addition to why Mr. Crupi was still able to contract through Consulting and Audit Canada, the Committee is very concerned that Mr. Gauvin did not see the conduct of Mr. Crupi as being his concern. In D/Commr Gauvin’s mind, Mr. Crupi was not his responsibility because he worked in Human Resources, not in Corporate Management and Comptrollership. D/Commr Gauvin stated that he could not take any actions against Mr. Crupi because it was “a human resources issue. I'm a financial person and I don't make recommendations on who gets fired and who doesn't.”⁴ The Committee is incredulous that the Chief Financial Officer of the RCMP could not either take action himself or ask others to take action when contracting irregularities were knowingly being conducted.

Despite the recommendations made in this briefing note to the senior procurement personnel in the RCMP and to D/Commr Gauvin, Mr. Crupi still managed to practice directed contracting through his extensive use of Consulting and Audit Canada (CAC). The Committee was unable to determine why Mr. Crupi was still able to use CAC after his contracting authority had been removed. The Committee is troubled that Mr. Crupi purposefully violated contracting rules even while being monitored by employees in the procurement area of the RCMP as was recommended in Mr. Duford’s memo.

At the time of the investigation, CAC was part of Public Works and Government Services Canada and its function was to provide faster service than other government contracting and procurement divisions in other departments. CAC was able to provide this faster service because they had staff dedicated to complex procurement. CAC charged a 15% fee on contracts to subsidize the level of service it provided to other government departments.

When Mr. Crupi needed a contractor, he would notify his contact at CAC, Frank Brazeau. Mr. Crupi would identify the need for a contract and the name of the desired contractor. In general, emails from Mr. Crupi to Mr. Brazeau indicated the specific details of the contract, including the desired per diem, the desired type of procurement process, and the statement of work. A review undertaken by KPMG Forensic found that several of the sole source contracts that were tendered under Mr. Crupi’s direction were given to contractors who were previously working at the RCMP under contracts previously let by RCMP procurement, such as Anthony Koziol and Pat and Kim Casey. Basically, Mr. Crupi manipulated government contracting rules in order to “employ” a group of his preferred contractors.

KPMG Forensic was asked by PWGSC to conduct a detailed review and analysis of several contracted managed by CAC for the National Compensation Policy Centre. As Greg McEvoy, Associate Partner from KPMG stated:

It is our view that the processes for managing and administering these contracts, when considered in their entirety, did not meet Treasury Board policy. The contracting was not conducted in a manner that would stand the test of public scrutiny in matters of prudence and probity. It did not facilitate access or encourage competition; quite the contrary. It did not reflect fairness in the spending of public funds. In particular, we found evidence of a process to facilitate contracts to desired resources, contract splitting, and contract backdating involving the creation of contracts for work that had already been performed.⁵

Though Mr. Brazeau defended the work he completed for Mr. Crupi as normal practice for CAC, Shahid Minto from PWGSC stated that

All government contracting is done under the government contract regulations or Treasury Board policy. The [Contracting] Policy states, among other things, “that government contracting shall be conducted in a manner that will stand the test of public scrutiny in matters of prudence and probity; facilitate access; encourage competition; and reflect fairness in the spending of public funds”. There was no exemption from that policy for CAC or anybody in CAC.⁶

David Marshall, the Deputy Minister for PWGSC at the time of the Committee’s hearings on this topic, summarized the contracting situation between the NCPC and CAC by stating that he thought “the whole thing stinks” and that the contracts were “rigged.”⁷ The Committee agrees with these frank assessments and is pleased to hear from the Auditor General that the RCMP has strengthened the internal controls surrounding contracting.⁸ However, given the list of irregularities committed in CAC during the period covered here, the Committee has grave concerns that there may have been other serious wrongdoings committed in CAC. CAC was reorganized in 2005-2006 and its contracting and procurement sections were handled instead by PWGSC’s Central Procurement Service Unit. Given the improprieties listed here, the Committee does not have confidence that CAC was handling all of its contracting in such a way that was in full accordance with the Contracting Policy prior to 2005-2006. For this reason, the Committee recommends that

Recommendation 10

The Auditor General of Canada conduct an audit of the contracting practices at Consulting and Audit Canada during the past ten years.

In addition to contracting irregularities in the pension plan administration, the Auditor General also pointed out several contracting problems with respect to the administration and outsourcing of the insurance plan. The issues surrounding the outsourcing of the administration of the insurance plan will be discussed in the next section of this report.

Training

Each of the investigations into the administration of the pension plan concluded that Mr. Crupi and other staff of the NCPC misused resources and circumvented management controls. The Office of the Auditor General found that Mr. Crupi established consulting contracts valued at over $20 million, and over-rode controls to avoid competitions for the contracts. In addition, the Office found that over $3.1 million was inappropriately charged to the pension plan to pay for RCMP human resources projects and contracts that should have been paid for by RCMP appropriations funding which relieved the budget pressure on managers responsible for these projects.⁹

During the Committee’s hearings on this issue, Mr. Crupi stated repeatedly that he was not an expert in procurement. For example, Mr. Crupi said that “at no time was I a procurement expert or trained in procurement. I hired someone to do that because I wasn't trained in it.”¹⁰ Garry Roy, another employee at the NCPC who was also personally hired by Mr. Crupi to do work around his home, stated during the Committee hearings that he “was never a contracting or procurement person,” that he did “not have a background or any training in contracting or procurement”, and that he was not familiar with the Treasury Board contracting policies.¹¹

The explanation by Mr. Crupi that he did not adhere to contracting policies because of lack of training in the area was reported in the RCMP internal pension plan administration audit. The audit highlighted the fact that a lack of detailed knowledge of contracting policies on the part of pension managers at least in part explained the non-compliance with contracting policies. This explanation rings hollow though, given that Mr. Crupi continued to contract with CAC even after his signing authority had supposedly been removed.

The Committee is extremely concerned that such poor contracting practices could continue as long as they did in the RCMP. The Office of the Auditor General’s report states that the RCMP has taken measures to strengthen its contracting controls. Specifically, the RCMP’s Corporate Procurement and Contract Services Directorate now ensures that managers are reminded of RCMP contracting policies and that procurement personnel receive mandatory values and ethics training. The Committee agrees with these measures, but believes that more can be done to ensure that contracting policies are followed. Therefore, to avoid the “I’m not an expert in procurement” excuses in the overriding of contracting controls, the Committee recommends that

Recommendation 11

All Royal Canadian Mounted Police members and employees with any level of contracting authority undergo specific training in the Treasury Board’s Contracting Policy.

Recommendation 12

All Government of Canada contracts include a clause that states that the contractor must act in accordance with the Treasury Board Contracting Policy.

Recommendation 13

The Government of Canada investigate whether or not monies can be recovered from contractors or individuals who received inappropriate benefits.

Post-employment rules

According to the Treasury Board’s Contracting Policy, extreme caution should be exercised when contracting with former employees who receive a pension. In these situations, there can be no suggestion of special favouritism or privilege. In addition, if an employee has been retired for less than one year and is in receipt of a pension, any contract they win must include a contract fee that is reduced according to a specified formula.

The Values and Ethics Code for the Public Service states that former public servants should undertake to minimise the possibility of real, apparent or potential conflicts of interest when they take on government contracts. The Code says: “Without unduly restricting their ability to seek other employment, former public servants should undertake to minimize the possibility of real, apparent or potential conflicts.”¹²

The Treasury Board’s Contracting Policy states that those with contracting authority should exercise discretion when contracting with former employees in receipt of a pension.¹³ The policy states that contracting authorities should recognize the balance between the desire to respect individuals’ rights to use their knowledge and abilities for economic gain on the one hand, and to protect the public’s right to reasonable assurance that the public interest will not suffer in the process on the other hand. If the contract work is substantially like that performed by the pensioner before retirement, contracting authorities should ensure that they can justify why the required work is not being done by a successor. To discourage the practice of hiring a contractor who just left the public service and is in receipt of a government pension, the policy states that for the services of these individuals, the contract must include a contract fee that is abated in accordance with a predetermined formula, regardless of fee or contract value.

The Committee heard testimony that suggests that these rules are not always being followed. An example of how the post-employment rules were being violated was clearly laid out in the KPMG review of NCPC contracts tendered through Consulting and Audit Canada (CAC) under the direction of Frank Brazeau. Abotech Inc, a consulting company owned by former MP David Smith, was awarded two contracts related to the NCPC for the consulting services of Michael Onischuk. Mr. Onischuk was introduced to Mr. Brazeau by another consultant working with the NCPC, Anthony Koziol. Mr. Onischuk was interested in finding a way to work on a more permanent basis with the NCPC, but Mr. Brazeau informed him that being a retired public servant meant that post-employment rules applied to his situation. Mr. Brazeau indicated that Mr. Onischuk could circumvent these rules by being hired through a consulting firm and then referred him to Abotech Inc.

Mr. Onischuk’s experience with Abotech follows a pattern of events whereby consultants would be referred to Abotech by CAC. This pattern was described by Abotech owner David Smith in an interview with the KPMG reviewers. Mr. Smith told the reviewers that he received calls from consultants who would indicate that CAC had referred them to Abotech. The consultants were often retired public servants who were concerned about post-employment rules and therefore wished to work with Abotech to circumvent these rules. The consultant would indicate that they wished to contract through Abotech and that a contract was forthcoming. Mr. Smith would agree, and the consultant would send a resumé to CAC which would then be entered into their database. When the particular contract tender arrived from CAC, Abotech would submit a bid.

Mr. Brazeau explained to the Committee that it is common practice for former employees, such as retired public servants, to go through consulting companies for contracts. When former employees are contracted by another firm to work on a contract, they do not incur the penalty on their pension. Thus, going through a consulting firm is a way for former employees to avoid paying a penalty on their pension.¹⁴ Greg McEvoy, from KPMG Forensic, also stated that Mr. Smith allowed Mr. Onischuk to submit his name through Abotech to circumvent the former public servant processes.¹⁵

The Committee is concerned that the post-employment rules that are in place to avoid potential conflicts of interest and “double dipping” into both pension and contract awards are being flagrantly ignored. However, David Marshall, the deputy minister of PWGSC during part of the Committee’s hearings on this issue, stated that

[This practice] would be very hard to detect, because the contracts are in the name of a company and you don’t know necessarily who the individual is who is doing the work.¹⁶

In addition, Mr. Marshall stated that he thought “people took advantage of vagueness in the rules to do this kind of thing.” He continued by saying

But I think that certainly the Treasury Board Secretariat would be interested in sort of reinforcing or in some way perhaps even asking for a declaration from departments that it shouldn’t be done, something like that, because I think it harms all public servants, this notion that there’s collusion or helping each other circumvent the rules. I don't think it helps anybody. So I think it would certainly be a good thing to reinforce that issue.¹⁷

The Committee believes that the Treasury Board Secretariat should indeed find some way to reinforce the elements of the Contracting Policy that are being violated.

The Contracting Policy states that electronic bidding is very effective in addressing the sensitivity of contracting with former public servants. However, as the Committee heard throughout its hearings on the issue of the administration of the RCMP pension and insurance plans, electronic bidding could not keep former public servants from circumventing the post-employment rules by working through a consulting firm. The Treasury Board Secretariat needs to better enforce the Contracting Policy to as to limit the violation of the post-employment rules.

Finding a way to enforce the post-employment rules is especially important given the wave of retirements that will be coming in the next decade or so in the public service. The Committee believes that it is critical that the Treasury Board Secretariat work with its government partners to find a way to enforce the post-employment rules. In addition, the Committee also believes that requiring contractors to confirm that none of their employees would be subject to post-employment rules would lead to a strengthening of the Contracting Policy. As such, the Committee recommends that

Recommendation 14

The Government of Canada require all contractors and any subsequent sub-contractors to confirm that neither they nor any of their employees would be in violation of the post-employment rules as set out in the Treasury Board Contracting Policy if they were awarded a contract.

In addition, the Committee believes that any contractors who were awarded contracts in ways that are not in full accordance with the Contracting Policy should not be eligible for future Government of Canada contracts. As such, the Committee recommends that:

Recommendation 15

The Government of Canada permanently bar from future contracts a contractor who has been found to have engaged in misconduct while carrying out his or her duties, or who has colluded with a public servant in committing an act of misconduct.

Recommendation 16

The Government of Canada permanently bar from having contracting authority public servants who have been found to have engaged in misconduct in the performance of their duties or who have colluded with contractors in committing an act of misconduct.

Reporting to Parliament

One of the key means of informing parliamentarians and Canadians of the performance of departments is through the Departmental Performance Reports (DPR). The DPRs are individual departmental accounts of accomplishments against the plans and expected results they set out in their Report on Plans and Priorities. DPRs provide information on how the department or agency is progressing towards its strategic goals.

As mentioned above, at the time of the investigation into the administration of the pension plan, Consulting and Audit Canada was part of the PWGSC. As such, CAC performance was reported through PWGSC’s DPR. Both the department’s 2002-2003 and 2003-2004 DPRs states that CAC “made good progress against planned results and generally met its performance expectations in providing quality services to clients. The results were very similar to those of the previous year, indicating consistency in service delivery levels.”¹⁸ In addition, the DPRs state that CAC had “successfully maintained a high involvement with public policy issues.”¹⁹

The discussion about CAC in the 2004-2005 PWGSC DPR stated that:

In 2005-06, as part of CAC’s charter renewal process, the agency’s mandate is being reviewed, especially in relation to procurement of services. Based on the preliminary findings, the Deputy Minister decided that, beginning in May 2005, procurement activities would be handled by PWGSC’s Central Procurement Service Unit to enhance segregation of duties and improve consistency of procurement practices throughout the Department.²⁰

The 2004-2005 DPR does discuss a change to the administration of procurement services in CAC, but it does not discuss why these changes were made. Thus, throughout the period of contracting irregularities within CAC, there was no mention of these irregularities in the department’s DPRs.

Mr. Marshall, the Deputy Minister of PWGSC at the time of the Committee hearings on this topic, confirmed for the Committee that the contracting problems in CAC were not explicitly discussed in the department’s DPR.²¹ Mr. Shahid Minto, the current Chief Risk Officer at PWGSC, stated that

What we did put in our DPRs was that we were splitting up the departments and changing the mandate of the department. We didn’t go into all the causes of why we did it, but we explained some of the things we were doing over there.²²

This Committee has been concerned in the past with the quality of information contained in the reports made by departments to Parliament. If DPRs do not provide complete explanations of what happens, both positive and negative, in the departments, then the DPRs will not be considered seriously by parliamentarians or Canadians. Reporting negative results may not be something departments would like to do, but this is necessary if these reports are to be credible. The situation here reinforces how important the need for complete reporting is: if this Committee had not examined this issue, the reasons for the changes to CAC as reported in PWGSC’s DPR might not have been discovered.

The Committee understands that while the President of the Treasury Board tables the DPRs in Parliament, each minister is responsible for the information in his or her own department’s report. However, the Committee also understands that the Treasury Board Secretariat publishes Guidelines to assist departments in the preparation of their DPRs. The Guidelines state that:

the content of these reports should be relevant, reliable, balanced, and comparable to provide parliamentarians and Canadians with a comprehensive and effective picture of the government’s plans and use of taxpayers’ money.²³

The Committee believes that the Secretariat could enforce these guidelines for the preparation of DPRs, and insist that departments strive for balanced reporting. To improve the quality of reporting to Parliament, the Committee recommends that:

Recommendation 17

The Treasury Board Secretariat ensure that departments comply with the departmental reporting Guidelines so as to make sure that the Departmental Performance Reports contain balanced reporting.