Transparency, risk management and integrity: Standing Committee on Public Accounts—May 27, 2021
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Transparency, risk management and integrity in procurement
Fraud and wrongdoing pose a risk to Public Services and Procurement Canada’s (PSPC) vital procurement operations, leading to financial losses and an erosion of public confidence in the Government of Canada.
The 2021 Reports of the Auditor General of Canada, Report 1—Procuring Complex Information Technology Solutions, includes a recommendation that PSPC should continue to advance its use of data analytics so that it can identify procurement integrity issues.
This recommendation follows a previous recommendation made by the Office of the Auditor General (OAG) in its 2017 Report—Managing the Risk of Fraud, that PSPC should conduct data analytics and data mining to detect certain forms of fraud.
Data analytics and data mining with respect to enhancing integrity in the procurement system
- The Government of Canada is committed to taking action against improper, unethical and illegal business practices, and holding companies accountable for such misconduct
- As part of the Government of Canada’s efforts to enhance the integrity of its procurement systems, PSPC has been developing data analytic capabilities to enable the detection of anomalies that may indicate fraud, collusion and various forms of wrongdoing in procurement contracts
- PSPC has built a central intelligence database in which it continually adds to over 12 years of PSPC contract-related data as well as other database and open data information regarding over 180,000 suppliers and 1.2 million contracts. Centralizing this procurement data provides the required analytical environment to detect anomalies indicating possible fraud, and to derive the intelligence needed to enhance the integrity and economic security of PSPC’s procurement
- Fraud detection is a complex matter, requiring information from a number of different sources. PSPC has been working to overcome some of the challenges faced in dealing with a broad variety of procurement and publicly available data, in order to enable effective use of intelligence to identify potential sources of fraud. The ability to detect fraud will be further enhanced when PSPC’s electronic procurement system becomes operational, because information will be collected in a digital format
- A formal plan to operationalize data analytics and data mining will be produced by the end of the 2021 to 2022 fiscal year
Public Services and Procurement Canada’s fraud risk management framework
- Consistent with best practices, PSPC’s fraud risk management framework employs the controls, tools and programs to prevent fraud from occurring, detect fraud when it happens, and respond quickly when fraud incidents do occur
- Subsequent to the 2017 OAG audit, recognizing the ongoing importance of the fraud risk assessment as a key fraud mitigation measure, the department initiated a fraud risk assessment as part of its fraud risk management framework that covers all of PSPC’s business lines
- In 2020, PSPC added the risk of fraud and other wrongdoing to the PSPC departmental risk profile to highlight the organizational context of this risk and to enable strategic planning at the departmental level
- PSPC is developing a new collaborative approach to fraud risk management. Using a forum known as the "anti-fraud hub”, PSPC will seek to integrate and coordinate previously siloed anti-fraud activities and strengthen sharing of information and awareness among those responsible for anti-fraud controls and activities, ultimately seeking to reduce the risk of fraud. The anti-fraud hub is expected to be operational by 2022 to 2023
Status update: Report 1—Managing the Risk of Fraud: Spring 2017 Office of the Auditor General Report
In Report 1 of the 2017 Spring Reports of the Auditor General, “Managing the Risk of Fraud”, the OAG concluded that PSPC did not appropriately manage all of its fraud risks and made 4 recommendations.
Recommendation 1: Conduct a fraud risk assessment considering all areas of their organization
- PSPC has completed a 3-year, comprehensive fraud risk assessment (FRA) of all of its operations, including:
- contracting activities (2018) (8 recommendations)
- real property transactions (2019) (11 recommendations)
- pay administration, the receiver general, departmental oversight and digital services (2020) (11 recommendations)
- As the acceptable level of fraud risk tolerance is best evaluated by the relevant PSPC branches, these recommendations are evaluated by them in collaboration with Departmental Oversight Branch (DOB), in order to establish a coordinated PSPC fraud risk response. The fraud risk response considers, for example, the potential impact, costs and benefits of implementing the recommendation, the different options for implementation, as well as the timeline
- Overarching or strategic risks identified in this assessment, as well as mitigation measures implemented by branches, are integrated into the evergreen departmental risk profile on fraud and other wrongdoing
Recommendation 2: Perform data analytics and data mining to detect fraud
- PSPC has developed its data analytic capabilities to identify the contracting anomalies listed in the OAG’s report (namely contract splitting, in appropriate amendments and inappropriate sole sources) and will be producing a formal plan to operationalize this process by the end of the 2021 to 2022 fiscal year
- PSPC has built a central intelligence database in which it continually adds to over 12 years of PSPC contract-related data with other database and open data information regarding over 180,000 suppliers and 1.2 million contracts. Centralizing this procurement data provides the required analytical environment to detect certain forms of fraud, and to derive the intelligence needed to enhance the integrity and economic security of PSPC’s procurement
- In addition to its fraud detection and economic security functions, the central intelligence database was also used by PSPC during its response to the COVID-19 pandemic, providing intelligence regarding the suppliers of personal protective equipment (PPE) and the assessment of the return-to-office activities
Recommendation 3: Mandatory anti-fraud training
- In the spring of 2018, PSPC developed a new training course entitled Prevention of Fraud and Wrongdoing in order for employees to better identify fraud and other wrongdoing, follow procedures for reporting fraud or wrongdoing and understand their legislated protection from reprisals and confidentiality pursuant to the provisions of the Public Servants Disclosure Protection Act (PSDPA). As of March 31, 2021, approximately 9,100 PSPC active employees (53%) had taken the training
Recommendation 4: Improve monitoring of conflict of interest declarations
- PSPC is currently modifying its conflict of interest (COI) tracking system and is seeking to implement a new case management system to improve oversight and reporting of the COI process, providing an evidence-based approach to managing COI risks across the department
Recent cases related to fraud in Public Services and Procurement Canada procurement
- In the last 2 fiscal years (from 2019 to 2021), PSPC concluded 8 investigations into procurement-related frauds that required management or law enforcement’s response, that can be further divided between the following subcategories:
- collusion between suppliers
- collusion between public servants and suppliers
- conflict of interest, false declarations and/or invoicing
- As a result of these investigations, 16 recommendations were identified to improve internal controls to prevent fraud in procurement in the following areas: conflict of interests and post-employment provisions for employees, conflict of interest and collusion by suppliers, and internal administrative controls. These recommendations are at various stages of implementation
- PSPC documents all of the frauds and associated schemes to support the enhancement of fraud detection capabilities, as well as to improve internal controls
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