In its spring report to Parliament the office of the Auditor General raised a warning flag about a Crown corporation that handed out almost $1 billion in contracts last year. \nOne of its auditors, Marise Bédard, alerted the government to fraud-prevention deficiencies at Defence Construction Canada (DCC), which she characterized as having a “weakness” in its system. “The corporation had rudimentary fraud-detection systems, which were manual and implemented regionally,” she wrote. “Management was therefore unable to use the systems to detect and analyze broader trends that might reveal fraud [such as bid-rigging] that could be spread out over time, across regions, or among many suppliers. This kind of fraud, collusion, or corruption could take place even among contracts that, individually, appeared to have been awarded properly.” \nThe special examination report “looked at DCC, which provides a variety of services including procurement and construction for the Department of National Defence and other government departments,” CBC reported. “While it normally hands out between $650 million and $800 million a year in contracts, last year the total topped $900 million.” \nAlthough the report did not say it had identified any specific frauds — in fact, it noted that the corporation was well run — it cautioned that the risk of fraud was an issue that had to be addressed. “This weakness matters because no organization that safeguards public resources is immune to fraud risks,” Bédard wrote. “If undetected, fraud can divert public funds to unrelated private interests or allow competitions to favour suppliers who provide less value for money. Moreover, a lack of measures to monitor and mitigate fraud systematically can undermine public trust.” The report recommended DCC have systematic training for employees to detect potential fraud. \nThe report’s concern was a message that the president and CEO of DCC got loud and clear. “The corporation has begun acting on the report’s recommendations,” CBC reported James Paul saying. “A new e-procurement system coupled with new business intelligence software will allow the Crown corporation to keep better tabs on the bidding process for contracts and detect fraud. While many of those contracts are for construction or repairs for buildings on military bases across the country, some are for other departments, such as a new super server centre for Shared Services Canada.” Paul said the corporation will also improve its training initiatives. \nAlthough Paul acknowledged the threat of fraud existed, he noted that the corporation did 2,000-plus procurements a year. “Our track record is exemplary in terms of instances of fraud.” \nCONSTRUCTION: A SOFT TARGET\nThere is good reason for the Auditor General’s office to raise concerns about the potential for fraud at the corporation: procurement fraud in the construction industry is a major problem throughout the world, both in the public and private sectors. \nIn 2013, a Grant Thornton report, based on research carried out in Canada, the US, UK, Australia and India, said fraud and corruption in the construction industry are so commonplace they are often accepted as a cost of doing business. In Canada, procurement fraud has been identified as the second-most common fraud, following theft of assets. \nDanny McLaughlin, fraud and forensic partner at Grant Thornton UAE, told Accountant Middle East magazine that organizations and governments have a “part to play in better detecting and punishing fraud. Technology also has a role to play in fighting fraud. Police have used these advances to help push down crime; construction hasn’t — it makes itself a soft target.” \nThe report estimated that fraud could account for between 5% and 10% of revenues in the construction industry. “If recent estimates that the global construction industry is worth $8.6 trillion now, rising to $15 trillion by 2025, are correct ... then fraud and corruption in the sector could be costing businesses globally almost $1 trillion, rising to $1.5 trillion by 2025 if relevant action is not taken,” McLaughlin said. \nFRAUD TIP LINE\nThere are many ways to prevent and detect procurement fraud, such as the creation of a procurement integrity program, but perhaps the most effective measure is to establish a whistleblower process. Interestingly, the federal government announced such a program a few weeks prior to the release of the Auditor General’s report. \nIn April, the Federal Contracting Fraud Tip Line was introduced in the fight against fraud, collusion and corruption in federal contracts and real property agreements. “The [line], launched by the Competition Bureau, the Royal Canadian Mounted Police and Public Services and Procurement Canada, encourages Canadians to anonymously report any suspected wrongdoing in Government of Canada procurements by calling a toll-free number or completing an online form.” Bid-rigging, price-fixing, false invoicing, bribery to influence business decisions, undisclosed conflicts of interest and fraudulent contract performance were identified as the key schemes to report. \nThe Canadian government spends about $20 billion a year on procurement contracts, real property agreements, the management of Crown-owned properties and the making of rental payments on 1,690 lease contracts across Canada, the RCMP says. The new tip line is an extension of its Integrity Regime, launched in 2015, which prevents suppliers with a record of unethical behaviour from being awarded contracts and real property agreements. Other measures include regular procurement reviews, codes of conduct and fairness monitoring. \nAccording to a 2013 article in the Journal of Accountancy, a hotline can be beneficial. “Tip lines are one of the most effective tools organizations possess for detecting and preventing fraud,” it said. “Fifty-nine percent of forensic and valuation CPAs participating in the AICPA’s Forensic and Valuation Services Trend Survey said internal whistleblower hotlines would lead to improvements in preventing fraud in the next two to five years. Internal tips were cited by business and industry CPAs participating in the survey as the most common detection method for frauds that occurred at their organizations.” \nDISINCENTIVES TO BLOWING THE WHISTLE\nHowever, tip lines are not always seen in a positive light, especially if there is no incentive to report a suspected fraud beyond a sense of doing the right thing. In the US, whistleblowers can be awarded money if their disclosure proves to be accurate — in 2015, the SEC rewarded eight whistleblowers a total of US$37 million — but no such carrot exists in Canada. \nIn the US, the carrot has proved most tempting in respect to reporting fraud in the Department of Defense. “Each year the US government spends approximately $500 billion on defense and international security,” says Whistleblowers International, a practice group of Washington, DC, law firm Troxel, Krauss & Chapman. “A Department of Defense report prepared in the Senate found that since 2011 hundreds of defense contractors who had defrauded the government were awarded $1.1 trillion in contracts. In order to reduce and discourage defense con- tractor waste and fraud, the Department of Justice created a whistleblower reward program to find and prosecute corrupt defense contractors. Since 1987, the Department of Defense has recovered $2.6 billion from defense contractors who defrauded the government under the False Claims Act. Due to their part in the government’s recovery of fraudulent funds, whistleblowers have received $455 million for reporting defense contractor fraud.” \nAnother disincentive to blowing the whistle — well documented over the years and throughout the world — is the risk that informants could be persecuted for exposing the fraud. Although federal public servant whistleblowers in Canada have protection under the Public Service Disclosure Protection Act, far less protection is in place for those in the private sector. \n“In most provinces, employees who report violations of certain statutes (such as Ontario’s Occupational Health & Safety Act) are specifically protected from reprisals. However, few provinces — notably New Brunswick and Saskatchewan — give general protection to private-sector whistleblowers,” says the National Post. Even if a form of official protection is in place, numerous examples exist of whistleblowers who have endured terrible harassment for being “a rat.” \nThe government says any telephone or online tip will remain anonymous — a promise that some might consider impossible to enforce in today’s technology age — and the form provided online by the government indicates that the only mandatory area to fill in is a “description of the alleged conduct/wrongdoing.” However, it also asks for detailed information, including name, phone number and email address. \nAnother concern is that a business might use the line to defame a competitor, although that possibility exists with any anonymous hotline.\nThere’s no question procurement fraud within the federal government is a concern that must be addressed. The new hotline should expose more wrongdoing, although a monetary tip for the informant might make more people whistle where they work.