Welcome to Today’s Webinar:

Parliament Buildings Rehabilitation Projects –

Performing Due Diligence

André Auger, CGA, CFEGovernment Services Advisoraauger@welchllp.comwww.welchllp.comTwitter: @andreaugerca.linkedin.com/in/andreauger

Presenter

Agenda

• Why are we doing this webinar?

• Red flags (what to watch for):

- Loading of overheads

- Numerous contract amendments

- Contract burn-rate

- Change in ownership

- Other warning signs

• What you can do to protect yourself

Why are we doing this webinar?

• To share professional experiences

• To highlight the need to be proactive in meeting

the reporting requirements of the FAA and TBS

vis-à-vis large, complex, long term capital projects

• Focus is on the East Block Rehabilitation Project

as it runs through 2022

Red Flags - Loading of Overheads

• Indirect costs claimed as direct

• Results in duplication of claimed costs

• Costs of a direct nature are eliminated from the

overhead pool thereby reducing the overhead rate

• Lesson learned: precise basis of payments in the

agreements clearly outlining what costs are eligible

• Lesson learned: ensure proper oversight via active

monitoring throughout the process

• Shortly after contract award, large amendments are processed

• Raises the issue of fairness in the bidding process

• Raises concerns at to whether the original requirement was

adequately defined

• Can result in significant overpayments & fraudulent transactions

Lesson learned:

• Clearly define the roles and responsibilities of the procurement &

technical authorities early in the process

• Ensure proper oversight via active monitoring throughout the

period (consider using an independent Fairness Monitor)

Numerous Contract Amendments

• Substantial increases in funding

• Significant portion of the contract spent in very little time

• Significant mark-ups

• No validation of charges

• Issue: basis of payment not respected, contract controlled by

the technical authority rather than the contracting authority

• Result: contract fraud

Lesson learned:

• Control deficiencies occur at both the buyer & seller levels

• Ensure proper oversight via active monitoring of milestones,

change orders, etc…who is initiating the extra work?

Contract Burn Rate

Change in Ownership

• Contractor has been bought out by another company

• No validation that internal controls of the new

company are effective and prevent material errors

Result:

• Significant subcontractor charges passed on to the

buyer at excessive mark-up rates

• The new company is collecting monies for little

service and no value added

Lesson learned:

• during transition, control systems are at significant

risk – potential for misconduct is greater

• No documentation or limited documentation

• Poor or inconsistent documentation

• Extensive use of spreadsheets

• Under resourced organization

• Lack of a strong finance function

• Tone at the top

• Limited or lack of oversight

• Turnover of staff

• Custom IT systems

• Significant business changes – acquisitions, downsizing, new location

Other Warning Signs

• Initial visits to contractors’ offices to gather information on the company and its

accounting systems

• Continuous monitoring / reviewing of contractors’ invoices & progress reports

• Ensure that the contracts contain audit clauses

• Do fraud risk assessments

• Review internal controls regularly, identify redundant controls, & develop

management action plans (MAP’s)

• Have Internal Audit review the MAP’s on a quarterly basis

• Annual audits of contractors’ records, including contract cost audits, pre-

negotiation studies, overhead studies, labour recording systems’ audits, profit

audits

What you Can Do to Protect Yourself

André Auger, CGA, CFEGovernment Services Advisoraauger@welchllp.comwww.welchllp.comTwitter: @andreaugerca.linkedin.com/in/andreauger

For more information