Angry in the Great White North

The Canadian political scene is focused on the growing RCMP Pension Scandal:

On Wednesday, RCMP officers testified before the [Commons Public Accounts Committee] that there was a cover-up in the abuse of the police force's pension fund. They said senior members of the force - including then-commissioner Giuliano Zaccardelli - tried to stall an investigation into the matter after the allegations first arose.

"I was met with inaction, delays, roadblocks, obstruction and lies," retired staff sergeant Ron Lewis told the committee. "[The] person who orchestrated most of this coverup was commissioner Zaccardelli."

At the time, Lewis was in charge of internal staff relations. He asked the Auditor General to further investigate the allegations; her subsequent report found the pension fund had fallen victim to nepotism and that useless contracts had been awarded using money from the pension and insurance funds.

The pension scandal was given new life by the 2006 Report of the Auditor General of Canada for November:

In 2003, allegations of fraud and abuse in the management of the Royal Canadian Mounted Police's pension and insurance plans triggered an internal audit, which was followed by a criminal investigation by the Ottawa Police Service (OPS). In June 2005, the OPS announced that its 15-month investigation had found abuses of the pension and insurance plans, nepotism, wasteful spending, and override of controls by management. Significant unnecessary or wasteful expenditures resulted, including money spent for work of little value. The Crown counsel advised that there was "no reasonable prospect of conviction on criminal charges". However, two senior officials of the Royal Canadian Mounted Police (RCMP) resigned, and the RCMP considered disciplinary action against others.

I want to bring your attention to a particular section:

9.39 RCMP business case for outsourcing the administration of the pension plan. A central element of the RCMP's strategy to modernize pension administration was to determine whether it could be done more economically by the private sector. The RCMP therefore carried out a study to determine if this was so. We reviewed the business case that was used to justify outsourcing the administration of the pension plan to Morneau Sobeco.

9.40 In 2000, the Treasury Board approved the RCMP's submission to outsource the administration of the pension plan. However, we found that the Treasury Board Secretariat was not presented with a balanced business case for outsourcing the administration of the pension plan. The business case was

• written in a way that supported full outsourcing and provided little analysis of any other options for the administration of the pension plan;
• based on estimates of costs provided by Morneau Sobeco, the eventual winner of the outsourcing contract; and
• disputed by Public Works and Government Services Canada; however, there is no evidence that this was ever acknowledged in the decision-making process.

9.41 The RCMP provided Morneau Sobeco with the assumptions used in developing the cost estimates for the administration of the RCMP pension plan, which led to gross underestimation of those costs. These estimates were used as the basis of the contract awarded to Morneau Sobeco for outsourcing. The RCMP accepted these estimates without conducting additional reviews. In the original information provided to the Treasury Board Secretariat, the expected costs for outsourcing the pension plan administration, including those costs for Morneau Sobeco, were estimated to be $2.8 million for each of 2002-03 and 2003-04. Subsequently, in 2002, the RCMP increased its estimate for 2002-03 to $5.9 million. Again in 2003, the RCMP informed the Treasury Board Secretariat of a further increase in its estimate for 2003-04 to $8.1 million, almost three times the original amount (Exhibit 9.2). The RCMP stated that these increases were due to changed assumptions and better estimates once the contract was signed.

9.42 The problems with the information provided to the Treasury Board Secretariat went beyond underestimating the costs of outsourcing the administration of the pension plan. Forecasts for its ongoing administration and other pension projects were also underestimated as they omitted significant projects, such as cleaning up pension data and operating a pension data repository. For example, revised estimates for 2002-03 were more than four times the original $2.4 million estimate (Exhibit 9.3).

You see, I've got the Request for Proposal that was sent out for work on the pension data cleanup and the pension data repository listed in 9.42. Here is the text of that request:

INTRODUCTION

The Royal Canadian Mounted Police (RCMP) has the responsibility for the management and accounting of the RCMP Superannuation Act (RCMPSA) pension funds through the National Compensation Policy Centre (NCPC). The NCPC must ensure that the pension funds are properly controlled from both the accounting and management perspectives. The NCPC Pension and Benefits Policy Section is responsible for both the administration of the funds and the pension benefits policy. The NCPC Pension Funds Accounting Group is responsible for the accounting of the RCMP pension funds.

The Pension Reform legislation, the Public Sector Pension Investment Board Act (PSPIBA), passed in September 1999, created a new fund where members' contributions are invested in the marketplace via the Pension Investment Board (PIB).

ACTIVITIES:

Some of the activities are listed below, the complete list is included in the Request for Proposal document.

1. Liaise with the various contracting authorities in order to determine the most suitable contracting vehicle (sole source, limited tender, ACAN, open tender, Standing Offer, Supply Arrangement, etc.) and to provide to the contracting authority the names of firms capable of meeting the NCPC contracting requirement.

2. Manage amendments to three major contracts (Pension Data Repository (PDR) development (approximately $3,000,000), historical data cleanup (approximately $3,000,000), and pension administration outsourcing (approximately $19,000,000) for which the contracting authority is PWGSC.

I've highlighted the obvious alignment between the what the Auditor General identified as initial oversights, and the RCMP contract proposal that covered those gaps at what the Auditor General said was great cost.

To be specific, this is a request for a company to manage the contract addendum that defined what the company hired by RCMP to manage the pension fund would do with regards to this missed requirements. Seems complicated. In any case, we know that the Mounties arranged the contract so that Morneau Sobeco would win it, or so the Auditor General alleges. We also know who got this contract to manage the Morneau Sobeco contract:

The period of any resulting contract shall be from the date of Contract Award to December 31, 2003 with an option for an additonal one year period (January 1, 2004 to December 31, 2004).

There is presently a resource working on this requirement from a previous competitive contract issued by CAC to "Abotech Inc", who will be allowed to bid on this solicitation.

Abotech was the firm owned by David Smith, for Liberal MP for the riding of Pontiac in Quebec. Back in October of 2005, Abotech and David Smith made the news when the Globe and Mail reported that Public Works and Goverment Services Canada had terminated several contracts with Abotech. The minister at the time, Scott Brison, stood in the House to explain the Abotech situation:

Hon. Scott Brison (Minister of Public Works and Government Services, Lib.): Mr. Speaker, first of all, we decided to cancel these contracts as part of an overall review as we strengthen governance and improve competition and value for tax dollars. It is important to note that there was no issue with the services being provided, and in fact, that value was received for tax dollars.

Of course, if one of the contracts that was terminated involved managing the Morneau Sobeco contracts with the RCMP, then the Auditor General will have a different opinion on whether value was being received for the tax dollars spent.

So the RCMP creates a sweetheart deal for Morneau Sobeco. Missed portions of the contract, oversights that earned specific criticism from the Auditor General, were handed over to Abotech to deliver to Morneau Sobeco. Abotech was run by David Smith, who would later become an MP. The nomination for Pontiac was a gift given to David Smith from Paul Martin:

Although prepared to run in the 2004 federal election, [Robert "Bob" Bertrand] lost the Liberal party candidate nomination to an unknown at the time, David Smith. This was due to new party nomination rules put in place by Paul Martin that changed the long standing policy of selecting the incumbent by acclamation. Many rural party members (who traditionally supported Mr. Bertrand) felt disenfranchised by this defeat because of the new party nomination rules which called for 3 polling locations spread out across the riding (Fort-Coulonge[Rural], Wakefield[Rural] and Maniwaki[Urban]) instead of the traditional 1 polling site for both candidates, considered neutral territory. They believed this favoured the urban party members (most of whom supported Mr. Smith) because of the greater concentration in their numbers in conjunction with their polling location.

So just how was Abotech qualified to manage the $25,000,000 contract the RCMP had PWGSC give to Morneau Sobeco? As it turned out, no qualifications were necessary:

An audit report shows how a company founded by former Liberal MP David Smith was paid to serve as a middleman in 13 government contracts, even though the company had "no relationship" with the government departments issuing the contracts and "little knowledge" of the consultants hired to do the work.

The December 2005 report by the international auditing firm KPMG found evidence that Smith's company, Abotech, was used as a conduit through which government departments hired the consultants they wanted for particular contracts, effectively circumventing the competitive bidding process.

"There is evidence of a process to facilitate contracts [through Abotech] to a resource desired by a given client," the report states.

Now compare what KPMG just said about Abotech with what the Auditor General wrote in last November's report about the RCMP pension scandal:

The NCPC Director established consulting contracts valued at over $20 million, overriding controls to avoid competitions for the contracts. These contracts resulted in some work of questionable value being performed, and excessive fees for administrative services of little or no value being charged to the pension plan.

The NCPC Director circumvented competitions by using Consulting and Audit Canada (CAC) to hire individuals and firms he had already chosen to do work at NCPC. For each of the contracts, CAC charged a fee for a number of services, including locating a qualified vendor.

So the RCMP write the requirements to give the work to Morneau Sobeco. That contract goes to Scott Brison's PWGSC, where Consulting and Audit Canada (CAC) created a cover contract aimed squarely at David Smith's Abotech, a contract to manage a contract. CAC then charges a fee for "finding" Abotech. It worked because David Smith's cousin Frank Brazeau was working in CAC, arranging for the work to go to Abotech. Besides being cousins, Smith and Brazeau worked on Liberal Party campaigns together:

All 13 contracts -- as well as two more discussed in the report -- were awarded to Abotech by a single government contracting officer. The officer's name is blanked out in the KPMG document, released through Access to Information, but Smith has previously confirmed the contracts were awarded to him through his cousin, Frank Brazeau. Brazeau and Smith grew up together in Maniwaki, Que.

After selling Abotech, Smith ran as a Liberal candidate for Parliament, with Brazeau helping in both his nomination battle and his election campaign. Smith won the seat in the Quebec riding of Pontiac in June 2004, but was defeated in the January 2006 election by Conservative Lawrence Cannon.

The KPMG report describes how the government agency that Brazeau worked for, Consulting and Audit Canada (CAC), would manipulate the bidding process to "facilitate contracts to a desired resource."

CAC was an agency that handled the nuts-and-bolts of hiring contractors on behalf of other government departments.

Frank Brazeau was fired for his role in this scheme. David Smith had sold Abotech to his wife in June 2004 when he became an MP. His wife, a nurse by training, and his two teenage children, would have taken over management of the $25,000,000 contract with Morneau Sobeco without David Smith's involvement.

It is not clear how long Abotech was involved in the management of Morneau Sobeco. All indications are that Abotech was just a shell. Expenses billed by Morneau Sobeco would be paid by the government through Abotech. Abotech's contribution was simply to take the check, deposit it, and write another check of a smaller amount to give to Morneau Sobeco. The difference was the money Abotech earned for helping pass the checks around. As such, it's not likely David Smith, his wife, or his kids have much to offer during an investigation of the RCMP pension scandal. But David Smith and the former minister Scott Brison would provide insight into how the competition rules were being bypassed, and perhaps even who made the decisions of where the contracts would go. Deputy Minister David Marshall, who fired Frank Brazeau, might also have something to add.

The trick is to find these people so they can explain what they know to the inquiry. Scott Brison is now an opposition MP. David Marshall is still Deputy Minister at PWGSC.

As for David Smith, you can find him by calling Liberal leader Stephane Dion. I understand that after David Smith endorsed Stephane Dion's leadership bid, Smith was given a job working in the Dion office.

The full catalog of Abotech posts.