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Auditor general says N.S. government needs to tighten its fraud controls
Published Wednesday, October 4, 2017 7:54AM ADT Last Updated Thursday, October 5, 2017 7:47AM ADT
HALIFAX -- Nova Scotia's auditor general says the provincial government needs tighter controls on potential fraud by senior public officials who have access to taxpayers' money.
Michael Pickup says 88 per cent of public organizations in Nova Scotia have not completed an assessment to determine the risks of fraud.
The report says only 14 of 48 government organizations have a fraud policy and organizations without risk assessments include the Nova Scotia Liquor Corporation, school boards, the Izaak Walton Killam Health Centre and the Nova Scotia Health Authority.
The problems ranged from "weak controls" over procurement at the Nova Scotia Health Authority -- the agency that oversees most of the province's health system -- to "poor monitoring" of who has access to the financial systems of Housing Nova Scotia and the IWK Health Centre.
Pickup's report, released Wednesday, says his office found significant weaknesses in financial controls at the IWK Health Centre, as well as at the Nova Scotia Health Authority and Housing Nova Scotia.
"When an organization has significant control weakness that's a pretty bad thing," Pickup told the legislature's public accounts committee.
"Things can happen that are not good that you don't want to happen. For us to use that term, significant control weakness, is a big deal, it's something we put a lot of consideration into."
On June 1, the province adopted a zero-tolerance fraud policy with the goal of preventing theft from the public purse, with mandatory online training to be completed by all civil servants.
The chief executive officer at the IWK, Atlantic Canada's largest children's hospital, recently resigned after a spending scandal. An independent review said Tracy Kitch owed thousands of dollars for "potentially personal" expenses charged to her corporate credit card.
The auditor general's report refers to the discrepancies in the IWK executive's spending as an "opportunity for learning."
"It's important that management in government departments and organizations review the control weaknesses and issues identified at the IWK and assess if their organization is exposed to similar risks," the report says, adding it's also important cabinet ministers "seek assurance that this has been done."
Tim Houston, the Progressive Conservative finance critic, said it makes sense the lax controls exposed by Pickup would lead to problems like those uncovered at the IWK.
"It was probably just a matter of time before something like this came to light," said Houston.
He said individual ministers needed to take more responsibility in ensuring proper financial controls are in place.
"You have to act on it right away, and that has to come down from the top and filter all the way down to the rank-and-file employees."
The report says research indicates that tips account for 40 per cent of all fraud discoveries and the use of fraud tip hotlines can be an effective tool. Pickup says hotlines are used in other provinces.
"However, in Nova Scotia, no government department has a fraud tip hotline. We also noted that the Nova Scotia Liquor Corporation was the only government organization using a hotline," the report says.
Overall, Pickup's report on the province's finances praises the Liberal government for producing a surplus budget, reducing the long-term debt by $400 million and decreasing annual interest costs by $28 million.
The report says that means a $550 per citizen decrease in public debt.
However, Pickup says the teachers' pension plan, currently funded at almost 78 per cent, is in poor condition.
"It is troubling that while there is a $1.4 billion deficit in the teachers' pension plan, there is no clear plan how this deficit will be dealt with and this may impact all Nova Scotians now and in the future," Pickup says.
The province and the Nova Scotia Teachers Union agreed to joint and equal governance of the plan in 2005. As a result the province is responsible for 50 per cent of the deficit recorded in the 2016 Teachers' Pension Plan financial statements.
Pickup says the province also agreed to make a special contribution under the plan's regulations in instances where the plan's liabilities exceed assets by more than 10 per cent.
"Over the past five years, the province has made over $50 million in special contributions to the teachers' plan, and this amount is anticipated to increase over the foreseeable future," the report states.
Pickup says the plan's deficit has remained the same despite teachers' contributions having gone up 33 per cent since 2014.
The report says 4,320 teachers who retired after Aug. 1, 2006, last saw an increase to indexing of their annual pension in 2008, adding that "retiring teachers may not get a pension increase for the foreseeable future."
Pickup told the legislature committee that deciding how to address problems with the pension plan is "one of the major questions that exists today in terms of public finances."
Premier Stephen McNeil said there would be no government bailout of the plan, adding that both sides would have to sit down and work things out.
McNeil wasn't specific about what has to happen, saying simply the sides will have to "look at options."
"The sooner we can put in place steps both the government and the union can live with that will shore it up, the better," he said.