HOW THE CANADIAN GOVERNMENT WAS DEFRAUDED OF MILLIONS BY HACKERS

Even after an extensive investigation, Karen Hogan, the auditor general, said she could not determine exactly what it had cost to create Arrive CAN, which was rushed out in 2020 to collect contact and health information from international travelers during the Covid-19 pandemic and to coordinate quarantine measures. Ms. Hogan’s best guess is about 60 million dollars for an app that was widely derided as difficult to use. Its original budget was 2.3 million dollars.

This week, as federal officials announced measures to tighten oversight of government procurement, particularly for software services, they said that the government had asked the Royal Canadian Mounted Police to investigate 5 million dollars in invoices from three software contractors as potential frauds. The officials did not name the companies but said the suspicious billings were not related to Arrive CAN.

Citing the criminal investigation, Jean-Yves Duclos, the minister of public services and procurement, declined to offer details about the potential frauds. But he suggested that the contractors had taken advantage of the fact that government contracts were mostly in paper form to bill several government departments for the same work.

When everything was done on paper until recently, it was difficult for departments to coordinate and to share that information. Mr. Duclos noted that 98 percent of contracts are now in electronic form, allowing officials to easily search for attempts at fraudulent duplicate billing.

The political debate around Arrive CAN and the auditor general’s report highlighted that within the government procurement system, millions of dollars flow to companies that don’t actually create software. Those companies are instead middlemen that find software developers to do the work and then skim off a large portion of the contract’s value for their efforts.

In the case of Arrive CAN, the middleman was a two-person company called GC Strategies. The auditor general estimates that the company took in 19 million dollars from the project. At a parliamentary hearing, one of the company’s owners, Darren Anthony, claimed that the correct figure was about 11 million dollars. He also said that he had not read the auditor general’s report and did not intend to do so.

Whatever the amount, Mr. Anthony said that he and his business partner were left with about 2.5 million dollars over two years after paying the subcontractors who actually made the app. He said the company had devoted about 30 to 40 hours a month to the project. After the release of the auditor general’s report, the government suspended all dealings with GC Strategies.

Prof. Daniel Henstra, a political scientist who studies public administration at the University of Waterloo, told me that the rise of companies like GC Strategies was a direct consequence of the government’s decades-long shift from having public servants develop software to contracting out the work.

When a project needs to be done on a tight deadline, as Arrive CAN was, the usual procurement system is usually almost impossible to follow. Even if government officials can identify all the necessary subcontractors — certifying that they are up to the task and then making contracts with each of them would overwhelm the system.

For government officials, companies like GC Strategies are like gold. It’s very expedient for government to just shift money through one of these companies, which are basically just a coordination company, and have them find the actual contractors to get the work done.

But, he said, at both the federal and provincial levels, the arrangement sometimes “blows up,” as with Arrive CAN, and prompts uncomfortable questions about exactly what the middlemen are doing in exchange for millions of dollars of public money.

Governments in Canada now generally contract out too much work — including the policy consulting work he himself does for the federal government. The days when the government had an army of software coders who spent their entire careers in the public service is most likely not coming back.

Demand for experienced software developers continues to outstrip supply despite recent tech industry layoffs, no government is likely to want to assume the cost of outbidding companies like Google or Microsoft for their services. When you do things within government, it’s expensive and it probably takes longer.

Despite the heated political debate now underway, the ballooning cost of the Arrive CAN app and the recent fraud allegations are exceptions.

The government does get things done, and its relationship with contractors actually works quite well for the most part. There is room for bad actors to break the law, and when they get detected, they get prosecuted. But in the meantime, most of these contracts happen all in good faith, they’re on the up and up, and they serve the public interest.

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