Audit finds federal Indigenous procurement program lacks robust fraud prevention measures

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An audit of a program that favours Indigenous businesses for federal contracts found widespread problems related to a lack of oversight measures for preventing fraud and misuse.

The review of the Procurement Strategy for Indigenous Business specifically found weaknesses related to a provision that allows non-Indigenous companies to win federal contracts under the program, provided that they partner in a joint venture with an Indigenous company.

Auditors examined the program in part by looking at 50 random companies registered to participate, in order to confirm that proper verification procedures were followed.

They found that 68 per cent of cases had missing or incomplete verification documents.

“The audit found that the verification process lacks robust checks and fraud detection methods to identify businesses misrepresenting their eligibility for the PSIB. The temporary relaxation of evidence requirements during COVID-19 further exacerbated vulnerabilities,” says the review, produced for Indigenous Services Canada.

The Liberal government ordered the audit in December, 2024, after a series of reports by The Globe and Mail that highlighted concerns with the program’s joint-venture rules. The minister in charge at the time, Patty Hajdu, described those findings as “quite shocking.”

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Indigenous business leaders told The Globe that the provision has long been a vulnerability of the program, undercutting its stated focus of helping legitimate Indigenous businesses.

The audit findings are in line with that criticism.

“There is no comprehensive checklist for assessing complex cases, such as joint ventures, leading to challenges in ensuring accurate and consistent application of PSIB requirements,” the audit states. “Additionally, there is no specialized training focused on identifying potentially fraudulent applications or assessing program access risks.”

The Assembly of First Nations warned MPs about abuse during a 2024 committee hearing, saying the organization believed most of the contract spending Ottawa says it is awarding to Indigenous businesses has only loose ties to Indigenous people.

AFN National Chief Cindy Woodhouse Nepinak said in a statement Thursday that the government needs to work with First Nations to fix the issues with the program.

“The PSIB audit substantiates what First Nations know and have been saying for some time – Canada’s non-enforced procurement standards are damaging to First Nations and Canadians. Pretendians and fake joint ventures are stealing opportunities that could actually benefit First Nations companies and communities,” she said.

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The AFN is urging the government to fund a First Nation-led procurement authority in the Nov. 4 federal budget.

The PSIB is aimed at providing Indigenous businesses with priority access to federal contracts as a way of growing the Indigenous economy. It was launched in 1996 but its scope expanded significantly after Ottawa announced a plan in 2021 to award at least 5 per cent of all federal contracts to Indigenous businesses.

The related Indigenous Business Directory, managed as part of the PSIB, is used to assess that 5-per-cent target, which the government says it has met and slightly exceeded.

To be registered in the directory, a company must show that it is Indigenous-owned and -controlled. The program allows several types of evidence of Indigenous identity, such as registration under the Indian Act, citizenship with a variety of listed Indigenous organizations, or acceptance as an Indigenous person by an established Indigenous community in Canada.

The audit report says Ottawa spent $1.6-billion on Indigenous business procurement in the 2022-23 fiscal year.

The PSIB was used by two of the main contractors on the controversial ArriveCan app for cross-border travellers. A large non-Indigenous IT contracting firm called Coradix Technology Consulting Ltd. frequently partnered with a much smaller Indigenous-owned company called Dalian Enterprises to win federal contracts through the PSIB.

The Globe reported in February that the two companies failed a group of PSIB audits, which found they did not meet the criteria of the program. Months later, in July, Indigenous Services Canada released summaries of those 16 audits for work worth $99-million.

The department declined to release the full audit reports, however, opting instead to release brief, one-page summaries of each audit finding.

The summaries state that the joint venture “failed to meet the Indigenous control, Indigenous ownership, or Indigenous content requirement criteria.”

The government suspended Dalian and Coradix from federal contracting in March, 2024.

Coradix sued the federal government in May, 2024, seeking $64-million in compensation for Ottawa’s suspension decision. Dalian is not a party to the lawsuit.

That case is before the Federal Court and has not reached a resolution.

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The latest audit report of the program as a whole is dated May 22, 2025. It was posted on the department’s website on Sept. 25 without a news release to the media.

The audit findings are largely described in general terms. There are no examples that mention specific companies.

The report recommends that the department standardize the verification process, improve training, approve more frequent audits, implement new fraud-detection processes and integrate feedback from Indigenous stakeholders.

The department responded by providing timelines for implementing the recommendations.

Livi McElrea, press secretary to Indigenous Services Minister Mandy Gull-Masty, said in a statement that the government was elected with a mandate to ensure programs are delivered more effectively.

“This audit is part of that important work. All recommendations have been accepted, implementation is already underway, and a comprehensive management and action plan sets out the next steps,” she said. Specifically, the minister’s office said the department will increase the number of compliance reviews, expand verification capacity and work with Indigenous partners on policy reforms.

Conservative MP Garnett Genuis, who successfully launched a committee study of the program during the previous Parliament, said the audit supports the criticism that the government is putting virtue-signalling ahead of results.

“This damning report adds to an existing body of evidence showing the Liberals have used the Indigenous Procurement Program to send money to well-connected elite individuals and companies which are not Indigenous,” he said in a statement Thursday.

“Liberals have failed to properly verify the Indigenous identity of companies receiving Indigenous set asides in order to exaggerate the number of Indigenous companies who are benefiting and to help their friends.”