Ottawa ignored warnings about Indigenous procurement program, former auditor says

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A former auditor for the federal government’s Indigenous procurement program says Ottawa hamstrung auditors and repeatedly ignored warnings that the program was being abused by non-Indigenous companies.

Garry Hartle was one of the auditors who regularly reviewed whether companies complied with a federal policy designed to encourage the flow of government contracts to Indigenous-owned businesses. He served as an auditor from 2016 to 2023.

Mr. Hartle said in an interview that he warned Indigenous Services Canada about alleged abuses tied to a key aspect of the program that allows Indigenous and non-Indigenous companies to team up to access federal contracts, so long as the Indigenous business retains control. Critics have warned that some of these joint ventures are not truly Indigenous-led.

He said he received many complaints from Indigenous companies about problematic joint ventures when he was an auditor.

“If you do away with the joint ventures, the program wouldn’t be abused,” he told The Globe and Mail, suggesting there are systemic issues that go beyond the handful of companies that have been singled out for criticism.

The government’s Procurement Strategy for Indigenous Business earmarks certain federal contracts for Indigenous companies. The competition pool for these “set-asides,” as they’re called, is much smaller than what it is for most contracts.

The House of Commons committee on government operations is holding hearings into concerns related to the PSIB, including into the joint-venture mechanism, which has been criticized by some Indigenous business owners and groups as a backdoor that allows for non-Indigenous companies to access less competitive contracts.

Mr. Hartle, who is scheduled to appear at the committee on Tuesday, said he also warned Indigenous Services Canada about specific cases of alleged fraud. He said as well that the department implemented changes to the auditing process that limited auditors’ ability to review companies participating in the program.

Companies and joint ventures looking to do work under the PSIB must first register with the government’s Indigenous Business Directory and need to prove they are majority-owned and controlled by Indigenous individuals.

Over time, the government undermined the program’s audit function, which has contributed to skepticism about the effectiveness of the program, said Mr. Hartle, who worked as a third-party contractor.

Until recently, auditors were responsible for confirming a business’ indigeneity before certain set-aside contracts could be awarded – but after 2021, high-ranking staff at Indigenous Services Canada determined the department would take on this work itself, Mr. Hartle said.

“We were given the name of a person to send the name to, and that person, who was an employee of Indigenous Services Canada, would check and make sure that this person was Indigenous.”

Mr. Hartle said this change came about following pressure from Indigenous groups, which were lobbying the government to do something about what they saw as a large number of non-Indigenous companies accessing the program.

But the decision ultimately hamstrung auditors’ ability to do their jobs, he said.

Indigenous Services Canada made other changes to the audit policy, too. According to Mr. Hartle, auditors were told they could no longer contact businesses directly during audits. Instead, they’d have to send questions to the government, which would then relay them to the company. In practice, however, the people relaying these questions weren’t experienced enough, he said. Ultimately, this slowed down the process and weakened audits, leading to a game of broken telephone.

“That didn’t work, because junior staff didn’t understand the program, didn’t understand what was being asked for. Everything was getting confused, and there would be delays.”

Indigenous Services Minister Patty Hajdu responded to Mr. Hartle’s comments on Sunday.

“I was just made aware of these deeply troubling allegations, and I am extremely concerned,” she said in an e-mailed statement. The minister pledged that “misuse or exploitation” tied to the program will “come to an end” through immediate steps to reform the Indigenous Business Directory.

A separate statement from Indigenous services department spokesperson Eric Head said a recent review led to the removal of approximately 1,100 businesses from the directory “to make sure only eligible businesses benefit.”

The department defended the practice of having public servants interact with businesses rather than third-party contractors, saying it allows contractors to be independent.

Political scrutiny of joint ventures and the Indigenous procurement program grew out of hearings into contracting issues related to the government’s ArriveCan app, which faced criticism over high costs because of heavy use of outsourcing.

The Globe reported in 2023 that two of the main ArriveCan contractors – Coradix Technology Consulting and Dalian Enterprises – were awarded work on the project through the Indigenous procurement program. Dalian is an Indigenous-owned company that has said it has just two employees. It regularly landed contracts under the program through a joint venture with the larger Coradix, which is non-Indigenous. Both have since been suspended from federal contracting and are challenging the decision in court.

Mr. Hartle is not involved with the current reviews of Coradix and Dalian and did not comment on their suspensions.

The Canadian Council for Indigenous Business has called for stronger oversight of joint ventures, but also said some have been extremely successful at growing the Indigenous economy.

Mr. Hartle, 80, performed audit work for the department in part through Roundpoint Consulting, an Indigenous company, though Mr. Hartle is not Indigenous.

During his career as an auditor, Mr. Hartle said he has also worked for the Canada Revenue Agency and the government of the Northwest Territories.

Mr. Hartle was the lead auditor at the federal department in a file involving Canadian Health Care Agency (CHCA), a large non-Indigenous contractor for nurses in remote communities that partnered with a small, one-person foot-care company in Northern Ontario owned by a First Nations nurse.

In October, citing court records, The Globe reported that Mr. Hartle had found the joint venture was not in compliance with the program. It was eventually removed from the Indigenous Business Directory. The audit finding was challenged in federal court by CHCA, but the case was ultimately abandoned without a ruling.

The court records included a letter from Mr. Hartle to a senior program manager at the department, saying his review had found Pearl Chilton, the Indigenous nurse in the joint venture, was left with a large tax bill because of a “serious misrepresentation” by CHCA. He also concluded that the joint venture was run by CHCA and not the Indigenous partner.

In a 2017 e-mail presented in court, CHCA’s lawyer, James Rhodes, criticized Mr. Hartle’s determination that the joint venture was not in compliance as unfair, saying the company was not provided with an opportunity to fully respond to all allegations during the review process.

CHCA was acquired by Premier Health of America, a health care company, in 2022. Gustavo Serra, a spokesperson for Premier Health, said in an e-mail that since taking ownership, the company has “focused on strengthening the agency’s governance and operational processes to ensure compliance with all ethical standards and regulatory requirements,” and that it has “no tolerance for fraudulent activity or misrepresentation.”

”We are confident in the positive changes we have made since acquiring CHCA and are committed to continuing our efforts to improve the agency’s operations and uphold the highest standards in all areas of service,” Mr. Serra said.

In 2021, the government told departments they should aim to direct 5 per cent of their contracts to Indigenous businesses. This target, however, may have created an incentive for abuse, according to experts who have given testimony to the Commons government operations committee.

In September, Assembly of First Nations Regional Chief Joanna Bernard told MPs that she estimates the true percentage of spending going to legitimate Indigenous businesses under the PSIB is closer to 1 per cent.

The Indigenous procurement program allows for joint ventures, Mr. Hartle said, “so that Indigenous companies could learn and gain experience, in order to take on bigger and bigger things.” Instead, most joint ventures are “forever enriching the non-Indigenous venture.”

Mr. Hartle said the department knew about cases of alleged fraud yet chose to do nothing about them.

“It wasn’t just from me that they were made aware of the fraud,” he said. “There were companies that were listed in the Indigenous Business Directory that were truly Indigenous, firms that were quite upset about the fact that you would give the major part of the contract to a definitely non-Indigenous firm – because they knew about what was going on.”

Editor’s note: (Dec. 9, 2024): This article has been updated to include the response from Canadian Health Care Agency (CHCA).

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