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The Abotech Affair: A twist in the road

Here's something the newspapers haven't reported. It turns out that the company that managed the RCMP pension fund, Morneau Sobeco, did not deal directly with the government. The government gave a lucrative contract to another company that would direct Morneau Sobeco in the management of the fund. In fact, that company set up the contract, selected Morneau Sobeco to execute the contract, and dealt with any contract amendments.

Here is an extract of that contract to be awarded to a company to manage a firm to manage the fund:


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).


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.

3. Develop and maintain an electronic manual of NCPC contracting procedures identifying all the steps necessary in the procurement process; as well as maintaining an up-to-date list of all individuals that have a part to play in the contracting process - such a document needs to address the different contracting approaches and would be expected to be in the range of 25 - 30 pages;


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

1. Liaison with the various contracting authorities,

2. Management of contract amendments;

3. Development, maintenance and management of Quattro spreadsheets


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.

Only one (1) resource is required for this assignment. It is expected that one (1) contract may be issued as a result of this solicitation.


Some of the Mandatory requirements of this requirement are listed below; the complete evaluation criteria is included in the Request for Proposal document.

1. The proposed resource must have at least five (5) years of experience, acquired within the last ten (10) years, in conducting work related to procurement of professional services for the Canadian Federal Government.

2. The proposed resource must have, or be able to obtain, Canadian federal government security clearance at a minimum level of ‘Enhanced Reliability’.

3. The proposed resource must be fluent in English (oral and written).

Presumably that contract included directing Morneau Sobeco to hand over pension fund surpluses to Paul Martin.

The name of that company that acted as the government's agent, directing Morneau Sobeco in the management of the RCMP Pension Fund? Abotech.

It was awarded the contract on December 16, 2002 to run until December 31, 2003, with an option to renew until December 31, 2004.

Was all that about aboriginal set-asides just a side business for Abotech? Was all this time the real story about David Smith's involvement in the management, and mismanagement, of the pension funds of civil servants under the direction of the Liberal government?

And the RCMP raid on Frank Brazeau's house. What was that about? Aboriginal contracts or pension funds?

Would the RCMP be in a conflict of interest? Investigating a company while at the same time suing the government over allegedly mismanaged pension funds managed by that same company?

And one more interesting thing. In the fall of 2003, over the course of the first year of contract, there was a scandal about "irregularities" in the fund management:

In the fall of 2003, I gave instructions to our Audit and Evaluation Branch to conduct an internal audit of activities relating to the administration of the RCMP pension plan. Given the findings of the internal audit, the decision was made to follow up with an internal investigation. There were a number of irregular activities identified during both the internal audit and the subsequent internal investigation which suggested the possibility of criminal behaviour.

In order to eliminate any perception of conflict and be completely transparent, we have consulted with the Ottawa Police Service and have asked them to initiate a criminal investigation. A criminal investigation is currently underway and any criminal wrongdoings will be dealt with accordingly.

Ottawa-Carleton Police Chief Vince Bevan headed the investigation.

There have been claims that senior managers improperly billed $30 million in expenses to the RCMP pension plan. The figure is totally fictitious and unsubstantiated. There is no truth to this claim whatsoever, and no financial documentation exists to substantiate this $30 million figure.

For the last several months, the RCMP has been consulting with the Treasury Board of Canada to ensure that the expenses charged to our pension plan during this process are consistent with those being charged to pension plans within other Federal Departments. We have been working closely with Treasury Board of Canada to correct the $2 - 4 million worth of expenses identified as having been inaccurately charged to the wrong account -- not $30 million as reported by the media. The majority of the $2 - 4 million in expense charges have been reversed at this time, and we will continue to work towards reversing all inaccurately charged expenses so that they are properly charged to departmental appropriations with the closing of the 2003/2004 fiscal year.

The facts are simple – no funds were ever missing from our pension plan, it was never at risk. This is a matter of administrative costs having been inaccurately charged to the pension plan. These errors have been recognized, and the necessary corrective action taken.

Here's a funny thing. According to this RCMP Pension Plan Financial Statement Audit, the move from PWGSC management of the fund to Morneau Sobeco was completed in October 2003:

4.2. The administration of the RCMP's Pension Plan involves entities external to the organization, such as PWGSC for the calculation of plan contributions and OSFI for actuarial valuations. Given that Internal Audit's mandate is limited to systems, processes and records within the RCMP, the scope of the audit was limited by the following factors:

4.2..1. Access to PWGSC systems, processes and records related to the calculation of plan contributions;

4.2.2. Access to PWGSC systems, processes and records related to benefit calculations including mid year conversion (October 2003) of the benefit system from PWGSC to Morneau Sobeco; [emphasis added]

So the question of the bad expenses were related to the charges made during the transition process. As anyone who is involved in moving from one computer management system to another knows, it can be a very complex process. All sorts of unexpected problems can come up, requiring all sorts of extra work and extra charges. Some problems can result in costly contract amendments.

Remembers, Abotech was responsible for managing the Morneau Sobeco's contract, including writing and costing amendments.

Strangely, though, the bad expenses were not for extra computers:

The findings of the audit report uncovered a number of irregularities in the way that contracting practices, hospitality charges, staffing and administrative charges were being managed.

Oh yes, that old classic, "hospitality charges". I leave it to the imagination of the reader to guess what these could be.

So to be absolutely clear, the problem was not that pension money was stolen, it was that the managers of fund were charging inappropriate expenses, apparently during the transition process. Those managers were Morneau Sobeco and Abotech.

Of course, the $30 billion lawsuit is about whether pension funds were used inappropriately by the Liberal Party and the finance minister at the time, Paul Martin, to pay down the federal debt. If Abotech was managing the Morneau Sobeco contract at this time, one wonders if Abotech or David Smith have material knowledge about how the pension surplus was taken by the Liberal government. Indeed, it maybe that David Smith and Abotech wrote the provisions in the Morneau Sobeco contract directing the firm to take an surplus, cash it, and write a cheque to the government for the amount.

And that financial audit of the pension plan that I was quoting? It admitted that it could conclude very little, given that it was not given access to "external party systems, records, and processes":

As a result of the above limitations, verification of employee and employer contributions, benefit calculations, accrued pension benefits and changes thereto and transactions related to the Retirement Compensation Arrangement was limited to ensuring that information received from the external parties was accurately reflected in the Pension Plan financial statements.

In other words, all they could do was make sure that whatever Morneau Sobeco was telling them got into the plan statements correctly. They could not actually tell if the information itself was any good.

What was the conclusion of the investigation? Was anything pinned on either Morneau Sobeco, Abotech, or another party? Unsurprisingly, we aren't being told:

I am writing to RCMP employees and pensioners to provide an update on the investigation into possible criminal activities related to the administration of the RCMP Pension Plan. Back in the fall of 2004, RCMP asked the Ottawa Police Service (OPS) to lead a criminal investigation into this matter in order to ensure our transparency and accountability. Following an exhaustive investigation and consultation with the Provincial Crown Attorney’s Office , the OPS delivered its final report to me on June 24th.

OPS Chief Vince Bevan today announced the conclusion of the investigation and the decision not to lay criminal charges in this case as the Crown advised that there was no reasonable prospect of conviction on criminal charges. The OPS informed me that the results of the investigation corroborated the findings of the initial audit performed by the RCMP, and that the issues raised were of an administrative nature rather than criminal. It is important to note, however, that corrective actions have been taken to address any irregularities. Additional management controls have also been implemented to prevent any further non-compliance issues and to resolve issues around any ambiguities in the interpretation of Treasury Board Secretariat pension administration charging principles. Employee conduct issues will be dealt with through our internal disciplinary process.

Senior management will be reviewing the OPS report and recommendations and will take any appropriate action deemed necessary.

That update by RCMP Commissioner Giuliano Zaccardelli was broadcast on June 27, 2005.

We know from the Globe and Mail that Abotech started losing contracts not long after. From the October 19, 2005 article in the Globe and Mail:

Earlier this year, KPMG audited $15-million in contracts awarded to a large number of companies by Consulting and Audit Canada since 2001 and found irregularities in the handling of contracts. One of the concerns raised was that sole-sourced contracts were directed to the computer consulting firm Abotech Inc., of which Liberal MP David Smith used to be the president.

Mr. Smith confirmed that he was interviewed by KPMG about federal contracts to Abotech, but said he was unaware that two active contracts worth about $200,000 were terminated in September. About $150,000 of the contracts had already been expended.

Contracts terminated in September, two months after after the RCMP senior management reviewed the OPS report and began to plan "appropriate action".

Was Abotech still helping manage the RCMP Pension fund in 2005?

Is this pension fund problem the real reason for the problems at Abotech? Or is it just part of the problem? Maybe the Ethics Commissioner can get to bottom of this.

One more thought. What if the real problem was with the RCMP pension fund mismanagement scandal? Was the KPMG audit and the problem of "sole-source" contracts just a cover? A way of pushing Abotech out of the picture, but without going into the sordid details of bad "hospitality" charges. A way of telling the media and the public that this is just an administative issue, just a minor problem with the way the contract was structured, not really a big deal.

Remember what Public Works Minister Scott Brison said on the floor of the House of Commons:

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.

No issue with the services provided. This is just about improving governance and competition. But if the real reason was that Abotech was somehow linked to millions in bogus expenses being charged to the RCMP pension fund, then Brison would not be able to wave it away so easily.

But then maybe I'm on the wrong track here. Brison said it on the floor of the House during Question Period. Whatever else you do as a parliamentarian, you never actually lie.

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