In its January 2023 audit entitled Metropolitan Regional Housing Authority – Examination of Service Contract Awards, Nova Scotia’s Auditor General concluded that the housing agency (“Metro”) needed to improve its conflict of interest practices after finding that Metro’s Director failed to properly disclose multiple conflicts in relation to the award of a new security services contract.
Complaint Leads to Investigation
By way of background, while conducting an audit on oversight and management of government owned housing, the Auditor General received a complaint that raised conflict concerns involving Metro’s most senior officer, referred to in the report as the “Director”, and a bidder that was awarded a $1 million security services contract.
As the audit stated, Metro’s conflict of interest policy defined conflict of interest as a situation where “the duties and responsibilities of an employee are, or potentially could be, compromised by their personal and private interests.” As the Auditor General explained “a conflict may be real, apparent or perceived”. While the report confirmed that “a conflict does not necessarily indicate wrongful conduct” it noted that “the policy requires employees avoid and disclose all conflicts of interest to ensure public confidence at the regional housing authorities.”
Director’s Personal Dealings
In its investigation of the complaint, the Auditor General found that a series of conflict of interest “events” arose when the Director was involved in multiple personal transactions with a contractor while concurrently being involved in Metro’s award of a tendered security services contract to that same contractor.
More specifically, the report found that the Director completed the sale of two personal properties with the contractor’s owner during the same period as the tendering process. The report also found that the Director entered into a business arrangement with that same owner to build a full-service affordable housing development on the two sold properties and on a third property that was still owned by the Director. The Auditor General noted, “these conflict-of-interest events are concerning because the Director is the most senior employee at Metro, and directly reports to the Executive Director at the Department of Municipal Affairs and Housing.”
No Documented Declaration During Tender Planning
The Auditor General concluded that the Director failed to properly disclose those conflicts to the provincial Executive Director. As the Auditor General stated, “on March 25, 2020, the Director suggested Company A as a service provider for a tenant services pilot program at Metro” for the provision of security services. At that time, the Director allegedly made a verbal disclosure of knowing the company owner “from a previous private sector working relationship” but still attended preliminary planning meetings for the new pilot program. According to the Auditor General, Metro’s management later claimed that “the Director was recused from the final decision on whether to proceed with the pilot due to a conflict of interest”. However, the Auditor General was “unable to verify whether the declaration took place because the Housing Authority Conflict of Interest Policy does not require a declaration to be documented.”
Concurrent Transactions
As the Auditor General’s report further detailed, on August 6, 2020, five days after the security services tender was published, the Director sold a first property, with a closing date of August 21, 2020, to the company’s owner for $102,500. However, the Auditor General “could not find any record that the Director publicly listed the property for sale during this period.”
Further, while the Director claimed to have been on a leave of absence during that period, the Auditor General “found evidence to conclude otherwise.” As the report noted, “our investigation revealed the Director was working while the tender was open for bids until the leave of absence began on August 25, 2020.” In fact, the report noted that the “Director confirmed direct involvement in approving the two initial tenders for publishing” and then participated in discussions related to combining the two contract opportunities into one award.
The Auditor General also found that on November 4, 2020, one month after the award of the tendered security services contract to the company for $996,000, the Director sold a second property to the company’s owner, with a closing date of November 30, 2020, for another $102,500. Once again, the Auditor General “could not find any record that the Director publicly listed the property for sale during this period.” That second closing fell about two weeks after the November 16, 2020, start date for the newly awarded security services contract.
No Conflict Disclosures During Tendering Process
The Auditor General concluded that the “two property sales between the Director of Metro and the owner of a company contracted by Metro, were not disclosed” and that under the applicable conflict rules “the Director was in a conflict of interest and had a duty to disclose both transactions to the Executive Director.” As the Auditor General further stated, “while the sale of personal property is not prohibited, the policy states that employees must avoid real, apparent or perceived conflicts of interest, and the failure to address real, apparent or perceived conflicts undermines the public’s confidence in the regional housing authorities.”
The Auditor General also found that “bidders were not required to declare any conflicts” in the tendering process for the new security services contract. More specifically, the report found that “the tender documents did not include conflict-of-interest language or declaration requirements”, which meant that the owner of the company who entered into the parallel transactions with the Director “was not required to disclose, and did not disclose personally knowing and purchasing the property from the Director weeks before the tender closing date.”
Broader Sector-Wide Concerns
The Auditor General’s report also raised broader concerns about inadequate conflict of interest practices across Nova Scotia’s public housing sector. In fact, in a random sampling of ten other tender calls issued by five of Nova Scotia’s regional housing authorities, the Auditor General found that “none of the ten included conflict-of-interest language or disclosure requirements.” As the Auditor General cautioned, conflict of interest disclosures “are necessary to ensure fairness to all bidders in the procurement process” and that “disclosing a conflict of interest allows management to ensure any potential conflict of interest can be considered, and outline steps to address the conflict.” This would better enable “removing someone from the evaluation panel or decision-making process who has an external relationship with a bidder.” The absence of these otherwise widespread and standard government procurement practices, both with respect to the specific contract award at Metro, and more broadly across multiple regional housing authorities, raises serious concerns about procurement oversight across Nova Scotia’s public housing sector.
Future Considerations
The failure to adopt and implement proper conflict of interest procedures undermines the integrity of the public tendering process. This Nova Scotia case study should serve as a reminder to all public institutions of the need to review and update their conflict procedures as part of a broader update to their procurement governance practices.
