Ottawa Hospital grapples with allegations of fraud
January 20, 2016
OTTAWA – The Ottawa Hospital has been roiled by allegations that the former head of its facilities and planning department oversaw a massive scheme to defraud the hospital of money in exchange for luxury trips, work on employees’ homes and cottages, payments and other benefits from contractors.
Ottawa Hospital CEO Jack Kitts (pictured) acknowledged he is concerned “the trust we have worked so hard to earn is at risk of eroding,” and assured the public that steps were being taken to reduce the chances of it happening again,” the Ottawa Citizen reported.
The “irregularities” identified involve “day-to-day repairs and minor renovations,” Kitts said in a written statement addressed to donors – his first statement since The Ottawa Hospital launched a civil suit against two former employees and four companies accused of fraud, kickbacks and embezzlement.
Kitts’ statement also noted that the irregularities affected the hospital’s operating budget, not money donated to the Ottawa Hospital Foundation.
In January, the head of the Ottawa Hospital Foundation, Tim Kluke, sent a note to donors attempting to calm concerns about the issue. “Based on the feedback” from that, Kitts said, he felt it was important to offer more information.
He apologized for the hospital’s silence on the allegations, saying it was necessary for legal reasons, but that he knew it has caused “frustration and disappointment” among supporters.
“Although this approach to communicating with our staff and our community is counter to our commitment to transparency, it is in the best interest of our hospital. However, my job is also to gain and preserve the trust this community has in our hospital.”
Kitts said the hospital took immediate steps as soon as it detected irregularities in its planning and facilities department by engaging an outside forensic investigator, making “appropriate changes” to personnel in the planning and facilities department, and reviewing the lists of pre-qualified vendors for bids. It also reported its findings to police.
“While the investigation to date indicated that the instances of wrongdoing are limited to a few individuals, it is nonetheless disappointing that it happened at all,” he wrote.
“However, I am more confident that as a result of the actions that we have taken to date, the likelihood of future occurrences is reduced. If a violation should happen, we intend to catch it early and limit loss.”
Derek Burney, the former Conservative political strategist who chairs the hospital board’s finance and audit committee, had a similar message in an interview with the Citizen, saying hospital management and its board of governors acted responsibly by taking steps as soon as they had information about potential fraud in late summer.
“Management and the board, the minute they were alerted to the allegations, they initiated a forensic investigation and, once that investigation was complete, the matter was turned over to the police and the suit was launched in the courts. I don’t think there is any sign of negligence on the side of either management or the board.”
Richard Leblanc, associate professor of law, governance and ethics at York University, however, says the board should have had controls in place to detect the fraud earlier.
“Whenever you have fraud, it is the board’s fault that internal audits missed it,” he said. “This is an internal audit failure.”
Leblanc also said the hospital’s board of governors should take Kitts off its audit committee, to maintain the committee’s independence from hospital management, and should undergo an external audit to make sure it is as effective as it should be.
Burney said it is difficult to “detect something of this kind. You can have all the regulations and all the rules and all the laws in the land that you can consider, but that doesn’t prevent people from breaking them.”
He said the hospital intends to recoup any losses to the hospital as a result of fraud. The hospital has not put a dollar figure on the alleged fraud scheme.
Several representatives of Ottawa’s construction industry have told the Citizen it was the city’s “worst-kept secret” that there were apparent problems with the way construction jobs were being awarded at the hospital. Two construction company heads have said they simply stopped bidding on hospital jobs.
Last week, the hospital filed an explosive statement of claim in Ontario Superior Court alleging that Frank Medwenitsch, the hospital’s former director of facilities and planning, had taken kickbacks in the form of payments, trips and benefits, including having work done on his house and cottage, as well as having his daughter hired by a company working for the hospital, with her salary paid by the hospital.
It also names a second employee, Brock Marshall, former director of engineering and operations in the planning department, who the hospital claims signed false or inflated invoices and received benefits. Both employees had worked at the hospital for more than 20 years.
The hospital is asking the court to freeze the assets of the former employees as well as four companies that it says were co-conspirators: Federal Electric, DRS Construction, GAL Power Systems and Pro Management Construction Inc.
In addition to a trip to California with his wife, Medwenitsch went on a Baltic cruise that was provided to electrical contractors as a rewards program and was a guest of the construction company PCL at a luxury B.C. fishing lodge. PCL is the general contractor for the $135-million addition to the University of Ottawa Heart Institute now underway. The heart institute is on the same campus but is independent of The Ottawa Hospital.