Canada's new warships could cost taxpayers $30 billion

31 December 2015 Consulting.ca

Military spending is set to cost the Canadian tax payer dearly, as the construction price of 15 navy ships has doubled from an initial $14 billion to $30 billion. The cost overrun was found following an audit by independent professional services firm A.T. Kearney. One probable route forward from the budget crunch is to reduce the number of ordered ships.

The Canadian government, in response to continued geopolitical uncertainty and its stake in the increasingly disputed Arctic region, has sought to upgrade its navy. 15 newly designed combat ships were ordered in the late 2000s for a price of $14 billion, as part of a wider navy budget of $26.2 billion. Yet the announced navy budget seems to have been too conservative.

To develop a clearer picture of the total cost of the program, A.T. Kearney was called in to audit the program and develop a projection of total costs. The consulting firm was hired to provide an analysis that examines “the relationship between the project requirements and feasibility, and affordability to provide a solution that allows [the Navy] to fully realize its mission.” The firm’s completed report estimates that it will actually cost $30 billion to build the new warships – $16 billion above budget – pushing the total navy budget to $42 billion.

Canada's new warships could cost taxpayers $30 billion

The cost overrun for the project is the result of a mismatch between expectations, cost, and requirements. There were already initial concerns about the $14 billion agreement when it was agreed to. “We had concerns all along,” said Vice-Admiral Mark Norman, Commander of the Royal Canadian Navy, in an interview with the CBC. “Obviously the concerns were less acute in 2008 and 2009, when the locking-down process, if you will, was fresh, the ink was drying on that. But as we've gone forward, you know, we've had real concerns.”

Concerns about the costs blowout associated with the construction program were further raised in 2013, when the Auditor General of Canada Michael Ferguson warned that there were considerable unknowns involved in the project – including labour and equipment, inflation, and other project uncertainties – raising criticism about the originally decided budget cap of $14 billion.

The cost explosion has been attributed to the fact that the new ships are supposed to be among the most capable in the world. As such, they have many cutting-edge technological requirements that are yet to be developed. Developmental tech costs are hugely expensive and incredibly difficult to estimate, as it is hard to know exactly how much it will cost to create and make feasible a new technology. Even today, the final costs produced by A. T. Kearney remain projections, as the ships are still only in the design phase.

The program was put under pressure by Minister of National Defence Jason Kenney, when he suggested in October that, given budget constraints, the number of ships ordered may need to be lowered to 11. “Based on the expert advice that we received from the Royal Canadian Navy after exhaustive analysis by the Department of Public Works, following the most exhaustive and transparent major procurement process in Canadian government history, we believe it’s possible with a $26 billion budget to build between 11 and 15 surface combatants,” Kenney explained.

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Edmonton Economic Development hires Deloitte to investigate phishing attack

01 February 2019 Consulting.ca

On Wednesday, the Edmonton Economic Development Corporation (EEDC) said it has been defrauded of $375,000 by as-yet-unknown entities. The agency has brought in Deloitte to provide investigation services.

“We are working with authorities and legal counsel to determine if the funds can be recovered,” the EEDC said in a statement.

The municipal agency receives money from various sources to spur Edmonton’s economy. A common task at the EEDC is collecting money from entities like the federal and municipal governments, then funneling it to particular projects, making it a juicy target for fraudsters.

“We were notified by our bank in late 2018 that there were irregularities in a transaction and at the beginning of January, we confirmed that there was fraudulent activity and we commenced an investigation,” Terry Curtis, EEDC vice president of corporate relations, said in an interview with Global News. “I can’t give a lot of information on the phishing scheme itself because there is an ongoing investigation with the authorities as well as some third parties that we’ve invited to do some cybersecurity investigations for us.”

In addition to a cybersecurity investigation, Deloitte will also provide the EEDC recommendations for preventative measures. This sort of project is likely to be handled primarily by the firm’s forensics practice, under its Financial Crime Advisory service line. Within, Deloitte helps clients address the entire financial crime lifecycle, including compliance, prevention, detection, investigation, remediation, testing, and monitoring, drawing on experts from multiple practices (such as tech and cybersecurity).

Edmonton Economic Development hires Deloitte to investigate phishing attack

EEDC will also work with auditor Grant Thornton to dig into the details of the particular transaction to ensure it was a solitary occurrence. Curtis said the EEDC will also educate and retrain its employees to be more cyber-savvy.

The details of the phishing scam are as yet under a veil of secrecy because of the ongoing police investigation. The agency did not divulge which individual or company was impersonated by the unidentified digital fraudsters. The EEDC has, however, put in place new log-in verifications for employees who use the agency’s online systems.

"We understand the nature of the attack; we don't know where the bad actor is, who the bad actor is, how it transpired," Curtis told the CBC.

Edmonton Mayor Don Iveson, meanwhile, was understandably perturbed by the financial loss, calling the situation "very concerning."

"Those are public dollars in the hands of EEDC to achieve economic goals," Iveson told the CBC. "EEDC is not unique, but clearly this will need to be investigated."

As organizations and payments march towards full digitalization, the threat of cyber fraud swells - especially for those sending out large sums of money. A lack top-notch processes or properly trained staff magnifies the risk.

In 2017, MacEwan University in Edmonton was defrauded of $11.8 million after staff failed to make a verification call to a vendor after receiving fraudulent emails requesting a change in banking information. As such, the university mistakenly paid out the amount to the fraudulent account. Most of the money was recovered after being traced to accounts in Hong Kong and Montreal.