Canadian National Railway is adamantly disputing a report alleging it made hundreds of millions of dollars systematically overcharging Greater Toronto’s transit operator on contracts it carried out.
The report from the Southern Investigative Reporting Foundation (SIRF) alleges the company overcharged GO Transit and later Metrolinx by as much as 900 per cent on rail projects it carried out, and even charged the taxpayer-funded agency for work it did for its own purposes.
“Canadian National was using Metrolinx as an automated teller machine, albeit one with no deposits required,” the report concluded, saying that the juiced-up revenue inflated CN Rail’s earnings numbers.
CN trains at the Macmillan Yard in Vaughan, Ont. (Photo: Tony Bock/Toronto Star via Getty Images)
"These allegations are false," CN spokesperson Patrick Waldron in an email to HuffPost Canada. "They are based on information provided by former employees who were terminated for fraud, including misappropriation of funds and falsifying documents, and are subject to ongoing litigation by CN."
The SIRF report expands on Ontario Auditor-General Bonnie Lysyk’s report last month suggesting payment irregularities in Metrolinx contracts with both CN and CP Rail, which were made possible by loose financial controls at Metrolinx.
“We have concerns that Metrolinx has not managed its relationship with CN and CP in a way that is in the best financial interests of Ontarians,” Lysyk said.
However, since most of the region’s commuter rails run on CN tracks, it’s CN contracts that had the biggest impact on Metrolinx spending.
Among Lysyk’s findings was that CN charged up to 130 per cent more for construction work than an unnamed competitor. And “one contractor was awarded 22 more projects after performing poorly for Metrolinx,” the report stated.
A westbound GO train leaving Toronto's Union Station. (Photo: Bloomberg via Getty Images)
It also found CN saved itself some money by using recycled parts in a rail construction project instead of new ones. The company estimated it had overcharged Metrolinx by $25,000 on that contract.
But the SIRF report alleges much larger irregularities.
Between 2004 and 2008, CN managers developed what SIRF calls “a billing scheme that reaped hundreds of millions of dollars in profits and benefits through wildly inflating the cost of construction.”
In one instance, it appears that Metrolinx paid some $95 million for 14.6 km of track, even though a 2006 document from CN estimated it costs the company about $700,000 per kilometre to build tracks. That’s a markup of some 900 per cent.
In another instance, SIRF alleges that CN charged Metrolinx for work it did for CN’s own trains. The company built new tracks at its Aldershot rail yard to speed up cargo trains as they left the depot, and then evidently charged that work to Metrolinx, which does not run cargo trains.
Ontario auditor-general Bonnie Lysyk has concerns about how Metrlonix pays for its contracts. (Photo: The Canadian Press)
But CN Rail is denying the SIRF report, and taking issue with the auditor-general's report as well.
"The Metrolinx projects we have partnered on utilize rigorous construction management processes covering project specifications and budgets to deliver quality work with strict oversight," Waldron said.
"CN was not given an opportunity to respond in advance of the [auditor general] report’s release. We have discussed several erroneous findings with the Auditor General and will be responding more formally with that office."
For its part, Metrolinx reacted to the auditor-general’s report by pointing out that Lysyk’s concerns had to do with “a small sample out of the many hundreds of projects Metrolinx is currently working on or has completed between 2011 and 2016.”
The agency also says it is taking steps to address concerns about cost controls.