07/10/2014 09:44 EDT | Updated 09/09/2014 05:59 EDT

$790,000 of questionable invoices at Nova Scotia development authority: audit

HALIFAX - Nearly $790,000 worth of false and questionable invoices were filed at a defunct economic development authority in northern Nova Scotia, a forensic audit alleges.

The provincial government said Thursday that it has sent the 700-page report on the Cumberland Regional Development Authority to the RCMP.

The audit was ordered by the former NDP government after a 2012 report by the ombudsman found questionable accounting practices and a lack of oversight at the development authority, which was shut down about a year ago.

The invoices highlighted by the audit total $789,548 between the fiscal years of 2007-08 and 2011-12 and helped secure about $256,000 in funding from the province's Department of Economic and Rural Development and Tourism.

The audit, carried out by PricewaterhouseCoopers, says those claims represented 10 per cent of the project expenses reported by the economic development authority during that time period.

First launched in January 2013, the audit was expected to take about 11 weeks. But it was delayed 13 months because two computer hard drives were in the possession of the economic development authority's lawyers.

Economic Development Minister Michel Samson said the government paid $8,500 in order to gain access to the hard drives, which he said were crucial to the investigation.

"Nova Scotians had waited long enough and we wanted to see the auditor's work completed," Samson told a news conference Thursday.

The report says the economic development authority failed to annually audit its project activity, leaving its funding partners, including the province, with no assurance its records were accurate.

It also alleges that the economic development authority's management and employees "routinely participated" in the submission of false invoices and cheque copies to the province to "conceal the impact of the fictitious documentation."

"This was CRDA's method of dealing with the province's funding condition requiring that, if a project was not complete when a fiscal year came to an end, approved funding would lapse," says the report.

The lack of monitoring enabled the use of a single bank account for all project funds, allowing the economic development authority to use funds designated for one project to subsidize others, the audit says.

Funding from the province and other partners exceeded project expenses by $594,109, according to the economic development authority's records, although the audit says it's "not possible to determine the ultimate disposition of these funds."

The report doesn't spare the province, citing deficiencies in project documentation within the Department of Economic and Rural Development and Tourism.

It said the department had no mechanism to monitor whether the funds distributed to the economic development authority were spent appropriately.

As a result, the department approved $700,000 in funding that was outside the scope of its mandate without conditions, the audit says.

"The findings from our examination indicated significant gaps in controls and governance," says the report.

"As a result, funding for CRDA expenses was provided that would not otherwise have been approved and disbursed by (the department)."

Samson said the government is implementing many of the recommendations in the report in establishing new regional enterprise networks.

He said the new bodies, which will replace the old regional development model, will have to hire independent firms to audit annual financial statements as a condition for provincial funding. They will also have to keep separate bank accounts for projects and core funding and will also be required to provide regular financial reports to their boards and the province.

Premier Stephen McNeil said the actions of department officials named in the report would be reviewed. He wouldn't discuss possible consequences.

The audit stemmed from an investigation by former ombudsman Dwight Bishop that was launched after two former employees from the economic development authority contacted him in October 2011, alleging wrongdoing.