“Bondfield Construction audit finds $80-million in improper supplier payments” – Globe and Mail report

The Globe and Mail has published an article saying that executives of Bondfield Construction Ltd. “participated in a scheme in which the company paid $80-million in suspicious invoices to suppliers who channeled some of the money back to company insider,” citing an investigation report from auditors filed in court.

Read for yourself: Phase II Investigation Report of the Monitor

The newspaper reports:

The court-appointed monitor for Bondfield Construction Co. Ltd., which has been operating under bankruptcy protection since April, has obtained an Ontario judge’s permission to take legal action against three former Bondfield officials – including the company’s former chief executive officer, John Aquino – who are alleged to have received a portion of the funds, court filings show.

None of the allegations has been proven in court. In an e-mailed statement, a lawyer for John Aquino said that investigators compiled the report without speaking to his client. “The report is at best incomplete and one-sided,” Michael Citak said.

Ernst and Young filed an Oct. 30 report, posted online, disclosing a forensic investigation of the business. The report says that 19 “suppliers of interest” issued 577 suspicious invoices over a seven-year period before the company sought bankruptcy protection last year, and surety Zurich Insurance stepped in to ensure projects were completed.  “Investigators found no evidence these companies performed work for Bondfield, but they were paid nonetheless, the report alleges,” the Globe and Mail reports.

“It has become clear that the invoiced services and supplies allegedly provided by the suppliers of interest were not in fact provided,” the auditors said. However. report does not explain why the payments were made.

During the probe, investigators recovered more than 100 e-mails written by Michael Solano, a former Bondfield IT manager, that instructed the suppliers how much to invoice Bondfield and what work they should say they performed. “Mr. Solano, who is John Aquino’s cousin, died in January, 2017,” the published report says, also observing:

The investigation report highlighted an unusual feature of the payments to the suppliers – their speed. Legitimate suppliers to Bondfield could be paid 30 to 90 days after they invoiced Bondfield, the report states. But when the suppliers of interest invoiced, they were paid “in a matter of a few days,” the report alleges.

Surety broker Petrala Winters and Associates reported in a newsletter last year that a major Ontario general contractor’s surety default “appears likely to go down as the largest loss in Canadian surety history.”

The broker said the default coupled with “several (other) high profile contractor defaults,” has led to direct losses of slightly more than $400 million (on $565 million of direct written premiums) as of September, 2018, representing a loss ratio of 71 per cent. “This compared to a loss ratio of just over 11 per cent for the same period in 2017,” the broker reported.

A PWA spokesperson declined to identify the defaulting contractor, but said his brokerage’s observations are based on public record data from the federal Office of the Superintendent of Financial Institutions (OSFI).

Court filings indicate that two numbered company subsidiaries of Bondfield Construction Ltd. went into receivership in December. These Ontario corporations were responsible for redeveloping St. Michael’s Hospital in Toronto and Cambridge Memorial Hospital. The documents report that Zurich Insurance Company provided the surety.

OSFI records said that Zurich reported 444 contract surety claims by the end of the third quarter in 2018, with total surety claims incurred of $204,630,000 on total premiums written of $25,164,000.