Nova Scotia's auditor general is pointing to the IWK Health Centre and the expense scandal involving former CEO Tracy Kitch to highlight the need for greater fraud controls within government.

In a financial report released Wednesday, Auditor General Michael Pickup devoted a chapter to government accountability and twice cited the IWK in a list of key observations.

The report said there were "serious deficiencies in internal controls" at the IWK, along with the Nova Scotia Health Authority and Housing Nova Scotia. The report also said the IWK expense problem is a "lesson to be learned" when controls are not followed.

Appearing before the legislature's public accounts committee, Pickup said his office thought long and hard about the way it chose to characterize the lack of controls.

"When an organization has significant control weaknesses, that's a pretty bad thing," he told the all-party committee. "I mean, things can happen that are not good, that you don't want to happen.

"For us to use the term 'significant control weaknesses' is a big deal. It's something we put a lot of consideration into. So if you look at 50-plus organizations in the government, we have three of them with significant control weaknesses. So, it's not a title we would use loosely."

Former IWK CEO Tracy Kitch. (Career Women Interaction)

The report said the board of directors at the Halifax children's hospital is working to improve controls over expenses, but also noted the auditor general's office would be conducting a performance audit.

"The scope and extent of the performance audit is yet to be determined," according to the report.

Discrepancies in Kitch's expenses were first reported by CBC News in June. A report by an outside auditor later found she had billed the hospital $47,000 in expenses believed to be personal during her three-year tenure as CEO.

Kitch resigned before that report, and the IWK's chief financial officer, Stephen D'Arcy, resigned last week.

The IWK board has handed over information related to the CEO's expenses to Halifax Regional Police. The auditor general's office is promising to do the same if any information it uncovers is deemed relevant to a possible police investigation.

PC MLA Tim Houston said a lack of adequate financial controls likely played a role in Kitch being able to file inappropriate expense claims over several years.

"Knowing what poeple knew about these significant internal control weaknesses, it was probably just a matter of time before something like this came to light," he said.

Fraud controls

When it comes to fraud across government, Pickup said not enough is being done to mitigate the risk, despite a government-wide zero-tolerance policy adopted this past June.

Although all 17 government departments have approved fraud policies in place, auditors found only 17 per cent have completed a fraud risk assessment. The policies call for such an assessment. Only the departments of Health, Justice, and Transportation and Infrastructure Renewal have completed one.

"Fraud risk assessments are an important component of a fraud management program, as they identify an organization's vulnerability to fraud and assist an organization in developing strategies to reduce fraud risk exposure," concludes the report.

Crown corporations and government agencies are even less impressive. About a third of government-controlled organizations had a fraud control policy and only 12 per cent had completed a fraud assessment.

Thirteen of those 48 organizations are required to follow the province's new fraud policy, including the Art Gallery of Nova Scotia, the Nova Scotia Liquor Corporation and the waterfront Development Corporation.

Auditor General Michael Pickup. (Andrew Vaughan/Canadian Press)

The auditor general's office also recommended the province establish a fraud tip hotline similar to ones set up in other provinces. Currently, only the NSLC has such a hotline.

Although the Nova Scotia Office of the Ombudsman, which investigates complaints about government services, has a hotline in place, auditors concluded it "may not be sufficient to identify instances of potential fraudulent activities."

In its response to the auditor general's report, the Nova Scotia government said it would "evaluate the usefulness of a dedicated fraud hotline."

In terms of oversight, the report also noted the number of vacancies on boards of directors, some dating back to April 2014. When it comes to the IWK, the auditor noted although the Health Department has the right to appoint two board members, it "has historically not exercised this option."

The board governing the Public Archives of Nova Scotia currently cannot meet because four of its eight seats are vacant and it needs at least five members to create a quorum.