The experts will tell you that most frauds start small—maybe a few hundred bucks pocketed here, a little accounting fudge there—and get gradually bigger over time as the thief warms to the task, and gains confidence. That’s the way it almost always goes.
But Paul Champagne was not your typical fraudster. For one thing, Champagne had no particular expertise in finance. He was a computer engineer, brought in to manage maintenance contracts at Canada’s Department of National Defence in 1992. He was a technical authority, who could tell the bureaucrats how to buy, operate and maintain their computer systems more efficiently, and to save the taxpayer money in the process. For most of his time at DND, he wasn’t even an employee, but an outside contractor. And, up until the day he was fired in 2003, most of his colleagues thought he was doing a great job. Even when he was fired, it was for exceeding his authority in approving contracts that were beyond his position.
His theft wasn’t discovered until shortly thereafter. And what a theft it was: an estimated $100 million embezzled from DND through a phony invoicing scam that ran for just under a decade. Every year he supplemented his $80,000 salary by about $10 million—one of the longest-running and biggest frauds in Canadian history.
Champagne recently sat down with Maclean’s in a small, windowless room at the minimum security Pittsburgh Institution, just outside Kingston, Ont., for his first-ever public interview. He had just passed one year in prison, and was a little less than two months away from his early release date—June 3. He wanted to tell his story. To make it clear that he takes responsibility for what he did, to absolve others who might have been tarnished by it—and yes, to “apologize to the Canadian taxpayer.” But there was a warning, too: stealing that much money from under the nose of the Canadian government was easier than you might imagine, getting away with it for a decade was even easier. And it’s all rooted in the way that government departments reward those who spend their budget, and punish those who do not.
Paul Champagne was hired to clean up a mess, and clean it up he did. It was 1992, and he was an IT specialist with a company called Montreal Engineering. When DND put out the call for someone to help manage the department’s systems maintenance contracts, Champagne’s firm offered his services, and won the mandate. At the time, DND was spending around $227 million a year on more than 2,000 separate contracts. Champagne’s big innovation was to declare that DND would henceforth pay to fix only systems and equipment that were broken. Essentially, he was ripping up a couple thousand extended warranties, and betting that the government would save a bundle. He was right. Maintenance costs soon fell by more than three-quarters, to about $50 million per year. Over the course of the 1990s, Champagne’s simple restructuring saved the government well over $1 billion.
He was a 34-year-old father of three young children making a decent middle-class living, doing contract work for the government. But he quickly became a star. Though he had no financial signing authority, Champagne earned a reputation as the IT guru within Canada’s military bureaucracy, presiding over DND’s sprawling computer infrastructure. That first winter, as the government’s year-end approached, Champagne learned about the games that happen when bureaucrats rush to spend the last of their budgets. What he soon discovered was that bureaucrats live in almost as much fear of under-spending their budgets as they do of overrunning them. Budgets that aren’t spent get cut, and nobody wants their budget cut. Champagne became known as the guy who could spend vast sums quickly. When you had a million bucks that you had to get rid of, he was the guy who could make it disappear—on software upgrades, licences, anything intangible and related to technology that you didn’t need, and didn’t understand anyway. But that very first year he ran into a wall. “I reached a point where I just didn’t have any more I could spend on,” he recalls. “I couldn’t move the money out the door fast enough anymore to meet the goals of the department.”
He came up with a plan. If DND was so desperate to spend money, he thought of a perfect place to stuff it: his pockets.
A fraud investigator would call it a simple fake invoicing scheme—charging DND for work that was never performed. But to a non-criminal it can get a little confusing. And that confusion is what helps fraudsters go undetected.
Champagne set up his own consulting company, and approached another small Ottawa-area engineering firm, RMC Systems. He asked RMC to function as his billing and accounting department for work he was doing for DND. He said his work was secret, dealt with matters of national defence, and he needed someone to process his payments. Meanwhile he approached a much larger DND contractor, Digital Equipment. (It was later acquired by Compaq Computer, which was finally acquired by Hewlett-Packard.) He told officials at Digital Equipment to pay any invoices that come from RMC, and to pass along the costs to him at DND. All of this sounds pretty suspicious, but Champagne assured both RMC and Digital Equipment that it was all part of the department’s streamlining. And besides, both companies would be paid for their trouble. “I can be pretty convincing,” Champagne says now.
So, Champagne submitted fake invoices to RMC. RMC paid Champagne, added a small commission and passed the bill on to Digital Equipment (and later to Compaq, then H-P). The larger company paid RMC, added its own commission and sent the bill to DND. And at DND, Paul Champagne made sure H-P got paid. It was a tidy little money train, with one obscure DND contractor at both the beginning and the end. But nobody at RMC, or Compaq, or H-P ever saw the full picture. Once the ruse was finally exposed, all of the companies claimed that they had been duped, and no one at those firms was ever charged with a crime.
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Champagne or his alter ego tries to make us believe that he saved DND a billion dollars or so.
No way Champ – facts prove otherwise – the accounting shows that your department's budget increased every year and it was completely spent every year – and on top of that you stole an extra 140 million.
There were no savings.
You have Antisocial personality disorder
Three or more of the following are required:
Failure to conform to social norms with respect to lawful behaviors as indicated by repeatedly performing acts that are grounds for arrest;
Deceitfulness, as indicated by repeatedly lying, use of aliases, or conning others for personal profit or pleasure;
Impulsivity or failure to plan ahead;
Irritability and aggressiveness, as indicated by repeated physical fights or assaults;
Reckless disregard for safety of self or others;
Consistent irresponsibility, as indicated by repeated failure to sustain consistent work behavior or honor financial obligations;
Lack of remorse, as indicated by being indifferent to or rationalizing having hurt, mistreated, or stolen from another.
I don't like what the guy did but you are now distorting facts with your comments. It is a fact backed up by documentation that was backed by the Crown and DND that Champagne did reduce the budget dramatically during his tenure. The fact that DND's overall budget increased has nothing to do with the IM group Champagne worked for.
When you spout facts know of what you speak.
I'm sure you understand (or perhaps not) that the theft 140 million dollars is wrong. The facts are that nothing was saved by the department and trying to rationalize the theft is the product of a sick mind.
I am not disputing that theft is wrong. I am also not trying to rationalize his actions. I am stating that overall IM budgets were drastically reduced during his tenure. DND as a Department saved a ton of money and I assume that is why this was allowed to go on so long. Obviously the Department turned a blind eye and stated "the end justified the means". It is ridiculous that "year-end" spending was handled in this fashion.
Budget money was merely diverted. Champagne took advantage of the ridiculous year end spending frenzy to divert vast amounts of money to other areas while allowing himself and his other criminal friends to take a percentage off the top.
There was no money saved. There was no money saved. There was no money saved.
The question I have always had is where was the supervision? I work in a similar field, and the idea that someone at his level could authorize such large expenditures is staggering. Frankly, I think I already know the answer:
1) Most Military officials do not understand PS rules and procedures, and are often contemptuous of the need to do so. Such things are lumped under the term "bureaucracy", and are usually delegated to whatever level can't delegate them further.
2) DND values results above all else, and Paul Champagne got results. He made problems go away, and he did so without any messy paperwork. He was a Military manager's dream.
Bureacracy can be a pain, fair enough, but it's also bureaucracy that ensures rules are followed and taxpayers' money is safe-guarded. If even the most basic rules had been followed, Paul Champagne could not have gotten away with this.
I note that Gen Paul Hellier has some pointed comments towards "bureaucrats" in his new book, so this attitude is still pervasive. DND still has a lot of work to do if they want to ensure this doesn't happen again.
Champagne got results and that was the only thing that mattered. His actions saved DND $$$$$$ regardless of how it was accomplished. We may not agree but in this case
"The end justified the means".
And please, don't tell me his Superiors didn't know what was happening!
I am very interested in all that is getting dragged into this debate. I admittedly have some strong feelings here.
There is not much to defend here about this guy – He is a criminal. He stole money. He admit it. There is nothing noble about crime – regardless of how much money you save people along the way. Interestingly enough, i'll bet a few of these angry posters don't hate robin hood they way they hate this fellow.
What I really don't understand is the fixation with punishment in our society. Sorry folks, but it is VERY old news that punishment has very little effect on behaviour. If you spank your kid they will probably not act out until you leave the room.
'positive reinforcement' is what changes behaviour. Pull people over and give them scratch and win tickets if you see them wearing seatbelts, and suddenly the whole town is wearing seatbelts all the time – 20 years later, 19 after the scratch and win tickets are no longer being given out and people are still religiously wearing seatbelts….
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I think there is really somthing sadly archaic and perhaps even beastly about human nature that seems to have us 'enjoy' watching others suffer. we know that this person did something very wrong, and for that we want them to endure suffering. Nothing good comes of it. They will not learn any lesson, as we know (basic entrly level psychology classes teach that. In addition basic entry level criminology level classes teach that stricter consequences do not influence behaviour. For example, the year after Canada stopped giving the death penalty, murder rates dropped… People were terrified suddenly everyone and their grandmother would go on killing sprees because of the absence of mega punishments – but that clearly didn't happen. Why? because when someone commits crimes they are not thinking about the negative consequences) it does not influence behaviour.
Thefore, the only real benefit to punishing people is the pleasure others experience in watching the individual being punished suffer.
Keep in mind, A) Strict consequences do not influence behaviour {Ask any criminologist). B) Punishment is a very ineffective method of changing behaviour (ask any psychologist).
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So why is it people are crying the blues about our justice system?
Now, i am not in a million years going to stand up for this guy. He agreed to his salary when he took the job. If he was to be making a commission on $ saved, that should have been discussed when he is hired. As far as i am concerned, saving the government that much money was him doing his job.
The big issue to me, that i see very little discussion on, is the budget spending. I was very taken back by the comment that underspending is about as horrible as over spending because it means budget cuts. This notion causes a horrifying amount of wasteful spending, and indeed, led to this absurd scam. That issue needs some serious attention.
Just my thoughts.
The entire "problem" started and was "allowed" to continue in order to make budget. Spend it or lose it still persists.
Strange response…… are you referring to me? I thought you were a government employee critical of the theft? My posting was for Champagne or Viking or maninthemirror or whatever he's calling himself. I think maybe we have ferreted out the truth here. How many different names are you using here Champagne? As for meeting up….when and where?
I apologize. I mixed your e-mail up with maninthemirror. I am definitely a government employee critical of the theft. And I have a lot of friends over at DND who are appalled by what Champagne did and how long it took to catch him.
You don't seem to understand. When he came in DND was spending $200m on IT contracts. He reduced that to $50m. Thus saving $150m. per year! Therefore there was an area where other groups could have "their" year end money spent!
So, in other words, the money wasn't saved. You freed it up to be spent elsewhere. Whereas if you didn't perform this magic, it would have gone unspent. Using your own logic, but reverse-engineering it, I think you owe the Canadian taxpayer a 10% fee for finding a way to spend more, don't you?
Flawed logic but very insightful. I don't want to defend his or DND's actions. It is ridiculous this went on this long and even more ridiculous money is spent at year-end this way.
They deserved each other.