Ontario Auditor General Jim McCarter's report on eHealth criticizes the agency for relying too much on consultants and for lacking strategic direction. (Frank Gunn/Canadian Press)

A scathing report on the eHealth Ontario spending scandal charges that successive governments wasted $1 billion in taxpayer money.

Ontario Auditor General Jim McCarter released his investigation into the eHealth agency on Wednesday morning.

His report says the board of directors at eHealth Ontario felt it had little power over CEO Sarah Kramer because she had been hired by chair Alan Hudson "with the support of the premier." That, McCarter said, gave Kramer the impression she had approval to ignore normal procurement procedures.

It was revealed late Tuesday that Health Minister David Caplan resigned because of the report.

Just minutes after the release of the report, Premier Dalton McGuinty announced that Children and Youth Services Minister Deb Matthews would take over the health portfolio.

Toronto MPP Laurel Broten, a former environment minister, will be brought back into cabinet to take over from Matthews.

"Ontario taxpayers have not received value for money for this $1 billion investment," McCarter said in the report.

The idea behind eHealth is to create electronic health records for Ontario, something the auditor says could save $6 billion if implemented in every province and territory.

Instead, Ontario "is near the back of the pack" when it comes to electronic health records, having wasted millions on underused computer systems and untendered contracts.

Health Minister David Caplan hands in his resignation Tuesday night, just hours before the auditor's report was made public. (Canadian Press)

The report is damning in its criticism of the way governments have allowed eHealth and its predecessor, Smart Systems for Health, to let spending go out of control with few safeguards to protect tax dollars.

McCarter says the province was "lacking in strategic direction and relying too heavily on external consultations."

At one point, the auditor writes, the eHealth program branch had "fewer than 30 full-time employees but was engaging more than 300 consultants."

McCarter said charges that favouritism was shown toward certain companies "without giving other firms a chance to compete were largely true."

"When you have a lack of oversight, that's a lack of appropriate management," he said at a Wednesday morning news conference.

"When you get a lack of oversight, you get broken rules. It goes together like a horse and carriage."

At the heart of the report are four recommendations aimed at putting an end to scandals like the one that enveloped the eHealth agency:

• Develop a strategic plan for implementation of electronic health records.
• Improve oversight by board of directors.
• Rely less on outside consultants.
• Ensure procurement policies are followed.

Agency doled out millions: report

In May, documents obtained by CBC News showed the eHealth agency doled out millions of dollars in contracts without any apparent attempt to open the deals to outside bidders within the first four months of its creation in September 2008.

Consultants were contracted by eHealth at up to $2,750 a day. They then billed taxpayers for out-of-pocket expenses that included $1.65 for a cup of tea and $3.99 for cookies.

Kramer billed thousands of dollars for limousine rides, including one $400 trip from Toronto to London, Ont., before she resigned from her $380,000-a-year job in June. She was given a $317,000 severance package and received a $114,000 bonus after just 10 months on the job.

Hudson also stepped down.

The departures came after the Conservatives and New Democrats complained the agency gave out $5 million in untendered contracts to consultants.

Documents released by the government since then showed the value of those untendered contracts was closer to $16 million, with the biggest ones going to companies the opposition parties say have ties to the Liberal government.

Too much power in too few hands

McCarter's probe, which went back to 2000, criticized unnamed consulting companies for driving up each other's fees to artificially create a higher rate for their services and putting too much power in too few hands in awarding of contracts.

In his report, the auditor general also slammed unnamed officials at the Ministry of Health for thwarting his efforts to get investigators into the ministry for a routine audit in the summer of 2008. In the end, the audit didn't happen until February 2009.

McGuinty has since announced new rules to keep a closer eye on the expenses of about 300 top executives at 22 of Ontario's 615 arm's-length agencies, boards and commissions by having them approved by the province's integrity commissioner.

EHealth was set up in 2008 to create electronic health records after Smart Systems for Health spent $650 million but failed to produce anything of lasting value.

Smart Systems for Health was quietly shut down last September.

With files from The Canadian Press