The Yukon Hospital Corp. is unable to demonstrate that the new hospitals in Dawson City and Watson Lake are the most effective way to meet the communities' health care needs, according to a scathing report by the auditor general released Tuesday.

The corporation did not conduct a full assessment of community health care needs before proceeding with the construction of the hospitals, the report notes.

And it cannot demonstrate the hospitals are the most cost-effective option for meeting those needs.

During a press conference Tuesday, Ronnie Campbell, the assistant auditor general, said managing capital projects is inherently challenging.

"However, in a set of projects such as this, we would have expected a proper needs assessment so that the government knew exactly what the needs were of the communities, what the options were for meeting those needs and then selecting the most cost-effective option in delivering that. The hospital corporation didn't do that,” he continued.

The audit examined whether the hospital corporation adequately planned for the building of the Watson and Dawson hospitals and its staff residence in Whitehorse.

It found that the risks of building the hospitals, including potential staffing and program delivery risks, were not fully mitigated.

However, it did note that some measures had been taken. Those include first steps towards ensuring the hospitals can be accredited and some efforts to address staffing issues, including efforts to secure a spot on Canada's top 100 employers, and extending the International Medical Graduate licence by two years.

The report also questions the decision that funding for the hospitals was obtained through bank loans rather than government funding.

"You'll see a series of decisions here, none of which we're taking issue with, but it's how they were undertaken,” Campbell said.

"Maybe going to the banks for funding was the right thing, but we don't know and they don't know because we didn't see the analysis that led to them to that decision.”

The audit highlights several other instances of mismanagement with regards to the projects.

Those include the fact that the cost of operating the two hospitals was not known before construction began, and some concerns with a few of the contracts awarded.

The corporation at the time did not have its own process for awarding contracts, but has since developed such a policy.

However, the audit found that overall, the projects were managed adequately, if not adequately planned.

With regards to the staff residence in Whitehorse, the audit found it appeared reasonably planned, but there was limited documentation of the decision-making process.

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