Audit of Contracting for Professional Services (AU1110)

Reports 2011


Executive Summary

INTRODUCTION

There has been a significant increase in the Department’s spending on professional services between fiscal years 2004–2005 and 2009–2010—from $128 Million (M) to $295M. This represents an increase of 130%. Professional services constituted the Department’s second highest operating expense in fiscal year 2009–2010 (31% of $951M) after salary and employee benefits expenses ($513M).

Over the past six years, key changes have taken place regarding contracting guidance and required practices, including:

  • Contracting Policy Notice issued by Treasury Board Secretariat (TBS) related to reducing the administrative burden and related costs for low dollar value buys (i.e. contracts under $25,000 (K)); and
  • Natural Resource Canada’s (NRCan’s) implementation of eProcurement—a tool designed to improve the Departmental procurement process.
DEPARTMENTAL RISKS

Given the added complexities related to meeting departmental contracting needs, the increase in expenditures over the past six years and the fact that professional services has not been audited since 2000, this audit was identified as a “Highest Priority” in the 2010–2013 Departmental Risk-Based Audit Plan.

AUDIT PURPOSE AND OBJECTIVES

The purpose of this audit was to provide reasonable assurance that the Department complies with Treasury Board (TB), Public Works and Government Services Canada (PWGSC) and departmental contracting policies, directives, regulations and procedures.

INTERNAL AUDIT CONCLUSION

Overall, the audit results provide reasonable assurance that contracting for professional services is being carried out in accordance with TB and PWGSC policies and the NRCan Procurement Manual, which brings together all relevant government and departmental contracting policies, guidelines, and rules of practice. However, increased monitoring is required to strengthen control and better supporting documentation is required to ensure a complete information trail.

TABLE OF CONTENTS
INTRODUCTION

Departmental spending on professional services has increased significantly from $128M in fiscal year 2004–2005 to $295M in fiscal year 2009–2010. This represents an increase of 130% over the six years. After the Department’s salary and employee benefits expenses of $513MFootnote 1 in fiscal year 2009–2010, professional services costs of $295M1 were the second highest operating expense out of the total operating expenditures of $951M1 (representing 31%).

Corporate Management and Services Sector (CMSS) has expressed concern that repetitive contracting with the same contractors, as well as financial coding errors, could be issues within the Department. Other areas of concern include the possibility that:

  • professional services may not be managed or monitored effectively or efficiently;
  • there may be opportunities to reduce spending on professional services through greater use of competitive contracting; and
  • there may be instances of non-compliance with the Government Contracts Regulations.

The 2010–2013 Departmental Risk-Based Audit Plan’s risk assessment identified this audit as a Highest Priority as expenditures on professional services have increased by 130% over the last six years and the area has not been audited since 2000.

SETTING THE CONTEXT

Policy Framework and Contracting Authorities

Over the past six years, key changes have taken place regarding contracting guidance and required practices for the Department, including:

  • Contracting Policy Notice issued by Treasury Board Secretariat (TBS) related to reducing the administrative burden and related costs for low dollar value buys (i.e. contracts under $25K); and
  • Natural Resource Canada’s (NRCan’s) implementation of eProcurement—a tool designed to improve the Departmental procurement process.

To more effectively address the policy requirements and to help mitigate risks, NRCan established three types of contracting authorities: project authority, technical/scientific authority and contracting authority. The project authority usually takes the first step in the contracting process and is usually in charge of the project. The technical/scientific authority makes decisions based on the technical requirements for deliverables under a contract. The contracting authority is the individual with the delegated authority to enter into a contract on behalf of the Crown.

The Responsibility Centre (RC) Manager has delegated authority to manage professional services contracts, including the responsibility for determining requirements, controlling costs and exercising spending or signing authority. RC Managers are also accountable for contracting activities undertaken by their staff.

As of 1 April 2008, all NRCan contracts for professional services must be processed using the eProcurement tool—an on-line tool designed to shorten the procurement time and enhance the tracking of purchases. The tool is available from anywhere and at any time.

The Shared Services Office’s (SSO’s) Procurement, Contracting and Assets Management Services (PCAMS) Branch processes contracts on behalf of Sectors. As such, this Branch becomes the contracting authority, while the Sectors retain project authority. The Sectors, however, also have the option of contracting without SSO, thus retaining both contracting and project authority status. In these cases, SSO does not have control over these contracts and PWGSC is responsible for monitoring the agreements. In terms of volume, of the 12,751 professional services contractsFootnote 2 issued in 2008-2009, 2009–2010 and 2010-2011, up to July 2010, SSO National Capital Region (SSO NCR) processed 38%, SSO Regions processed 28% and the Sectors processed 34%.

In the Regions, the Sectors also go through their local SSO staff in order to generate contracts. SSO’s PCAMS Branch provides functional guidance to the Regions with respect to contracting for professional services as the Regions report to the Associate Executive Director of SSO, not to PCAMS.

Spending limits are controlled by the Delegation of Financial Signing Authorities Instrument. Within SSO Procurement, further measures are in place to ensure that delegated authorities for contracting are being respected, as outlined in the Conditions Imposed on the Contracting Authority Limits for SSO Procurement document dated September 30, 2009.

AUDIT PURPOSE AND OBJECTIVES

The purpose of this audit was to provide reasonable assurance that the Department complies with Treasury Board (TB), Public Works and Government Services Canada (PWGSC) and departmental contracting policies, directives, regulations and procedures.

SCOPE AND METHODOLOGY

The scope of the audit covered fiscal years 2008–2009, 2009–2010 and 2010–2011, up until July 2010, and it is focused on all professional services contracting activities. Transactions originating outside of the NCR were also included in this audit.

The audit excluded contracts and payments less than $1K as well as those with other federal government departments. Payments by acquisitions cards for professional services were also excluded as the Department continuously monitors acquisition card transactions.

The audit was conducted in accordance with the TB Policy on Internal Audit and with the Standards for the Professional Practice of Internal Auditing published by the Institute of Internal Auditors. Methodology details are included in Appendix B.

Note that the following samples were selected:

  • 118 randomly and statistically selected contracts for professional services transactions totalling $31.0M;
  • 119 randomly and statistically selected payment vouchers totalling $61.9M;
  • 144 payment vouchers totalling $5.3M, selected on a judgemental basis, relating to the sample of 118 contracts referred to above;
  • 54 contracts totalling $429.6K, selected on a judgmental basis, with indications of contracting irregularitiesFootnote 3; and
  • 10 manual adjustments and 10 expenditure adjustments totalling $3.0M selected on a judgmental basis.
CRITERIA

Audit criteria are reasonable standards of performance and control that were used by the Audit Branch to assess the adequacy of the Department’s contracting for professional services practices. The audit criteria were derived from departmental and TB policies and procedures, applicable regulations, and standards, including:

  • NRCan processes – as outlined in the NRCan Procurement Manual;
  • TB policies and TBS guidelines – Contracting Policy; Contracting Policy Notice 2007-04 – Non-Competitive Contracting; Guidelines on the Proactive Disclosure of Contracts; Contracting Policy Notice 2009-1;
  • PWGSC Supply Manual and Government Contracts Regulations; and
  • Relevant legislation – Financial Administration Act (FAA) and Federal Accountability Act.

A list of the high-level criteria established for this audit is included in Appendix C. The audit criteria were approved by management prior to the commencement of the audit.

FINDINGS AND RECOMMENDATIONS
COMPLIANCE

Summary Finding

Based on a statistical sample of 118 contracts, the majority were in compliance with NRCan processes and TB policies. However, the documentation trail was not always complete. The payment vouchers examined in relation to the sample (119 statistical and 144 judgemental) were supported by the appropriate documentation and FAA Section 34 had been certified as required. Possible contracting irregularities were identified in the contracts that were specifically selected because they appeared to be high risk transactions. It should be noted that these contracts represented less than 1% of the total professional services contracts included in the scope of the audit.

RISK AND IMPACT
Risk Type Audit Risk Rating Impact
Compliance ModerateFootnote 4 Risk of non-compliance with the requirements of the TB Contracting Policy, Government Contracts Regulations and NRCan Procurement Manual may give rise to speculation about the fairness, openness and transparency of the procurement process, particularly where contracts are not competed.
Operations Moderate Contract splitting and repetitive contracting may undermine NRCan’s efforts to obtain fair market price and promote accessibility, fairness and transparency. Risk of contracting decisions not being supported with sufficient, on-file documentation, thus leading to inaccurate assumptions/perceptions. This could harm NRCan’s reputation regarding transparency and accountability.
Monitoring Moderate Without ongoing monitoring of contracts, contracts may be processed that do not comply with NRCan and TB requirements.

Supporting Findings

REQUIRED CONTRACT FILE DOCUMENTATION

According to both the TB Contracting Policy sections 5.2.2 and 12.3.1, respectively, and the NRCan Procurement Manual, a contract file must contain enough contracting details to constitute a complete documentation trail. In addition, the NRCan Procurement Manual (2003) sets out the accountability framework and brings together all relevant government and departmental contracting policies, guidelines and rules of practice. A listing of required contract file documentation is included in Appendix “D”.

From the 118 contracts in the sample, 39 contracts were identified where contracting files lacked a complete documentation trail. The sample included 59 files processed by SSO in the National Capital Region, 24 files processed by SSO in the Regions and 35 files processed by the Sectors directly.

  • 16 of 59 SSO NCR files reviewed by the audit team were missing documentation;
  • 10 of 24 SSO Regional files reviewed were missing documentation; and
  • 13 of 35 Sector files reviewed were missing documentation.

The audit team found inconsistencies in file documentation within all three contract processing areas. For example, SSO NCR was consistent in keeping Temporary Help Services (THS) search lists on file but Sectors were not as diligent in this regard. SSO Regions were consistent in retaining FAA Section 32 (FAA Sect. 32) authorization and contract amendments on file, but these were missing in both SSO NCR and Sectors. Key documents should be found in all contracting files, regardless of which area is processing the request.

FAA Section 32 Authorization

Section 32 of the FAA states that “no contract or other arrangement for a payment shall be entered into … unless there is a sufficient unencumbered balance available …”. Five contracting files from the sample, totalling $1M, did not contain FAA Sect. 32 authorization in the file. It should be noted that eProcurement requests cannot be submitted to SSO Procurement without FAA Sect. 32 approval. This authorization is performed electronically and therefore a signature would not be found on file. Four of the five contracting files were not processed through eProcurement and therefore a signature should have been on file. One of these files involved an NRCan contract using the PWGSC procurement method in the amount of $0.9M. PWGSC does not proceed in awarding contracts on behalf of the Department without this authorization. The issue could be a result of missing documentation and not related to FAA Sect. 32 sign-off.

Supplementary Checklist for Service Contracts

The Supplementary Checklist for Service Contracts form was created by SSO Procurement to be used internally within SSO to enhance eProcurement requests. This checklist is mandatory for SSO NCR and SSO Regions for all service contracts over $5K. Based on this criteria and excluding THS and Call-up contract types, 48 of the files sampled should have had this form completed and on file. The audit found that 12 out of 48 contracting files (25%), totalling $9.1M, did not have this document on file. The checklist requires the project manager to answer questions such as “Is this requirement repetitive or will there be any follow-up work?” as well as other questions dealing with employer–employee relationships, former and current public servants, and intellectual property. It is important to address these considerations by either using this checklist or having other suitable supporting documentation on file in order to minimize the risk of the Department not complying with relevant contracting policies.

Temporary Help Services (THS)

With respect to contracting for temporary help services, 16 contracting files, totalling $1.2M, out of the 22 sampled were missing either the standing offer search list, statement of work, justification of declined candidates, contract amendments or justifications for these amendments. In fact, 11 of the 16 contracting files had more than one of these key documents missing. The standing offer search list, together with the justification of declined candidates, is necessary to determine if proper procedures were followed in selecting the vendor. The statement of work defines the Department’s requirements and, without this document on file, it was not possible for the audit team to determine what the contracted requirements were. In addition, without a contract amendment and supporting justification on file, the audit team could not determine what was actually amended and the appropriateness of that amendment. In other words, the audit could not determine if the project and/or contracting authority complied with all related contracting policies and procedures.

Price Support

The audit team noted that eight contracting files, totalling $77K, did not contain price support. Without this information on file it was not possible to determine if NRCan obtained a fair value for the services provided.

Missing Contracting Files

In requesting the 118 contracting files for review, the audit team noted that 3 out of 20 files using the PWGSC contracting method, totalling $1.9M could not be located. The files had to be rebuilt in order to accommodate the audit team’s request, and the documentation provided was incomplete.

Overall, as procurement activities are subject to monitoring, oversight, audit, and access to information, insufficient documentation can have a negative impact on the Department’s reputation. Sufficiently documenting the reasons for a decision is at the heart of the government’s transparency obligation; it is the key measure for ensuring transparency, particularly where contracts are not competed.

Best Practices

A number of best practices were found within SSO Procurement such as consulting with peers and the use of specialists. With respect to standardized documents, SSO Procurement uses various checklists (stated below) that help with consistency across the contracting process.

  • Transaction Checklist for Service Contracts; and
  • Transaction Checklist for LPOs, Task Authorizations and Call ups. Note: This checklist also includes a list of “Things to Remember When Submitting Contracts for Approval and Signing.”

These could be shared with the Regions and Sectors to serve as a reminder of what documents should be included in contracting files in order to help strengthen the inclusion of key contracting documents.

Training

The Procurement and Services group members (PGs) receive mandatory training through the Canada School of Public Service (CSPS). This training includes Fundamentals 1: Introduction to Procurement (3 days), Procurement (5 days), and The Machinery of Government and Life-Cycle Asset Management (3 days). PGs also attend an annual meeting on procurement, and the manager of PCAMS also provides informal training sessions. Moreover, if RC Managers have questions they can consult with administration staff, SSO Procurement, Sector financial officers, the TBS, NRCan websites, etc.

As part of the audit approach, a training questionnaire was sent via email to four sectors and four regions. The results indicate that five respondents believe that the quality of training is adequate and three believe that it is not. While these results indicate some degree of satisfaction regarding the adequacy of training, performance in relation to such areas as regulations governing the dollar value of certain contracts and the need to maintain a compliant documentation trail for each contract suggests that a refresher course might be in order. The course should also provide an overview of the updates to the NRCan Procurement Manual.

APPEARANCE OF NON-COMPLIANCE

A sample of 54 specific contracts was included in the audit. These 54 contracts were selected because the information in the agreement module of the financial system indicated possible contracting irregularities. The total dollar value of these 54 contracts was $429K and represented less than 1% of all professional service contracts covered in the scope of this audit.

The following table outlines those contracts that, after file review and discussions with the client, and due to the lack of documentation available on file, were deemed by the audit team to have the appearance of contract splitting, repetitive contracting and/or retroactive contracting.

Table 1: Breakdown of Contract Irregularities
Contract Irregularity Number of
Contracts Reviewed
Dollar Value ($)
Split 6 $125,495
RepetitiveFootnote 5 32 $179,385
Retroactive 9 $45,958
No Irregularities 7 $78,806
TOTAL 54 $429,644
CONTRACT SPLITTING

According to section 11.2.7 of the TB Contracting Policy, “Contracting authorities must not split contracts or contract amendments in order to avoid obtaining either the approval required by statute, the TB Contracts Directive or appropriate management approval within the department or agency.”

The audit team identified three cases where there appeared to be an intent to keep a sole source contract under $25K by unnecessarily dividing an aggregate requirement into several smaller deliverables. The appearance of contract splitting may have been avoided if the contracting officer had documented the reasons why these requirements were split into two.

REPETITIVE CONTRACTING

These instances constitute non-compliance with section 16.10.3 of the TB Contracting Policy, which states: “Repeat commissioning of a firm or individual without competition should not become a practice, even if the value of the contract is under the mandatory threshold for the calling of bids.”

Repetitive contracting is an issue when contracts are repeatedly awarded without competition to the same vendor when other qualified vendors are available.

The audit team noted multiple instances that could be perceived as inappropriate repetitive contracting. As an example, NRCan entered into 21 contracts for training services with the same vendor, involving two responsibility centres, wherein the time elapsed between contracts varied from the same day to 79 working days. The Department also entered into 7 contracts with the same maintenance services vendor within a 91 working day period. This included two contracts awarded on the same day. In this case, the regional contracting officers have since addressed the issue by transferring maintenance services to a private sector partner. The remaining 4 contracts for surveying and human resource services involved two responsibility centres, and were concluded within 2 to 20 working days of each other.

The appearance of repetitive contracting may have been alleviated with the use of standing offers for repetitive requirements, such as general training for NRCan employees.

RETROACTIVE CONTRACTING

In nine out of the 54 contracts reviewed, work was completed before the governing contracts for professional services were signed. This is counter to the NRCan Procurement Manual, which states that retroactivity should only take place “in unusual circumstancesFootnote 6”. Seven of the nine cases involved the same responsibility centre. Poor understanding of appropriate contracting procedures and ineffective planning were the apparent causes for awarding contracts on a retroactive basis.

RECOMMENDATIONS
  1. SSO NCR, SSO Regions and Sectors should ensure the inclusion of key documents within contract files under their respective authorities/control. This may require the use of a checklist to provide consistency.
  2. CMSS should increase its monitoring and oversight of potential contracting irregularities such as contract splitting, repetitive contracting, and contract retroactivity.
  3. As a best practice for ensuring the integrity of the procurement process, SSO NCR, SSO Regions and Sectors should ensure that a detailed justification is on file as to why repeat vendors are awarded sole source contracts.

Management Action Plan and Time Frame

1. Management agrees with the audit findings.

Procurement procedures have been developed including mandatory checklists to ensure due process and adequate documentation for both non-competitive and competitive contract files. These checklists are made available to functional contracting authorities.

Timing: Completed on December 31, 2010

A communiqué was posted on The Source on June 14, 2011 to provide employees with tips for local purchase orders (LPO) and acquisition card purchases.

Timing: Completed on June 14, 2011

Another communiqué will be posted on The Source by August 31, 2011 on the requirement for the use of the THS procurement vehicle. The memo will include guidelines on the documentation requirements.

Timing: Completed on August 31, 2011

SSO will send semi-annual communications to functional contracting authorities reminding them of the required supporting documentation for contract files.

Timing: ongoing

Town hall sessions will also be held with NRCan managers to promote competitive contracting practices and related Government of Canada and NRCan policies and procedures.

Timing: November 24, 2011

2. Management agrees with the audit findings.

NRCan is committed to and consistently advancing competitive contracting practices.

The standards developed for SSO Finance and Procurement Services include the requirement for semi-annual monitoring and oversight of potential contracting irregularities.

Timing: Completed on January 7, 2011

During the 2011–2012 fiscal year, SSO will analyse some contracts processed by clients for potential irregularities such as contract splitting and repetitive contracting based on SAP data analysis and targeted sampling.

Timing: To be completed by March 31, 2012

SSO FAPS will review quality control processes as appropriate, and will continually improve and strengthen the control processes based on findings from the above monitoring and reporting.

Timing: Starting March 31, 2012

SSO will report on retroactive contracting, on a semi-annual basis, and analyse the nature of retroactivity to determine if it is systemic and report to the Procurement Review Board (PRB) as appropriate.

Timing: To be completed by September 30, 2011

SSO Finance and Procurement Services, as part of its business process on procurement requests over $5K received from clients, perform mandatory semi-annual historical searches in NRCan’s financial system to verify if repetitive contracts arise. Upon this analysis SSO procurement determines the appropriate procurement strategy.

Timing: Completed on December 31, 2010

3. Management agrees with the audit findings.

Historical searches are performed in NRCan’s financial system as appropriate for procurement requests over $5K to verify if repetitive contracts arise.

Timing: Completed on December 31, 2010

SSO will ensure that the type of supporting documentation required to justify the awarding of sole source contracts to repeat vendors is identified and well understood.

Timing: To be completed by September 30, 2011

PROACTIVE DISCLOSURE

Summary Finding

The majority (96%) of contracts requiring proactive disclosure were properly disclosed. A technical issue prevented some contracts from being identified for disclosure, however, this has been corrected. Increased monitoring and oversight is required to ensure that all contracts are proactively disclosed as required.

RISK AND IMPACT
Risk Type Audit Risk Rating Impact
Compliance Moderate Failure to publicly disclose eligible contracts as per TB policy could harm NRCan’s reputation regarding transparency and accountability.
Monitoring Moderate Undefined roles and responsibilities and the lack of monitoring of NRCan contracts that require disclosure has resulted in less than 100% of contracts from NRCan being proactively disclosed as required. This could harm NRCan’s reputation regarding transparency and accountability.

Supporting Findings

ROLES AND RESPONSIBILITIES

Information for proactive disclosure is based on an automated selection of information within the agreement module. If the selection criterion is incorrect or the information entered about an agreement is incorrect, agreements will not be selected for disclosure.

At the time of the audit, there was no monitoring of the professional services information that is posted on the proactive disclosure website. Roles and responsibilities regarding this control have not been defined or communicated. As a result, the completeness and accuracy of the information on the website needs to be improved—particularly given the agreement module’s technical issues that were identified during this audit, as outlined below.

AGREEMENT MODULE TECHNICAL ISSUES

In discussions with the Financial Management Branch, the audit team learned that, due to a technical issue with the GFS User Friendly Interface (GUFI) agreement module, 386 contracts that were initially disclosed were subsequently deleted from NRCan’s proactive disclosure website. The audit team noted that this technical anomaly had existed since 2004 and was resolved in July 2009. While the technical issue was resolved, these deleted contracts have not been re-posted.

Contracts that were not disclosed were the result of various issues.

  • A weakness exists in the agreement module application controls for proactive disclosure. The audit team found that entries can be subsequently deleted without any justification or approval. This could impact the integrity of the data posted on NRCan’s proactive disclosure website.
  • For some contracts the “award” or “signed” button in the agreement module has to be manually entered in order for the contract to be flagged for disclosure. As this action has to be done after the contract has been signed, there is a risk that the user will forget to return to the procurement module and click the “award” or ”signed” button. Consequently, contracts may not be flagged for disclosure and, therefore, not disclosed.
  • Where an amendment was done in the same quarter as the original contract, only the latest amendment would be disclosed and not the original contract.

Although proactive disclosure reports will be issued through a new financial system instead of GUFI as of April 4, 2011, technical requirements should be reviewed to ensure that the GUFI deficiencies are addressed in the new financial system. System improvements will include the disclosure of contracts as the default setting.

RECOMMENDATIONS

  1. CMSS should ensure that roles and responsibilities for proactive disclosure are clearly defined and communicated.
  2. CMSS should periodically monitor the Proactive Disclosure website for overall completeness and accuracy of the data in order to promptly address any potential issues and ensure compliance.

Management Action Plan and Time Frame

4. Management agrees with the audit findings.
The SSO will finalize by August 31, 2011, a Business Process “Swim Lane” Map for the Proactive Disclosure of Contracts. This map will clearly define roles and responsibilities. Once finalized, the process map will be published to the department.

Timing: Completed on August 31, 2011

SSO will send a communication by October 31, 2011 to all NRCan managers reminding them of their responsibilities, obligations and accountability as part of the due process of procurement.

Timing: To be completed by October 31, 2011

5. Management agrees with the audit findings.

The SSO has added a verification step to its desk procedures to ensure that contracts are disclosed correctly.
Timing: Completed on March 31, 2011

This additional step will also be included in the Business Process Map for the Proactive Disclosure of Contracts.

Timing: Completed on August 31, 2011

GOVERNANCE

Summary Finding

The Department has established an Office of Procurement Policy Analysis and Reporting (PPAR) and a Procurement Review Board to increase the governance of contracting for professional services; they both became active in August 2010 and April 2011 respectively.

The NRCan Procurement Manual has not been updated since 2003 and as a result does not reflect current information and guidelines with respect to procurement.

RISK AND IMPACT
Risk Type Audit Risk Rating Impact
Monitoring Minor The lack of monitoring of contracting for professional services may lead to inaccurate assessment or evaluation of activities and missed opportunities for improvement and identification of problem areas.
Operations Minor The lack of up-to-date materials and targeted training could lead to ineffective or inefficient use of resources and non-compliance with contracting policies.

Supporting Findings

PROCUREMENT OVERSIGHT BODIES

In response to its 2010 Management Accountability FrameworkFootnote 7 results, the Department has established a Procurement Oversight Committee to provide strategic direction and advice, and to actively monitor procurement on a regular basis to ensure continued compliance with government contracting policies and regulations. The Committee’s mandate includes reviewing pre-award contracting activities on an “as and when” requested basis, as well as post-award activities. This includes reviewing complaints, making contract quality assurance recommendations and producing procurement volume reports. The Committee, composed of directors and managers, will also make recommendations in order to increase contracting efficiency and effectiveness.

PPAR was created in August 2010 and will provide secretarial support for the Committee. In addition, the office has developed NRCan PPAR Standards as a result of a TBS/OCG horizontal internal audit of large departments and agencies: Contracting Information Systems and Monitoring, published in May of 2009. The PPAR is responsible for data verification, identification of relevant information requirements, monitoring and reporting. The office also responds to various requests ranging from liaising with the Procurement OmbudsmanFootnote 8 to resolve/diffuse supplier complaints, and with PWGSC requests regarding the validation of data on the annual procurement activity report, providing procurement advice to SSO Procurement Officers/Manager, preparing various reports such as Proactive Disclosure reports and identifying contracting trends.

The NRCan Procurement Review Board (PRB) has been established, as recommended by the TBSFootnote 9, and held its inaugural meeting on April 28, 2011. The PRB will review all contracting trends, including professional services, as well as review and consider all sole source contracts over $25K. The PRB will also provide quarterly reports to the Business Transformation Committee and recommend remedial/corrective action as appropriate.

It is expected that these new governance bodies will strengthen oversight for the contracting of professional services expenditures.

In the past three years, external bodies such as the Office of the Procurement Ombudsman as well as the Canadian International Trade TribunalFootnote 10 have reviewed two complaints regarding NRCan’s procurement process and both have resulted in rulings in favour of NRCan.

NRCAN PROCUREMENT MANUAL

NRCan Procurement Manual sets out the accountability framework and brings together all relevant government and departmental contracting policies, guidelines and rules of practice. However, a gap analysis conducted as part of this audit determined that while, for the most part, the manual is in line with TB Contracting Policy, the manual has not been updated since 2003 and it contains outdated or missing information, as follows:

  • The contracting limit for temporary help services is now a maximum of 48 consecutive weeks instead of 20 weeks;
  • There is no mention of a formal challenge mechanism being established and maintained by contracting authorities for all contractual proposals.
  • With the introduction of initiatives such as eProcurement, ePayment and Docs Open, which allow for the electronic storage of information, some of the documentation required on file no longer applies.

As this document is posted on NRCan’s internal website and serves as a reference tool for employees involved in the contracting process, it is important that it contains relevant and current information.

The PPAR will be responsible for updating this manual, according to the Manager of the office.

RECOMMENDATIONS

  1. CMSS should activate procurement oversight bodies immediately.
  2. CMSS should update the NRCan Procurement Manual to reflect current requirements.

Management Action Plan and Time Frame

6. Management agrees with the audit findings.

The NRCan PRB met for the first time on April 28, 2011, and continues to meet on a monthly basis. The PRB Terms of References were approved on June 24, 2011 and are posted on the NRCan Resource Wiki site.

Timing: Completed on June 24, 2011

PRB will also ensure that:

all files reviewed adhere to Public Service Values and Ethics principles; and
all files being reviewed are appropriately documented.

Timing: Ongoing

7. Management agrees with the audit findings.

The SSO will review and update by November 30, 2011 all published material related to procurement to ensure that it reflects the current requirements.

Timing: To be completed by November 30, 2011

SSO will follow-up with managers where non-compliance is identified and take appropriate action required such as removal of delegated authorities, additional training, etc.

Timing: Ongoing

APPENDIX A – STANDARD RISK TYPES AND AUDIT RISK RATINGS

STANDARD RISK TYPES

Our standard risk types are classified based on the COSOFootnote 11 Internal Control-Integrated Framework as follows:

Strategy – High-level goals, aligned with and supporting the Department's mission.

Operations – Effective and efficient use of resources.

Monitoring – Accurate assessments or evaluation of activities.

Reporting – Reliability of operational and financial reporting.

Compliance – Compliance with applicable laws, regulations, policies and procedures.

STANDARD AUDIT RISK RATINGS

Audit findings are rated as follows:

Major: A key control does not exist, is poorly designed or is not operating as intended and the related risk is potentially significant. The objective to which the control relates is unlikely to be achieved. Corrective action is needed to ensure controls are cost effective and/or objectives are achieved.

Moderate: A key control does not exist, is poorly designed or is not operating as intended and the related risk is more than inconsequential. However, a compensating control exists. Corrective action is needed to avoid sole reliance on compensating controls and/or ensure controls are cost effective.

Minor: A weakness in the design and/or operation of a non-key process control. Ability to achieve process objectives is unlikely to be impacted. Corrective action is suggested to ensure controls are cost effective.

APPENDIX B – METHODOLOGY

The methodology consisted of:

  • reviewing relevant documentation;
  • conducting interviews with key departmental staff;
  • identifying and assessing key risks associated with contracting for professional services;
  • conducting a gap analysis between the Departmental and TB Contracting Policy;
  • reconciling financial statements with the Government Financial System data regarding professional services contracts;
  • conducting a survey of selected sectoral and regional representatives to determine the adequacy of training;
  • sampling contracts for professional services transactions and related payments with a total population size of $481.3M and $479.1M, respectively (net of exclusions listed above) for fiscal years 2008–2009, 2009–2010 and 2010–2011, up to July 2010;
    • conducting a detailed review of 118 randomly and statistically selected contracts for professional services transactions totalling $31.0M, as well as 119 payment vouchers totalling $61.9M;
    • conducting a detailed review of the following judgmental samples:
    • 144 payment vouchers totalling $5.3M relating to the random statistical sample of 118 contracts referred to above;
    • 54 contracts totalling $429.6K, selected on a judgemental basis, with indications of contracting irregularitiesFootnote 12; and
    • 10 manual adjustments and 10 expenditure adjustments totalling $3.0M; and
  • assessing the proactive disclosure of contracts greater than $10K for completeness and accuracy.

The audit findings have been rated according to their level of risk. Refer to Appendix A – Standard Risk Types and Audit Risk Ratings for more information on how the audit findings are rated.

APPENDIX C – AUDIT CRITERIA

# Element
1 Relevant requirements of TB Contracting Policy, Government Contracts Regulations, Canada Customs and Revenue Agency criteria, Values and Ethics Code for the Public Service, and Security policy are applied and adhered to.
2 Statement of work is prepared by an appropriate employee and clearly describes the work to be carried out, the objectives to be attained, deliverables, estimates for the required work and the time frame for the work to be completed.
3 An appropriate contracting and procurement method and strategy is selected, consistent with departmental policies and procedures, and justifications are provided for exceptions to the Government Contracts Regulations (GCRs) and trade agreement, where applicable.
4 Requirements of PWGSC policy and procedure are applied, particularly as they apply to the use of Standing Offers and Supply Arrangements including Temporary Help Services.
5 Contracts are managed in accordance with the agreed terms of time, cost, performance, and the Financial Administration Act.
6 Where applicable, bids are solicited before any contract is entered into. The competitive approach in determining a contractor should therefore be the norm. (Exceptions are in TB contracting policy 10.2)
7 Bid selection method and evaluation criteria are clearly outlined in the bid solicitation document and before the bids are invited.
8 Adequate management controls are in place to protect the integrity of the procurement/ contracting process and that these management controls ensure that contract planning, bid solicitation and evaluation, and contract award are managed fairly and allow the Department to obtain a best value.
9 Formal challenge mechanisms for all contractual proposals, including those within departmental authority, those sent to the Department of Public Works and Government Services Canada, and those submitted to the Treasury Board are established and maintained.
10 Contracting process (from creation of the statement of work to the signing of the contract) is completed in a timely manner.
11 The terms and conditions of any contract issued pursuant to the Government Contracts Regulations and the Contracting Policy are formulated in writing. This includes but is not limited to hard copy documents, facsimile copies or other electronic means.
12 Payments are made for existing contracts and services are received in accordance with terms and conditions stipulated in contracts.
13 Procurement files are established and structured to facilitate management oversight with a complete documentation trail that contains contracting details related to relevant communications and decisions, including the identification of involved officials and contracting approval authorities.
14 Accurate pro-active disclosures are made for all contracts with a value greater than $10,000.
15 A risk management approach exists. Key risks are identified, assessed and managed accordingly.
16 Internal communication, awareness, and training for completing contracting activities are consistent and sufficient to ensure that all parties involved are fully aware of their roles and responsibilities and are completely exercised.
17 There are adequate and appropriate resources to support management and monitoring of contracting. Workload management is properly planned and resourced.
18 Professional services expenditures are accurately and completely reported in the Financial Statements.

APPENDIX D – REQUIRED CONTRACT FILE DOCUMENTATION

  • signature authorizing expenditure initiation, Section 32, Financial Administration Act;
  • copy of the Contract Approval Document (CPAA, Transaction Checklist, etc.);
  • copy of the procurement documents, including a copy of the Request for Proposal/Tender, if applicable;
  • price support (i.e. copies of quotations/proposals received and evaluations completed) must be retained on file except when a standing offer was used;
  • sole source/no substitute justification, if applicable;
  • notes to file of any conversations/meetings;
  • copies of performance evaluations pertaining to the requirements;
  • copies of any opinions obtained from Legal Services, Human Resources, etc.;
  • copies of packing slips or work completion reports;
  • copies of invoices/claims showing signature authorizing contract performance and price (Section 34 of FAA); and
  • proof of payment, if available.

Source: NRCan Procurement Manual, section 12.10