In our opinion, the overall accountability framework for contracting should be strengthened through revisions to current policies, procedures and guidelines, increased training and monitoring, changes to system thresholds and improved documentation to provide adequate compliance with existing government policies and rules.
In the Department of Justice, the Contracting and Materiel Management Division (CMMD) has a Department-wide mandate to provide functional direction and training to regional contracting managers and administrative officers on all matters relating to contracting, and to process service contracts valued at over $25,000. Contracting units in the regions manage contracts under $25,000. In a memorandum of January 24, 2007, the Deputy Minister restricted regional contracting delegations so that service contracts between $10,000 and $25,000 could only be approved by a Regional Contracts Review Committee (RCRC).
The scope of the audit included the contracting activities of the British Columbia, Prairie, and Quebec regional offices and examined service contracts in fiscal years 2007-08 and 2008-09, a period during which 1,545 contracts were let with a value of $5,916,804. The examination focused on contracts greater than $2,000, of which there were 660, accounting for 89% of the total dollar amount contracted for the three regions.
The overall objective of the audit was to examine and assess the framework within which regional contracting activity is managed and to assess the extent to which contracting activities are in compliance with government policies and rules.
There is a lack of planning of contracting activities to address the forecasted needs for services of the three regions under review. We found that, as a result, litigation-related services such as printing, court reporting, transcription, and process servers are often not procured in compliance with contracting rules and regulations. The majority of invoices for these services were either being paid without a contract, or contracts were being created after the invoice had arrived. Adequate planning in relation to contracting activities needs to be undertaken at the regional level.
Organizing and Directing
Personnel in the PRO and BCRO regions who carry out contracting under their RCRC’s authority do not have the capability to finalize or release these contracts in IFMS. They must obtain CMMD approval to release contracts over $10,000. This has resulted in delays (up to six months in one region) in finalizing contracts and may have exacerbated compliance issues observed during the audit. There is a need to consider assigning regional contracting personnel appropriate capability in IFMS to release contracts that fall within the authority of their RCRC.
Furthermore, there is a need to strengthen the accountability framework to address risks identified in relation to IFMS roles. Regional Corporate Services is responsible for the following in IFMS: creating and inputting contracts, performing ‘goods receipt’, capturing and recording related data, and making payments. The Department has not segregated roles related to contract creation and goods receipt in IFMS, and does not have an effective verification framework for financial transactions executed in IFMS by Regional Corporate Services. It is the audit team’s opinion that an enhanced accountability framework, which could include independent monitoring, is required and this would help mitigate exposure to risks.
While the Department monitors contracts over $10,000, it is not monitoring contracting activity under $10,000 to determine the extent of compliance with policies and procedures. Contract activity between $2,000 and $10,000 in the three regions visited represented a significant portion of total contracting dollars. From our examination of contract files, we found that a number of contracts showed concentration to certain vendors, lack of contracts, and purchase orders created after invoices arrived for work already completed. Interviews with CMMD contracting personnel revealed that they were not focusing on these occurrences and the underlying causes.
Similarly, audit analysis of data from the accounts payable module of IFMS for the audit period identified that significant numbers of payments were made without reference to a contract for the largest contracted services expenses (i.e. printing, process servers, court reporters, and transcription). Interviews with CMMD contracting personnel indicated that during the audit period payments without reference were not monitored. We were told that CMMD is in the process of developing a policy and monitoring capability.
The lack of monitoring of contracting activity under $10,000 and for payments without reference is a risk that the Department needs to address.
Policies and Procedures
Two departmental sources of contracting and procurement information available to regional contracting personnel are the Department of Justice IFMS ver. 4.7 Training Guide (provided by SAP) and the Guide on Contracting, which also refers to Government Contracts Regulations, TBContracting Policy,the trade agreements,andthe Financial Administration Act. The Guide on Contracting has dedicated significant attention to providing information on unacceptable contracting practices, but has provided limited information and guidelines on how to conduct appropriate contracting practices that comply with applicable government legislation, policies, and regulations.
For example, more information is required on how to deal with contracting situations where multiple responsibility centres, funds, and projects would incur costs from a single vendor. A single contract cannot be created in IFMS because the exact amount to be incurred by each responsibility centre or project cannot be foreseen at the time the contract begins. Personnel from the Systems Section in the CFO Branch at headquarters indicated that the IFMS solution for this situation is to use an Outline Agreement. An Outline Agreement treats the contract as a form of Standing Offer or Supply Arrangement, where various responsibility centres or projects can draw down the value of the contract using call-ups against the Outline Agreement.
The audit team observed that neither the IFMS Training Manual nor the departmental Guide on Contracting cross-references standing offers and supply arrangements to IFMS outline agreements (SAP terminology) or provides any information on how to handle this procurement situation.
Departmental guides need to address all unacceptable contracting practices and include more information on appropriate contracting and procurement practices.
Regional Contracts Review Committees
Regional Contracts Review Committees have not been appropriately exercising their stewardship responsibilities. In order for the RCRC’s to be effective, they must review and challenge all contracting activity that falls within their approval authority in accordance with applicable contracting policies and procedures. Furthermore, the RCRC members must be knowledgeable of contracting policies and procedures, particularly the distinctions between sole-source and competitive contracting, as well as the documentation and information required to support both types of contracts.
Reporting and Quality of Information for Management Decision Making
Contracting information in IFMS is not complete, accurate, or timely. All departments awarding contracts are required to submit an annual report to the Treasury Board Secretariat on contracting activities. Accordingly, the Department collects statistics on each procurement type from contract coding information extracted from IFMS. The audit identified that two multi-year, multi-million dollar contracts for printing were not recorded in IFMS and the payments did not reference these contracts. Furthermore, our review of randomly selected contract files identified that the majority of these contracts were ‘after-the-fact’ and not signed by the vendor, indicating that purchase orders were created in IFMS solely for the purpose of being able to pay the invoices. With regard to several of these cases, which were for printing, the purchase orders were created at the time of payment and the payments were made several months after some of the print jobs had been completed.
Work requirements were not consistently defined and documented in contracts prior to the start of the contracting process. Most contract files we reviewed were missing a Contract Initiation Document (outlining the work required) as well as the Statement of Work provided to the vendor (in advance of the work to be done). While expenditure initiation authorizations were found in almost all the files in the sample, in many cases these approvals were completed after the work was completed.
Significant portions of regional contracting activity involve ‘after-the-fact’ contracting, contract-splitting, and sole-source contracting. For example, in 61 percent of files reviewed, work was invoiced before the contract was awarded or entered into IFMS; of the total 660 contracts over $2,000 awarded by the three regions in 2007-09, 14.7 percent showed evidence of contract splitting; and in only 4 percent of files reviewed was work awarded through a competitive process.
Contracting files in the three regions audited lacked documented support to indicate that solicitation activities and decisions had been conducted in a transparent manner. We found that most files did not record any information on the means by which the Department initially found the vendor (e.g. from previous use, the Yellow Pages, Google search) or any information on the vendor, such as a company profile, or the vendor’s qualifications to perform the work. Furthermore, two-thirds of the contract files did not record justifications for sole-source contracts.
Contract Award Process
The regions audited are not capturing and retaining key Standing Offer documentation for service contracts. Of the files sampled, none contained Standing Offer information or documentation that is essential to support and validate appropriate and timely application of contracting terms and conditions.
Also, improvements are required in documenting and recording contract award activities and decisions in IFMS and regional contracting files. We found that most contract files that were coded in IFMS and regional files as competitive contracts were actually awarded on a sole-source basis. Competitively awarded contract files were missing information about unsuccessful bidders, bid evaluations, or documentation explaining why the lowest priced bid was not selected. Furthermore, many files in our sample that indicated that the vendor’s personnel would require access to departmental facilities or classified information were missing documentation on security clearances.
Service contract payments are generally made in compliance with contract requirements. The audit team found proper FAA Section 34 approval in 58 of 62 files (93%) where work was invoiced against the contract during the audit period.
Evaluation of Contract Performance
Contractor (or vendor) performance should be evaluated at the completion of each contract. We found that none of the contracted vendors in our file examination was formally evaluated.
The management responses to the recommendations contained in this report were provided by the Director General, Administration Directorate and the Chief Financial Officer, Chief Financial Officer Branch.
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