2. Observations – management framework
There is a lack of planning of contracting activities to address the forecasted needs for services of the three regions under review.
Planning of contracting activities should ensure that appropriate contracting arrangements are established to address the forecasted services needs of the regions. Appropriate planning would identify the contracted services that the regions use the most and ensure that procurement activities are initiated before the need for the services arises. In some cases, elaborate contracting activities may need to be established, including competitive processes, multi-year contracts with several vendors, or standing offers and supply arrangements established by PWGSC.
From our interviews with counsel and management from the legal portfolios in the regions, we identified that the portfolios know at the beginning of the fiscal year that significant amounts of contracted services will be required from specific vendors for printing, court reporting, transcription, and process servers (sheriff and bailiff). These interviews indicated that the quantity, timing, and vendor(s) the regional portfolios need for each specific service requirement are often not determined until the last minute, due to decisions made by the courts or opposing counsel. As a result, vendors are often requested to provide these services on very short notice. However, regional contracting employees indicated that neither CMMD at headquarters nor regional contracting conducts planning to forecast the requirements for these services to create timely, open, and transparent arrangements with vendors. As a result, each region undertakes a different approach for contracting these services, with contract processes occurring in advance for some services but not for others.
The audit team also found that, because of a lack of planning, the above litigation-related services are often not procured in compliance with contracting rules and regulations. (See Management of Contracts and Compliance with Policies section of this report.)
Specific findings on planning for printing, court reporting, transcription, and process server services follow:
- The British Columbia Regional Office (BCRO) has conducted planning to address the printing needs of the BCRO’s legal portfolios. The region issued a requisition to PWGSC, which competitively awarded a multi-year, multi-million dollar contract. This contract was planned to reflect the quantity and quality of printing that the region had forecasted for the contract period for all the legal portfolios.
- The Quebec Regional Office (QRO) uses a Standing Offer established in advance through PWGSC for printing services.
- The Prairie Regional Office (PRO) in Edmonton has not conducted any planning for contracting activities related to printing. As a result, no contract exists for printing services. Purchase orders are generated after invoices are received from the printer. Interviews in the Edmonton Office indicated that there is uncertainty as to what the final costs of print jobs will be. The PRO spent $426,032 on printing between April 2007 and March 2009.
It should be noted that contracting arrangements that address forecasted requirements are especially important for printing because printing services represent the largest percentage of the regional O&M budget for litigation-related contracted services.
Court Reporting and Transcription
- In Edmonton, regional contracting has conducted planning for contracted court reporting and transcription services. The Tax Law Portfolio, for example, forecasts the needs for these services and obtains price lists from some of the major suppliers before the beginning of the year. Contracts have been created to address these needs for an entire year.
- In the BCRO and QRO, planning for service contract activities has not occurred. As a result, although these two regions spent $933,654 on court reporting and transcription services during fiscal years 2007-08 and 2008-09, contracts were typically not set up. In the QRO, invoices often referenced a Purchase Order even though no contract existed. In the BCRO, invoices were not found to reference purchase orders.
Process Server (Sheriff/Bailiff)
The three regions visited were not conducting planning for contracting activity for process server (sheriff and bailiff) services. As a result, the audit team found that contracts have not been established for 97 percent of process server expenses in any of the regions in the past two fiscal years (2007-08 and 2008-09). For example, in the QRO, no contracts have been set up with vendors. While in the QRO 63 different vendors were used during the audit period, one vendor accounted for 87.5 percent, or $295,677, of these expenses between April 2007 and March 2009.
The following tables identify expenses for printing, court reporting, transcription, and process server services as a percentage of total O&M expenses incurred by the three regions under review from April 1, 2007 through March 31, 2009.
|Printing (All, incl Repro of Legal Docs)||1,740,516||426,032||405,172||2,571,720|
|Printing (All, incl Repro of Legal Docs)||2,571,720||11.0%|
|Fees to Law Societies||2,055,592||8.8%|
|Office Stationery & Supplies||1,506,075||6.4%|
|Telephone Services - Common Carriers||1,380,580||5.9%|
|Training & Development for staff||846,393||3.6%|
|Rental of Photocopiers||550,861||2.4%|
|Other Expenses (each being less than 2% of total)||7,557,919||33.8%|
|Total O&M accounts (non-travel)||23,036,923||100%|
Regional counsel and management would benefit significantly from having contracting arrangements, including standing offers or outline agreements, set up with service providers for litigation-related services at the beginning of the year. These arrangements should include pre-established prices, rates, and terms and conditions. Contracted services could then be promptly and cost-effectively obtained in an open, transparent, and efficient manner as business needs arise.
Recommendation and Management Response
1. It is recommended that the Director General, Administration Directorate, in conjunction with the regional directors of Corporate Services, ensure that adequate planning in relation to contracting activities is undertaken at the regional level. (Medium risk) Footnote 1
Agreed. The Director General, Administration Directorate will align procurement planning to business and investment planning in the Regions and at Headquarters. Target date September 2012.
Given the varied nature of the legal services provided by the Department and its lack of control over schedules to meet court-imposed directions and deadlines, many requirements, such as the litigation services mentioned in the audit, are time-sensitive. The Administration Directorate will award a number of multi-year procurement vehicles to meet recurring requirements such as printing, court reporting, transcription, and process servers. Use of these procurement vehicles will be mandatory for all clients. Target Date February 2012.
2.2 Organizing and Directing
2.2.1 Regional Contracting Authorities
Some regions do not have the capability to finalize contracts that fall within the approval authority of the Regional Contracts Review Committees.
The January 24, 2007 memorandum from the Deputy Minister provides Regional Contracts Review Committees (RCRC’s) with the authority to approve service contracts between $10,000 and $25,000. However, we found that personnel in the PRO and BCRO Footnote 2 who carry out contracting under their RCRC’s authority (e.g. regional managers, contracting personnel, administration staff) do not have the capability Footnote 3 to finalize or release these contracts in IFMS. (Contracts must be released in order for a hard copy of the contract to be printed for signatures and payment.) In order for a contract that is within the RCRC’s approval authority to be released, regional contracting personnel must send a request to CMMD personnel in HQ who have the capability to release a contract in IFMS.
The inability of regional contracting to release contracts has resulted in delays and may have exacerbated compliance issues observed during the audit. For example, during the fieldwork phase of the audit, we were told that the RCRC in the PRO had approved two contracts for court reporters, as well as a contract for a process server, all of which were under $25,000. PRO regional contracting was unable to finalize the contracts as it lacked the capability and was required to seek CMMD approval to release the contracts in IFMS. On March 18, 2009, PRO contracting personnel e-mailed CMMD requesting approval of the three contracts. It was not until September 2009 that CMMD approved these three contracts.
It is the audit team’s opinion that regional contracting personnel should be provided with the appropriate capability in IFMS (i.e. user profiles) to release contracts that fall within the authority of the RCRC s.
Recommendation and Management Response
2. It is recommended that the Director General, Administration Directorate, discuss with the Chief Financial Officer the need to assign appropriate capability in IFMS to release contracts that fall within the authority of the Regional Contracts Review Committees. (Medium risk)
Agreed. The Administration Directorate and the Chief Financial Officer (CFO) Branch discussed the issue, and adjusted release mechanisms in IFMS in August 2010 to allow individuals to exercise appropriate release strategy according to their contracting delegation. As well, a revised Delegated Financial Signing Authorities Chart was approved in January 2010. This new chart and its supporting notes detail contracting authorities in a clear, concise manner. Completed.
2.2.2 Concentration of Responsibilities in Regional Corporate Services
There is a need to strengthen the accountability framework to address the risks identified in relation to IFMS roles in Regional Corporate Services.
In each of the three regions visited, Regional Corporate Services has responsibility for contracting activities. Regional Corporate Services also has exclusive responsibility for inputting contract data into IFMS. Specific roles and responsibilities for contracting and payment activity in Regional Corporate Services are as follows:
- Responsibility centre managers certify commitment of funds when they sign contracts for the Department under the Financial Administration Act (FAA) Section 32.
- Contracting specialists (officers and clerks) create contracts in IFMS, perform ‘goods receipt’, and draw down Footnote 4 invoiced amounts from available balances under contracts (i.e. record contract activity in the IFMS procurement model).
- Responsibility centre managers certify the provision of services under FAA Section 34 by signing the invoice.
- Financial specialists (clerks) in Regional Corporate Services input invoices for payment in IFMS based on FAA Section 34 certification of managers, goods receipt validation provided by contracting specialists, and supporting documentation.
- Financial officers in Regional Corporate Services approve these transactions under FAA Section 33 in IFMS.
There is a risk to the Department when regional contracting specialists:
- create and input contracts into IFMS;
- recognize goods receipt or services rendered (i.e. indicate that what was received is the same as what was invoiced) in IFMS.
The Treasury Board Directive on Delegation of Financial Authorities for Disbursements states that the following functions must be kept separate:
- authority to enter into a contract (transaction authority);
- certification of the receipt of goods and the provision of services according to Section 34 of the FAA (certification authority);
- determination of entitlement, verification of accounts, and preparation of requisitions for payment or settlement according to Section 34 of the FAA (certification authority);
- certification of requisitions for payment or settlement according to Section 33 of the FAA (payment authority);
- if the process or other circumstances do not allow such separations of duties as identified above, alternate control measures are implemented and documented.
It should be noted that with respect to the paper business process, the audit team found that responsibility centre managers recognize goods receipt when they certify invoices under FAA, Section 34. However, in our view, this does not adequately address the issues noted above with respect to segregation of duties in IFMS. We note that in a number of other federal government departments, responsibility centre personnel recognize goods receipt in IFMS.
The IFMS Security Monitoring Procedures Guide, Section 5.1.3 states that the ability for the same user to both create contracts and perform goods receipt in IFMS is “
considered a high financial risk to the organization”. The guide’s segregation of duties matrix identifies that one of the risks is that “
unauthorized purchase orders may be entered and subsequently incorrectly accounted for in the goods receipt”.
Furthermore, the IFMS Security Monitoring Procedures Guide (PWGSC), Section 5.1 refers to three key design concepts required for segregation of duties to support an appropriate internal control environment:
- Roles must be designed so that access granted by a single role does not pose a segregation of duties risk.
- Roles must be assigned to users in a manner that supports appropriate segregation of duties.
- If segregation of duties is not possible, the business owner must resolve the risk in one of two ways:
- reassign job duties among departmental positions to ensure that no single user has a high-risk combination of job tasks;
- implement business monitoring controls or other compensating controls should a reassignment of tasks not be feasible, such as in small offices. (Compensating controls could include the review of master data change reports, the review of transactions, etc.)
The guide further states that organizations should balance the cost of the control relative to the risk and amount of potential loss.
During our site visits we found that there were no basic monitoring controls or additional controls to compensate for the segregation risk. For example, financial specialists in Regional Corporate Services were not verifying the contracting and financial activities created by the contracting specialists in IFMS on behalf of the responsibility centres. Instead, financial specialists were focused on inputting invoice information into IFMS for payment. Financial specialists relied only on the manager’s signature under FAA Section 34 and the contracting specialist’s contracting information that these financial transactions were valid. An important point to note is that we found that contracting specialists often created contracts in IFMS and goods receipted activity after vendors had sent their invoices to Regional Corporate Services. These activities resulted in inappropriate contracting data in IFMS. Notwithstanding the control weaknesses identified, the audit found a very high level of accuracy for certain financial data in IFMS. From our random and judgmental samples of 145 contracts and corresponding payments, we found only three situations where a transaction was not correctly coded to the accurate general ledger account in IFMS.
The Financial Officer’s role under FAA Section 33 serves as an important control in assuring the quality of account verification performed by responsibility centre managers and financial specialists. This control was compromised because financial officers in Regional Corporate Services approved payments for which there was no acceptable contract.
There is a Monitoring and Quality Assurance Division at headquarters, under the Chief Financial Officer (CFO) Branch, whose responsibilities include the ongoing assessment of the Department's internal controls over financial reporting using a risk-based approach. This includes monitoring remediation action required based on audits, management letters, and other assessments, and testing travel and hospitality transactions on a statistical sample basis. We note that transactions that would generally involve contracts were not examined by the Monitoring and Quality Assurance Division during the audit period.
In our view, the accountability framework needs to be strengthened to ensure proper controls exist. This is important because the audit found that Regional Corporate Services does the following in IFMS: creates and inputs contracts, performs goods receipt, captures and records related data, and makes 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 would help mitigate exposure to risks.
Recommendation and Management Response
3. It is recommended that the Chief Financial Officer, in conjunction with the Director General, Administration Directorate and regional directors general, strengthen the accountability framework to address risks identified in relation to IFMS roles. (Medium risk)
Agreed. Business processes at both Headquarters and regional levels are being re-examined, with a view to enhancing the accountability framework and strengthening compensating controls. More specifically:
- At the regional level, the CFO, in conjunction with the Director General, Administration Directorate, and the regional directors general, is addressing the need to ensure compliance with contracting and financial policies and practices. This includes reviewing Regional Corporate Services’ understanding and application of its roles and responsibilities, and assessing existing mitigation strategies and whether others need to be put in place due to conflicting roles in either the business process or the IFMS environment. Various approaches will be used, including discussions with regional finance directors, teleconferences, national meetings, on-site visits by Headquarters, and training. A collaborative action plan and reporting governance will be developed and implemented by the CFO , the Director General, Administration Directorate and the regional directors general by October 31, 2011.
- At headquarters, the CFO will introduce and expand monitoring activities as compensating controls in order to mitigate exposure to risks such as those identified with respect to segregation of duties in IFMS. These monitoring activities will be defined and in place by November 30, 2011. Findings will be communicated to the appropriate levels of management, and any remedial actions determined in consultation with the regional directors general (RDG).
These activities are being performed with the tools and resources currently available. The “Procure 2 Pay” re-engineering project will provide additional opportunities from which to strengthen internal controls, subject to approval of the project as a priority within the investment planning exercise.
2.3.1 Contracting Activity over $10,000
The Department monitors contracts over $10,000.
Interviews with personnel who undertake contracting and finance functions in the regions and at headquarters identified that monitoring of contracting activity is limited to contracts over $10,000 for the purposes of the proactive disclosure requirements. A CMMD contracting officer prepares a report from the IFMS procurement module (of contracting activity over $10,000) and distributes this report to Regional Corporate Services for a confirmation of its completeness and accuracy. In addition, CMMD analyzes the report to detect instances of contract-splitting and after-the-fact contracting, and to identify contracts with new vendors or other atypical contracting arrangements for follow-up with the regions. CMMD in headquarters also reviews samples of files for contracts over $10,000.
It is the audit team’s opinion that the Department has a monitoring framework for contracts over $10,000.
2.3.2 Contracting Activity under $10,000
The Department is not monitoring contracting activity under $10,000 to determine the extent of compliance with policies and procedures.
The Department is not monitoring contracts or purchase orders under $10,000, either at a Department-wide or regional level. The audit team analyzed contracts between $2,000 and $10,000 and identified the following:
- In the BCRO, 44 of 258 purchase orders (17.6%) were with two vendors for warehousing and furniture installation. Most of these were after-the-fact contracts.
- In the PRO, 48 of the 250 purchase orders (19.2%) were with one vendor for printing. These 48 purchase orders were coded as ‘competitive’. However, regional contracting personnel identified that there were no contracts with this vendor. Purchase orders were created after invoices arrived for work that was already completed.
Interviews with CMMD contracting personnel revealed that they are not focusing on these occurrences and the underlying causes. Contract activity between $2,000 and $10,000 in the three regions visited represented 42 percent of total contracting dollars.
2.3.3 Payments without Reference to a Contract
The Department is not reviewing “payments without reference to a Purchase Order” to detect payments to vendors without contracts.
The Department has instituted system edits in IFMS for certain combinations of General Ledger codes and dollar thresholds, so that payments in IFMS cannot be processed without a valid purchase order (i.e. a contract). Certain low-dollar transactions and transactions related to recoverable expenses do not require references to purchase orders or contracts.
Audit analysis of data from the accounts payable module of IFMS for the audit period identified that significant numbers of payments (78.6%) were made without reference to a contract for the largest contracted services expenses (i.e. printing, process servers, court reporters, and transcription) (amounting to $3,409,889 out of $4,339,005 for the three regions audited).
The IFMS expenditure module also identified that 87 percent of 23,166 lines of coding associated with the above four largest services expenses were payments without reference to a contract for the three regions audited. This is a trend that CMMD could easily identify.
Interviews with CMMD contracting personnel indicated that during the audit period payments without reference were not monitored on a Department-wide basis. We were told that CMMD is in the process of developing a monitoring capability. IFMS produces a report that shows all payments without reference. Unfortunately, this report includes significant amounts of non-vendor activity, such as travel expenses through the government provider, which makes it more difficult to detect payments without reference where a contract reference should exist.
In 2004, PWGSCawarded a $5,000,000 printing contract on behalf of the BCRO. The contract was in effect during the audit review period (between April 2007 and March 2009). In 2009, PWGSCawarded another multi-million dollar printing contract on behalf of the BCRO. Neither contract was recorded in the IFMS procurement module. While the region corresponded with a CMMD manager concerning the creation of the latter contract, during our interviews with senior CMMD management we were told that they had not been made aware of either contract.
It is the audit team’s opinion that the lack of monitoring of contracting activity under $10,000 and lack of guidance for payments without reference to a contract is a risk that the Department needs to address.
Recommendation and Management Response
4. It is recommended that the Director General, Administration Directorate, monitor contracting activity under $10,000, including the sampling of contract files, to determine the extent of compliance with policies and procedures. (Medium risk)
Agreed. The Director General, Administration Directorate, will implement a Compliance and Monitoring Program. The Program will consist of a pre-award review for contracts over a predetermined value or for sensitive files. There will also be a post-contract award compliance review based on a target percentage of contracts within predetermined value ranges – for example, up to five percent of contracts valued between $1,000 and $10,000 will be subject to annual review. There will be ad hoc targeted reviews based on commodities as determined by the Director of Contracting and Materiel Management. These activities will support recommendations 4, 5, 6, 8, 10, 11, 12, 13 and 14. The Assistant Deputy Minister of the Management Sector has provided resources to support this activity. Target Date February 2012.
The Department will develop training to address the processes, procedures and coding requirements for contracting, which will support recommendations 4, 6, 7, 10, 11, 12, 13, 14 and 15. The Assistant Deputy Minister of the Management Sector has provided resources to support this activity. Target Date December 2012.
The Department will also create a series of policy instruments to improve procurement planning and compliance, which will support recommendations 4, 10, 11, 12, 14 and 15. The Assistant Deputy Minister of the Management Sector has provided resources to support this activity. Target Date February 2012.
Recommendation and Management Response
5. It is recommended that the Director General, Administration Directorate, in conjunction with the Chief Financial Officer, ensure that payments without reference are reviewed to detect payments to vendors without contracts. (Medium risk)
Agreed. The Compliance and Monitoring Program will include reviews of payment without reference. Target Date February 2012.
A directive on payment without reference and related bulletins will clarify when such payments are acceptable. Completed.
In support of responsibilities under Section 33 of the FAA, Accounting Operations, CFO Branch, issued a bulletin providing regional accounting units with further guidance on the verification and review of payments without reference. Completed.
The Administration Directorate and the CFO Branch have also discussed how best to exchange information on the results of their reviews of payments without reference, as well as any findings of non-compliance, and have implemented a protocol. Completed.
2.4 Policies and Procedures
Departmental guides do not provide sufficient information on contracting and procurement practices for the main contracting activities of the regions.
In order for regional contracting staff to appropriately exercise their responsibilities, it is important for them to have complete, accurate, and up-to-date information on departmental policies and procedures. Two formal sources of contracting and procurement information available to regional contracting personnel are the Department of Justice Guide on Contracting (available on JusNet) and the IFMS ver. 4.7 Training Guide. These guides provide information that is consistent with applicable government policies and regulations related to contracting. The information should be sufficient to ensure that all parties involved in contracting are fully aware of their roles and responsibilities and are able to competently exercise their duties. The audit team observed significant gaps and discrepancies in the information these guides provide.
One discrepancy is the IFMS Training Guide’s direction to create printing contracts in IFMS just under the department’s delegation limit. This guide lists as ‘helpful hints’ for printing contracts in Tab 11, on page 1:
- We suggest that you create a purchasing document up to a maximum of $9,345 at the beginning of the year. This document does not need to be signed. Once you have reached the $9,500 it is suggested you create a new document.
- Any printing requirement that is estimated to be more than $10,000 (taxes included) should be handled by Contracting, Forms and Materiel Management Unit.
The departmental delegation limit is $10,000; all amounts over $10,000 are to be awarded competitively and electronically per the departmental delegation matrix. The departmental delegation framework does not provide authority to issue sole-source printing contracts over $10,000. In this situation, the appropriate contracting guidance to regional management would be for the regions to first determine regional printing requirements and then have PWGSCaward a competitive contract to handle their requirements for the upcoming year, rather than creating numerous contracts just below the value of the departmental authority.
In another example, the departmental Guide on Contracting (which was issued in December 2007 and updated in June 2008) indicates in sections 2.3.5 and 4.1 that with the January 2007 restrictions from the Deputy Minister memorandum, the ‘PS-3’ contracting form must be used for service contracts under $10,000. The Form PS-3 includes an area for the vendor to sign. For procurement of goods under $5,000, the PO Form for Goods Under $5,000 can be used, which does not include an area for the vendor to sign.
|Contract Type||Departmental Form||Vendor Signature|
|Services under $10K||PS‑3||To be Included|
|Goods under $5K||PO form for Goods Under $5,000||Not included|
Some regional contracting advisors we interviewed told us that it is permissible to use the PO Form for Goods for goods when they are procuring services under $5,000. Of the 47 randomly selected service procurement files that did not relate to standing offers, we found that 21 (45%) used the PO Form for Goods, while the remainder used the PS-3 form. The departmental Guide on Contracting does not state that staff must not use the PO Form for Goods to procure services. Nor could we find any other formal direction or guideline indicating that the use of the PO Form for Goods is allowed for procurement of services. It is our view that the use of the PO Form for Goods to procure services, with no place to capture the vendor signature, is an unacceptable practice, which should be specifically prohibited in the Guide on Contracting.
Except for this practice, however, we found from our review of the guide’s contents that it has dedicated significant attention to providing information on unacceptable contracting practices. For example, it contains seven subsections under the heading “Unacceptable Contracting Practices”, which include verbal agreements, after-the-fact/retroactive contracting, and contract splitting. Although very lengthy, the Guide on Contracting needs to provide more information and guidelines on how to conduct appropriate contracting practices that comply with applicable government legislation, policies, and regulations. For example, the guide does not provide enough information on how to procure services for key regional expenses such as printing and court reporting. Under section 6, Contracting Phase, there are two subsections entitled “Litigation Costs Related Services” and “Printing and publishing”. Litigation costs related services include printing, court reporting services, and process servers (Sheriff/Bailiff). As stated in the guide, “
Litigation costs related services, which are part of the procurement process, must comply with applicable government procurement rules and regulations. The Contracting and Materiel Management Operations Section is currently working in conjunction with various sectors within DOJin order to put in place various acquisition vehicles that would facilitate DOJ’s compliance to various rules and regulations applicable to government procurement.” This is the extent of the guide’s treatment of this issue.
A further example where more information with regard to regional contracting is required relates to the use of an outline agreement for contracting involving multiple responsibility centres, funds, or client projects.
Contracting personnel we interviewed in all three regions believe that a single contract cannot be created in IFMS to deal with situations where multiple responsibility centres, funds, and projects would incur costs from a single vendor. In their view, this is because the exact amount to be incurred by each responsibility centre or project cannot be foreseen at the time the contract begins.
As a result, we found that regions use the following two workaround solutions:
1) issue payments without a contract reference code and do not enter the corresponding contract in IFMS when the contract exists (i.e. for printing services in the BCRO and QRO);
2) enter after-the-fact contracts when the regions know the breakdown of costs associated with the various responsibility centres and projects (i.e. for printing services in the PRO).
In an email of January 2006, the IFMS Help Centre directed contracting personnel to create a contract (Purchase Order) in IFMS at the time an invoice is received, as a means of dealing with this type of contracting situation.
Personnel from the Systems Section in the CFO Branch at headquarters indicated that the IFMS solution for this situation (which is used in the BCRO and QRO) 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 or supply arrangements to outline agreements (SAP terminology) or provides any information on how to handle the procurement situations referred to above.
It is the audit team’s opinion that the departmental Guide on Contracting and IFMS Training Guide need to address unacceptable contracting practices and include more information on appropriate contracting and procurement practices.
Recommendation and Management Response
6. It is recommended that the Director General, Administration Directorate, in conjunction with the Chief Financial Officer, ensure that the Department of Justice Guide on Contracting and IFMS Training Guide are revised to address the issues noted above. (Medium risk)
Agreed. The Guide on Contracting will be updated to address the discrepancies noted. Target date: January 2012.
The IFMS Training Guide was updated in August 2010 to include 'helpful hints' on printing contracts. Further changes to the Training Guide, including any that may arise from the revisions to the Guide on Contacting, will be done by the Financial Systems Team, CFO Branch, upon notification of the revisions from the Administration Directorate. The changes to the IFMS Training Guide will be made by March 2012.
2.5 Regional Contracts Review Committees
Regional Contracts Review Committees have not been appropriately exercising their stewardship responsibilities.
As noted earlier, in a memorandum dated January 24, 2007, the Deputy Minister gave authority to award service contracts between $10,000 and $25,000 to regional contracts review committees (RCRC’s). In interviews RCRC members indicated that they rely on a Regional Contracting Advisor to inform them of the proposed contract files that require RCRC review, and that regional contracting personnel are responsible for ensuring that appropriate documentation is provided to the RCRC .
The audit team selected a total of six contracts from all three regions (each valued between $10,000 and $25,000) as part of a random file examination. In the sample we found that documentation on the contract files was incomplete, with documentation generally being limited to the Contract Initiation Document and the Statement of Work. As the contracts in the sample were for amounts within the RCRC’s approval authority, the RCRC’s should have reviewed all six contracts. We found that documentation for five out of the six contracts selected showed limited RCRC involvement:
- Two of the five contracts concerned court reporting services that were coded as procured through ‘competitive contracts’. The contract initiation documents erroneously recorded that the contracts were competitive, as the initial intention was to contract with multiple vendors. The files included no information indicating the extent to which other vendors were considered, nor did the files include the rationale for including or excluding this information.
- In all five files, the RCRC’s Records of Decision indicated no more than the decision to approve a contract and the names of the members who participated in the contract approval.
The file for one competitive contract (worth $21,200) that we examined as part of the random sample showed no evidence of RCRC or CMMD involvement. The file did not include adequate documentation relating to unsuccessful bids, nor did it include a detailed evaluation of the bids received prior to the awarding of the contract.
RCRC members interviewed stated that they consider their role to be a ‘challenge function’, that is, to ensure that more than one option has been considered in creating a contract. They do not consider it their responsibility to ensure that all applicable contracting policies and procedures have been respected. RCRC members in all regions indicated that their primary focus is on expert witness contracts as opposed to service contracts. Members acknowledged that they are aware that the regions lack appropriate contracting mechanisms for key legal service commodities.
It is the audit team’s opinion that 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.
Recommendation and Management Response
7. It is recommended that the Director General, Administration Directorate, in conjunction with the regional directors general, ensure that the Regional Contracts Review Committees have clear terms of reference governing the exercise of their stewardship responsibilities with respect to contracting. (Medium risk)
Agreed. The Director General, Administration Directorate will standardize roles and responsibilities for all Regional Contracts Review Committees and revise their terms of reference to strengthen oversight. Target Date November 2011.
As the authority for all Internal Services in the Region, the regional directors general (RDGs) play a key role and are in fact accountable for the management and service provision of contracting in a region. As such, RDGs are key partners with the Director General, Administration Directorate, in ensuring that contracting practices and supporting financial activities are carried out in compliance with government and departmental policies and procedures.
As a longer-term measure to strengthen accountability, the Director General, Administration Directorate, in conjunction with the CFO , will review the delegation of contracting authority within the Department to rationalize where it is required, and establish a process to delegate contracting authority to areas that require it. Changes to delegation of contracting authorities will be sought as required. Target Date December 2012.
2.6 Reporting and Quality of Information for Management Decision Making
Contracting information in IFMS is not complete, accurate, or timely.
Information systems used by the Department for contracting should provide complete, accurate, timely, and relevant information to support management decision making.
All departments and agencies 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.
Through an examination of contract files and an analysis of contracting data we found significant coding discrepancies:
- Of the 663 printing contracts awarded across the Department from April 1, 2007 through March 31, 2009, 656 (98.9%) were incorrectly recorded as service contracts (rather than contracts for goods) as indicated by Government Contracts Regulations, TBContracting Policy, and the departmental Guide on Contracting.
- Significant payments for printing activity in the BCRO and in the QRO are not linked to contracts when, in fact, these contracts exist.
- From the file review of 17 randomly selected contract files coded as ‘competitive’ (i.e. not call-ups), 15 (88.2%) should have been coded as ‘non-competitive’.
As noted earlier in the report, significant amounts of payments without reference to a contract have occurred for which contracts were in place. Furthermore, the audit identified that two multi-year, multi-million dollar contracts for printing in the BCRO (one from 2004 and another from 2009) were not recorded in IFMS and the payments did not reference these contracts.
In addition, 30 of the 47 randomly selected contracts (i.e. not call-ups) were contract documents that were generated ‘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.
The audit team found that contracting information in IFMS is not complete, accurate, or timely. As a result, it cannot be fully relied upon to meet management needs for decision making on contracting activity in the Department. In our opinion, CMMD needs to undertake regular reviews of contracting information in IFMS to ensure that it is complete, accurate, and timely.
Recommendation and Management Response
8. It is recommended that the Director General, Administration Directorate, ensure that contracting information in IFMS is regularly reviewed for data integrity (complete, accurate, and timely). (Medium risk)
Agreed. The Director General, Administration Directorate, will review contracting data in IFMS as part of the Compliance and Monitoring Program. Target Date February 2012. Upon identification of requirements, it may be necessary to modify existing IFMS reports to enable the timely validation process in a sustainable manner (depending on funding).
The Administration Directorate will prepare a training module for data integrity. Completed.
Recommendation and Management Response
9. It is recommended that the Director General, Administration Directorate, in conjunction with the Chief Financial Officer, ensure that procedures, validation and edit rules are in place to manage contracting data. (Medium risk)
Agreed. The Director General, Administration Directorate, will provide contracting procedures and coding requirements training to personnel who use their contracting authority. Phase I of the training - Completed June 2011. Target date for phase 2 of training - December 2011. The Compliance and Monitoring Program will monitor contract data on a quarterly or more frequent basis. Target Date February 2012.
Any other changes and enhancements to IFMS will be determined during the 2012-13 timeframe that the CFO Branch, has set to respond to the "Procure 2 Pay" re-engineering project requirements, subject to approval of the project as a priority within the investment planning exercise. Target Date March 2013.
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