Report on the Audit of Cost Recovery (Phase 2) including the Impact of the New Funding Model

4. Background

The Department of Justice Canada, (the Department), provides litigation, legal advisory and legislative services to federal government departments, agencies and crown corporations across Canada. The Department currently uses a hybrid model to fund its operations, relying on a mix of A-base funding and Net Voting Authority (NVA) to recover the costs of legal services from client organizations over and above this A-base funding. NVA (cost recovery) is an important source of funding for the Department, providing more than a third of the operating budget (the Department recovered legal service costs of $328M in 2014-2015). The Treasury Board (TB) Common Services Policy sets out a strategic direction and outlines key Departmental requirements with respect to cost recovery.

Cost Recovery Process Improvement, commonly referred to as CRPI, came into force on April 1, 2012. The objectives of CRPI included improving business processes and enhancing corporate systems with a view to reducing administrative effort, supporting timely cash collection, meeting central agency policies and directives as well as better leveraging established Government of Canada best practices to track and invoice professional services. In April 2009, the Department launched a standard template for MOUs related to the provision of legal services. In April 2012, the MOU template was updated to reflect new business standards introduced through CRPI, including a standard Planning and Forecasting Annex (Annex B) and the monthly invoicing process.

Given the growth in legal service costs across the Government over the past number of years, the Department undertook a Legal Services Review (LSR) in 2014. This review proposed a series of measures designed to improve the delivery of legal services government-wide and included cost-containment strategies intended to more effectively manage the growth of legal services costs. Further to the implementation of the first phase of changes flowing from the LSR, and consistent with the objectives of Blueprint 2020 Footnote 2, the Department undertook a review of its cost recovery funding model in 2014-2015. This led to the development of a new Envelope Funding/Advance Payment funding model that is to be implemented on April 1, 2016. The new model focuses on simplifying the current model to reduce administrative costs and enhance its delivery across government via streamlined, more efficient administrative processes. 

As part of the Department’s change agenda, many efficiencies have been or are in the process of, being implemented to support various joint responsibilities of the Department and its client departments particularly with respect to the forecasting, planning and managing of legal services resources. For example, the number of legal service billing rates has been reduced and strategic standardized reports are being developed to provide client departments with the business intelligence needed to make informed decisions regarding the volume and nature of the legal work being provided.

Additionally, the Department is developing new business analytics tools to support more useful and meaningful reporting be drawing pertinent data for analysis from existing systems including the Integrated Financial Management System (IFMS), iCase, the Salary Forecasting Tool (SFT) and PeopleSoft. The Department’s vision is to assist and inform decision-making across the Government of Canada on the management of legal services via improved analytics in such areas as legal service trends and drivers of legal costs.

By making available a range of “smart” tools to the legal services community and its clients, the new funding model will undoubtedly lead to more effective management of legal services as well as a renewed and stronger partnership between the Department and its clients.

While the scope of the audit focussed primarily on key business processes that form the basis for the current cost recovery model, the audit considered the nature and potential impact of the many progressive changes that are planned or are in the process of being developed with regards to the new funding model.

Given the risks and magnitude of the Department’s funding system, the audit of the Cost Recovery Process Improvement (CRPI) Initiative was split into two phases. Phase 1 of the audit focused on Governance and its results were presented at the March 2015 Departmental Audit Committee (DAC) meeting. This report represents the results of the Phase 2 audit which focused on standardization and streamlining of Business Processes. As previously mentioned, within the context of the latter audit, we also considered how the new funding model might impact legal services management. Both these audits were reflected in Departmental Risk-based Audit Plans.  Phase 1 is included in the 2014-2017 Audit Plan (approved by the Deputy Minister on June 5, 2014) and Phase 2 in the 2015-2018 Audit Plan (approved by the Deputy Minister on March 19, 2015).

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