Follow-up on Internal Audit: Minor Warship Auxiliary Vessel In-Service Support Contract (MWAV ISSC)

March 2014

7050-28-4 (CRS)

Reviewed by CRS in accordance with the Access to Information Act (AIA). Information UNCLASSIFIED.

Caveat

The result of this work does not constitute an audit of the MWAV In-Service Support Contract project. Rather, this report was prepared to provide reasonable assurance that the Management Action Plans (MAP) that resulted from the 2010 MWAV In-Service Support Contract project audit were implemented as stated and as such have addressed the associated recommendations.

Acronyms and Abbreviations

1.0 Introduction

In keeping with the Treasury Board Policy on Internal Audit,¹ Chief Review Services (CRS) is required to undertake audit follow-ups to assess the implementation status of MAPs developed in response to previous CRS audit recommendations. In accordance with the CRS Risk-based Audit Plan for 2013/14 to 2015/16, this follow-up assessment of the MWAV ISSC II audit was selected to ensure that controls had improved in a follow-on contract to optimize value for money and contract administration. The services provided by the vendor include project management, maintenance, systems engineering, logistics, documentation, and inspection support.

In January 2010, CRS completed an audit of the $239 million MWAV II contract. The objective of the audit was to provide assurance that the MWAV project governance, risk and control processes were in place to administer the in-service support for MWAV II and follow-on contracts. The results of the 2010 audit are outlined in the following findings.

Value for Money Oversight. Additional measures to increase the oversight of project management fees and maintenance tasks should be implemented.

Materiel Management. Improvements in the oversight of vendor-held Department of National Defence (DND) inventory are needed to ensure it is managed in accordance with the contract and reported in financial statements.

Vendor Reporting. Additional measures will help improve oversight of vendor performance and ensure that vendor reporting content is specified by the DND and complied with.

Task Management Efficiency. Task management efficiency could be improved with a firm fixed price (FFP) basis of payment for preventative maintenance (PM), risk-based task approval thresholds, and staff augmentation.

Risk Management. Risk identification and management could be improved for the follow-on contract.

Certification of Payment. Additional supporting documentation will help to improve support of actual costs, labour hours and the receipt of deliverables.

In order to address the above issues, six recommendations were put forward (See Annex C). To address these recommendations, the Assistant Deputy Minister (Materiel) (ADM(Mat)) developed a set of MAPs to address the audit findings specific to their area of responsibility.

2.0 Objective

The purpose of this follow-up is to determine the progress made on the implementation of the MAPs in response to the 2010 Audit of the MWAV ISS contract.

3.0 Methodology

This audit follow-up is the outcome of a review of documentation and evidence to assess the progress made in implementing the MAPs, based on the assessment criteria in Annex A. The following methods were used:

• interviews and inquiries with DND contract management staff in the ADM(Mat), in the Director General Maritime Equipment Program Management (DGMEPM), specifically the Technical Authority and the Requisitioning Authority in the Director of Maritime Procurement (D Mar P), and other headquarters staff;
• interview with Public Works and Government Services Canada (PWGSC) Contracting Authority;
• review of contract documentation that pertained to the MAPs; and
• analysis of data from the Audit and Evaluation Recommendation Management System (AERMS).²

Statement of Conformance

The audit follow-up conclusions contained in this report are based on sufficient and appropriate audit evidence gathered in accordance with procedures that meet the Institute of Internal Auditors’ International Standards for the Professional Practice of Internal Auditing. The audit follow-up thus conforms to the Internal Auditing Standards for the Government of Canada, as supported by the results of the quality assurance and improvement program. The opinions expressed in this report are based on conditions as they existed at the time of the audit follow-up, and apply only to the entity examined.

4.0 Overall Assessment

The follow-up on the January 2010 audit identified that there has been progress in some areas. For example, there have been improvements in controls that relate to certification of payments and value for money oversight.

At the time of follow-up, there were six recommendations and seven MAP items designated as completed by the Office of Primary Interest (OPI) in AERMS. Upon further examination, two out of seven MAP items require additional measures to fully address the issues. These two outstanding MAPs are planned for implementation in the near future. Until all MAPs are fully implemented, there remain concerns in the following areas:

• The most recent inventory report, including value of holdings, has not been reported from DGMEPM to Director Materiel Group Comptrollership (DMG Compt) for financial statement purposes.
• A risk management plan has not been implemented that would provide the methodology on how to manage the risks with the MWAV III contract.

A scorecard of the MAP items can be found in Annex B, and a more detailed assessment of progress can be found at Annex C.

Annex A—Assessment Criteria

Line of Enquiry: Progress made on the 2010 Audit Recommendations

Progress has been made on the implementation of MAPs identified in the 2010 MWAV ISSC audit.

The following criteria were used to assess the level of completion for each MAP item.

1. Obsolete or Superseded

Audit recommendations that are deemed to be obsolete or have been superseded by another recommendation.

2. No Progress or Insignificant Progress (0-24% complete)

No action taken by management or insignificant progress. Actions such as striking a new committee, having meetings and generating informal plans are insignificant progress.

3. Planning Stage (25-49% complete)

Formal plans for organizational changes have been created and approved by the appropriate level of management (at a sufficiently senior level, usually at the Executive Committee level or equivalent) with appropriate resources and a reasonable timetable.

4. Preparation for Implementation (50-74% complete)

The entity has begun necessary preparation for implementation, such as hiring or training staff, or developing or acquiring the necessary resources to implement the recommendation.

5. Substantial Implementation (75-99% complete)

Structures and processes are in place and integrated in some parts of the organization, and some achieved results have been identified. The entity has a short-term plan and timetable for full implementation.

6. Full Implementation (100% complete)

Structures and processes are operating as intended and are implemented fully in all intended areas of the organization.

Annex B—Management Action Plan Scorecard

Table B-1. Management Action Plan Scorecard

Annex C—Summary of Management Action Plan Status

Table C-1. Status of the Implementation of the MAP Items for Recommendation 1

Table C-2. Status of the Implementation of the MAP Items for Recommendation 2

Table C-3. Status of the Implementation of the MAP Items for Recommendation 3

Table C-4. Status of the Implementation of the MAP Items for Recommendation 4

Table C-5. Status of the Implementation of the MAP Items for Recommendation 5

Table C-6. Status of the Implementation of the MAP Items for Recommendation 6

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Footnote 1 Policy on Internal Audit http://www.tbs-sct.gc.ca/pubs_pol/dcgpubs/ia-vi/ia-vi_e.asp.

Footnote 2 AERMS is a system that tracks the progress of the MAP items.

Footnote 3 The maximum level is the maximum amount of inventory to be held, while the minimum level is the point at which certain inventory should be re-ordered, based on forecasted usage, availability, and lead time.

Footnote 4 DIDs are completed documents defining the data deliverables required of a defence contractor. A DID specifically defines the data content, format, and intended use of the data, with a primary objective of achieving standardization objectives.