Audit of the management and delivery of procurement: chapter 4

Findings and recommendations

3.1 Management control framework

TB Contracting policy states that "it is the responsibility of departments and agencies to ensure that adequate control frameworks for due diligence and effective stewardship of public funds are in place and working." In the context of this audit, it was expected that the following elements of a sound management control framework would be in place: formal monitoring, reporting and oversight; clear roles and responsibilities; identified workload planning and priorities, defined service standards and established guidance.

PCD has made a number of changes to improve the overall efficiency of the Division. For example, key senior positions have now been staffed, the service standards have been revised to align better with the reality of the time it takes to process a request and ECollab is now being used to centralize procurement information and documentation.

Overall, AEB concluded that while key elements of a management framework are in place, there is room for improvement in some areas.

Monitoring, reporting and oversight

ECCC had previously relied on a number of governance mechanisms related to the oversight of procurement and contracting activities. The mandate of the Procurement Review Board (which was renamed the Contract Review Committee during the course of this audit) was revised to make it a more strategic decision-making and approval body for procurement and contracting activities. The new Contracting Review Committeehas a dual mandate (transactional and strategic). However, procurement staff indicated that this committee was mostly inactive during the course of the audit.

The audit also noted that there was no formal quality assurance process in place at the time of the audit. Some quality reviews were conducted by PCD, but these were done on an informal or ad hoc basis and included, for instance, reviews of non-competitive contracts and amendments that increased the total contract value over $25,000 or by more than 50%. We did not find evidence of regular quality control over procurement compliance with key policy requirement and guidelines (for example, contract splitting, employer-employee relationship, repetitive non-competitive contracts to the same suppliers or retroactive contracting activities). The results of the audit testing (Section 3.2) revealed some issues with procurement and contracting activities that would be addressed through more formal quality controls.

As a related point, we found no evidence of regular monitoring or analysis of various procurement trends, related for instance to competitive and non-competitive contracts, number and value of contract amendments, procurement methods used (e.g., contracts, purchase orders and call-ups against standing offer agreements), and frequently used suppliers. Better monitoring would supplement transactional quality controls, allow for better identification of procurement risks, and help increase procurement control and efficiency.

The financial system provides information for tracking the financial aspects of contracting activities and reporting annually to Treasury Board on procurement activities, such as total contracts greater than $25,000, total contract amendments, total non-competitive contracts and contracts falling under international trade agreements. Also, as required by all departments, ECCC reports the proactive disclosure of contracts over $10K and service contracts with former public servants on its website on a quarterly basis.

Up until fall of 2015, weekly reports of procurement activities were provided to ECCC's Executive Management Committee members for review. These reports included all proposed contracts over $25K and sole source contracts.

More formal quality control, monitoring and reporting of procurement activities would lead to improved compliance and procurement practices and to the identification of issues or corrective measures.

Roles and responsibilities

ECCC's procurement and contracting intranet site lists the general roles and responsibilities of both procurement officers and program managers in the administration of each stage of the procurement process (from initiation to close-out). In addition, delegation procurement authorities are clearly defined in ECCC's delegation instrument. Roles and responsibilities are also defined in the different guidelines available to program managers.

Lead procurement officers indicated that they were well aware of their roles and responsibilities, including oversight of procurement activities within their regions by providing guidance and expert advice and assigning contractual duties to procurement officers based on their level of experience.

Similarly, program managers also indicated that they understood their overall role and responsibilities regarding the procurement of goods and services. However, half of the managers interviewed indicated that the level of involvement and support by procurement officers in the preparation of the purchase requisitions and supporting documents varied across the Department. They were concerned that the more technical contracts were difficult to process on time due to the limited availability of experienced procurement officers who understood the complexity of their business. As well, managers commented that there was a lot of back and forth to track and process their requisitions.

While their roles and responsibilities related to procurement and contracting have been defined, documented and communicated on the procurement website since 2014, program managers are still unclear as to the level of assistance to be expected from PCD.

Workload distribution

As noted in the table below, FB has made very noteworthy progress ensuring procurement transactions are processed more evenly throughout the year, thus minimizing the peak in the last quarter and improving procurement efficiency and service to the managers. FB presents similar analysis to the EMC on a regular basis.

A call letter for the purpose of preparing the fiscal year-end procurement and contracting activities is sent to staff reminding them of the importance of submitting their requisitions as early as possible to provide the best assurance that their requirements can be secured within the timelines needed.

Number of procurement transactions processed per quarter

It is also recognized that the activities of PCD cannot be fully planned as it is responsive and subservient to the programs' demands for services. While in some regions, there are consultations between the programs and PCD on anticipated workload, this is not common practice throughout the Department. The program managers interviewed indicated that the time it takes to communicate their procurement needs often depends on the complexity of the requirements and the timing of budget allocation.

At the time of the audit, there was no clear process for distributing the procurement workload among the different regions, as the regional workload is basically driven by regional demand. This method does not account for the existing regional workload and may create backlogs when regional demand exceeds capacity. Procurement staff indicated that PCD was in the process of altering the service delivery model to have one central process for workload distribution. FB's continued efforts to improve work distribution and procurement planning should help further improve efficiencies in procurement activities.

Service standards

The existing procurement and contracting service standards measure the number of working days between the time a fully funded requisition has been submitted (with all the required documents needed by the contracting officers to prepare the contract) and the time the contract is awarded. Table 3 below presents the service standards that were in place during the audit.

While PCD has developed the above service standards, we found no evidence of formal ongoing monitoring and reporting of actual processing time against these standards. This limits PCD's ability to determine if standards are met and if service to the client is satisfactory. Furthermore, monitoring results would identify significant processing-time delays and possible measures to improve the situation. This is important as the timeliness of procurement service was previously noted as a concern by many senior managers.

Based on its audit sample, AEB determined the time required to process a requisition from the date the original requisition is signed to the date the contract is awarded. We compared the actual processing time to the current 2014 standards. While not fully comparable, the results of our testing nonetheless indicated that only 55% (38 out of 70) of the contracts were processed within the service standards (Table 4).

In addition, the current service standards do not cover the entire procurement process from start to finish. The time taken by PCD to assess completeness of the requisition and the time taken by the program area to return a completed requisition with proper supporting documentation are not taken into consideration in the current standards. The current standards only start after the requisition and supporting documents are complete. Half of the managers interviewed were not aware that the back and forth exchange of information was not part of the service standard timelines. However, PCD managers indicated that they do not have the necessary tools to record and track the service times on this more complete basis.

Guidance

Guidance is a key component in ensuring consistent treatment of procurement processes. The audit examined whether ECCC's Procurement and Contracting Division provided adequate guidance to both procurement and program staff. ECCC's Procurement and Contracting intranet site provides contracting guidelines, however, as previously mentioned it is mainly geared to the client's needs.

PCD developed several internal guidance documents for procurement officers, and while these documents have had some updates over the past few years, they have not been finalized and consistently communicated to procurement staff in the regions. The guidance includes details on procurement principles such as competitive and non-competitive contracts, information on how to comply with international trade agreements, and instructions on how to use supply arrangements and standing offers.

Regional procurement officers interviewed earlier in the audit were not aware of these guidance documents and, as a result, were maintaining their own set of guidance documents and tools taken from various sources, including PSPC. This lack of common guidance across the Department increases the risk of inconsistencies in the application of procurement policies and directives, and could also increase the risk of challenges to contract award decisions.

More recently, however, PCD has been in the process of implementing common business processes for procurement staff, through the development and publication of more standard guidance documents, tools and templates.

3.2 Compliance

TB Contracting Policy contains many requirements, and the selection of the key requirements to be examined was based on risks to the organization. Annex 1 lists the major policy requirements that were tested, the number of contracts tested for each requirement, the number of times the tests were performed and the results.

Based on the results of the testing, AEB concluded that procurement and contracting activities were mostly in compliance with policy requirements, with some exceptions. Opportunities for improvement were noted in the following areas: approval of procurement transactions, signing and dating contracts, and maintaining an adequate audit trail of procurement and contracting documentation. The results of the compliance testing are summarized below.

Procurement initiation

This phase included activities related to defining the requirements and ensuring that the appropriate procurement methods were selected and that all authorities and approvals were respected.

Contracting requirements

TB Contracting Policy requires that contracting authorities prepare a description or statement of work (SOW), that service contracts do not result in an employer-employee relationship and that provisions of the Government Security Policy are observed. In addition, the SOW must address ownership of intellectual property.

A total of 70 contracts were examined. As previously mentioned, some tests did not apply to all samples, depending on the nature of the transaction. The audit found five cases (out of 27) where there were discrepancies in the security requirements, such as:

• security requirements not identified on the requisition or in the contracts;
• requirements on the requisition not aligned with the Master agreement.

The lack of a required security level properly identified on the requisition form increases the risk that suppliers may access the organization's assets without the proper security clearance and expose the Department to potential security issues.

Procurement method

The documentation on file was assessed to determine if it was sufficient to support the chosen procurement method. Compliance with international trade agreement requirements was also tested (e.g., threshold limits) to ensure they were respected. In addition, the rational for non-competitive contracting was examined to ensure that it met one of the four exceptions.

The audit team found one occurrence of contract-splitting: two contracts of the same nature were awarded to the same supplier to avoid the $25,000 threshold.

The audit also found, through analysis of contract trends, repeated contracts awarded non-competitively to the same suppliers. While in some circumstances it may be normal practice to award multiple contracts to one supplier depending on the nature of the procurement activity, it may also be indicative of a risk of contract-splitting. AEB did not perform additional testing to corroborate whether there were actual issues. The concern was also supported by interviews with PCD staff.

Authorities and approvals

The decision to obtain goods or services can only be taken by an individual who has the authority to initiate expenditure (requirement under the ECCC's Delegation of Spending and Financial Signing Authorities Policy). Once the expenditure initiation approval has been obtained, another pre-approval is necessary to confirm that sufficient funds are available in the budget to cover the expenditure (commitment requirement under section 32 of the FAA). Other approvals are also required for some types of expenditures, such as information technology, film, video and multi-media production, public opinion research and vehicle acquisitions.

The test included both original requisitions and amendments. The audit found 27 instances (approximately 16%) were the required approvals were not properly exercised. This included instance where:

• the requisition was not signed for FAA section 32;
• there was no expenditure initiation approval.

Lack of complete approvals for initiating purchases and committing funds increases the risk that procurement transactions are processed by unauthorized individuals and that budgets are exceeded. The audit also found two cases where the amendments were prepared after the work start date. Amendments done after the fact may also result in budgets being exceeded or may increase the risk of conflict with suppliers.

Contract tendering and award

Bid solicitation

The audit examined whether the bid solicitation method (request for proposals, invitation to tender, request for quotes, standing offers or supply arrangements) and related documents were appropriate. For example, we expected that evidence of the notification posted on websites for those procurement transactions requiring a bid solicitation would be on file and that register documentation would be signed and dated to ensure that opening and closing times were respected.

Results of the audit determined that the few transactions requiring bid solicitation contained appropriate evidence on file and were properly registered.

Evaluation criteria and bid assessment

TB Contracting Policy requires that, where applicable, bid evaluation criteria to address socio-economic factors in relation to the total cost of a contract before bids are solicited are established and communicated to the bidders, that an evaluation report for each of the bidders is well documented and contains ranking rationales, and that all final evaluation summary reports are signed by all members of the evaluation team (a minimum of two signatures is required).

The audit found that the evaluation criteria are well communicated. However, the requirement to keep a signed and dated evaluation report on file was not met in four out of six cases. Not documenting the bid assessment and not signing and/or dating the evaluation report could expose the Department to potential legal liability in the event of a challenge by one of the bidders.

Contract award

Legal requirements and normal practices require that all contracts be signed and dated by both the contracting authority and the supplier prior to the commencement of the work. In order for a contract to be valid, the signature of both parties on the contract is required as it is evidence that both have agreed to the terms of the contract, thereby helping to avoid questions of enforceability. A signed contract is also useful in determining which version of a document is the final in the event that there are negotiations preceding the contract award.

The audit noted that the requirement for the supplier to date the contract was not met in seven cases (approximately 10%). For those contracts, we were unable to assess whether the contractor had commenced work prior to accepting the terms of the contract. Starting the work prior to having a valid contract could expose the Department to unknown liability in the event of a conflict.

Contract administration

Contract management

This phase included activities related to the management of the contract ensuring that goods and services are delivered and paid in accordance with the terms and conditions of the contract and that payments respect the payment schedule and are certified according to sections 34 and 33 of the FAA.^Footnote11

All invoices with the exception of three were properly certified according to section 34 of the FAA (signed but not dated) and all invoices were paid in accordance with section 33 of the FAA with the exception of one, for which there was an error in the payment amount (an amount was not withheld from the payment, but subsequently corrected). In all other instances, sections 34 and 33 were properly applied, and the issues identified were not overly significant in proportion to the total sample size (190 invoices tested).

Procurement documentation

TBS Contracting Policy requires that procurement files be established and structured to facilitate management oversight with a complete document trail (i.e., audit trail) that includes contracting documents and details related to relevant communications and decisions, as well as the identification of involved officials and contracting approvals.

The audit noted that substantive improvements are needed in this area. The audit found that 18 of the 70 contracts selected (approximately 26%) did not meet the requirement for documentation or organization of files. Considerable information was being maintained electronically by procurement staff on their personal computer drives, but was not readily accessible. Some of the files tested had to be rebuilt from different sources (e.g., accounting files and/or electronic requisition from the system) and some files contained documents that belonged to other contract files. It was also noted that information contained in the files and the file structure varied among the regions.

Although a file documentation checklist was available, none of the procurement files tested had either been signed off by the procurement officer or utilized some type of checklist to certify completeness of the documentation.

The absence of complete and up-to-date documentation on every aspect of the contract to provide a record of action taken and to protect Canada's interest under the contract could expose the department to legal liability in the event of a challenge from the supplier.

3.3 Recommendations

1. The Assistant Deputy Minister, Corporate Services and Finance Branch, should review and enhance the procurement management framework to ensure that:
   • a formal quality assurance program is developed and implemented;
   • guidance to procurement officers is further developed and communicated to improve consistency in the application of the legislation, policies and procedures;
   • files are maintained such as to include a complete audit trail of key documentation; and,
   • increased monitoring and analysis of contract trends is carried out regarding,for example, sole-source contracts.
2. The Assistant Deputy Minister, Corporate Services and Finance Branch Finance Branch, should review the approach to monitoring the efficiency of the procurement and contracting activities in order to:
   • better include both procurement and client (program) key activities as part of the service standards; and
   • periodically monitor and report actual results against the established service standards.

Management response:

Management agrees with the above recommendations, and the branch has already begun implementing elements on the management action plan.