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Audit of Selected Contracting Activities at the Canada School of Public Service

November 16, 2007

Table of Contents

Executive Summary

1. Introduction
   • 1.1 Context
   • 1.2 Objectives
   • 1.3 Scope
   • 1.4 Approach and Methodology
2. Observations and Recommendations
3. General Conclusion

Appendix A - Contract Review Checklist

Executive Summary

Introduction

Canada School of Public Service (CSPS) was instituted on April 1st, 2004 following the integration of three entities that had previously operated independently, namely the Public Service Language School, Training and Development Canada and the Canadian Centre for Management Development.

The CSPS, also known as the School, issues approximately 1,000 contracts annually. Contracting activities are primarily for goods and professional services that are used in the development of courses, and course delivery, across the country. Total contracts amount to approximately $12 million annually.

In April 2005, Finance Canada undertook to provide selected internal audit services to the CSPS on an interim basis. As part of this arrangement, the Internal Audit and Evaluation Division of Finance Canada engaged Consulting and Audit Canada (CAC), now designated Audit Services Canada (ASC), to conduct an audit of CSPS procurement activities.

Objectives, Scope and Methodology

The objective of the audit was to verify compliance of a sample of CSPS contracting practices to the Financial Administration Act, Government Contract Regulations, the Treasury Board Contracting Policy, and, with applicable policies and procedures in effect at the School. A sample of 32 contract files was selected and each file was subjected to an analysis using a checklist (Appendix A) designed for assessing compliance for key phases of the contracting process.

Overall Conclusion and Recommendations

The audit found instances of non-compliance with certain policy requirements. Detailed observations can be found in the report and recommendations in this report are related to:

• The implementation of quality assurance procedures and the empowerment of Procurement and Contracting Unit staff to ensure proper approvals are in place and policies followed;
• Appropriate communication to ensure CSPS managers are aware of applicable procurement policies;
• The use of a pre-procurement analysis template to ensure that analyses concerning key requirements (e.g. security clearance and intellectual property assessments) are documented; and,
• The conduct of a subsequent audit of CSPS payments to ensure prescribed processes are followed for all procurements of goods and services.

It is expected that the implementation of these recommendations will improve contracting practices at the School.

1. Introduction

In August 2005, Audit Services Canada (ASC) was contracted to perform an audit of contracting activities conducted by the Canada School for the Public Service (CSPS) during fiscal year 2004-05. The Internal Audit and Evaluation Division (IAED) of Finance Canada/Treasury Board Secretariat of Canada oversaw contract performance.

1.1 Context

CSPS (also known as 'The School') was created on April 1st, 2004 following the integration of three organizations: the Public Service Language School, Training and Development Canada and the Canadian Centre for Management Development. The School provides its services across Canada through six regional offices: Atlantic, Quebec, Ontario, Central, Alberta and Pacific Regions.

Since its inception, CSPS has worked at standardizing policies and procedures that were in effect in each organization before the integration. To this effect, in November 2004, a contracting policy was promulgated.

Within CSPS, a Procurement and Contracting Unit (PCU) was created to provide a centrally managed function for the procurement of goods and services required by the School. PCU issues contracts, memoranda of understanding (MOU's) and other procurement documents for the acquisition of goods and professional services. From its inception to the time of the audit, CSPS issued, on an annual basis, approximately 1000 contracts for a total value of $12 million.

Within the School, cost centre managers are responsible for defining requirements and developing Statements of Work (SoWs). PCU is responsible for examining such requirements and for coordinating the tendering and vendor selection process for departmental contracts. All contracts are to be issued in compliance with the Financial Administration Act, Government Contract Regulations, Treasury Board Contracting Policy, and, applicable policies and procedures in effect at the School.

Authorities to approve contracts are held by PCU personnel and are decentralized to five levels of the organization, ranging from Administration Officers (level V) to the President (level I). The authorities to enter into contracts are described in a delegation chart and are dependent on the type of contract document issued (ex. local purchase order), the procurement process (competitive vs. non-competitive) and the nature of the contract (goods, services, etc).

1.2 Objectives

The audit originally had the following objectives:

• Assess procurement and contracting activities compliance to legislation, central agency policy and CSPS internal policy;
• Assess the overall effectiveness of the procurement processes as well as the controls mechanisms employed to ensure that fairness and transparency in applying rules and procedures were maintained, and;
• Determine if best value for money was obtained through the various contracts examined.

The objective was later narrowed to focus on compliance elements, as they concern the files examined. The revised objective of the audit was to verify compliance of selected CSPS contracting practices to the Financial Administration Act, Government Contract Regulations, the Treasury Board Contracting Policy, and, with applicable policies and procedures in effect at the School. Due to capacity issues being experienced by IAED at the time this audit was undertaken, assurance can only be provided on the single above-noted objective. A sample of 32 contract files was selected and each file was subjected to an analysis using a checklist (Appendix A) designed for assessing compliance for key phases of the contracting process.

Improvement opportunities and recommendations are submitted through this report for management attention.

1.3 Scope

The period covered by the audit is from September 1, 2004 to September 30, 2005. The School was created in April 2004 and the new School contracting policy came into effect during the fall of 2004.

This audit covers the contracting process from the initiation of the requirement to the issuance of the contract. Tests on financial signing authorities were limited to confirming that the incumbent had a valid financial signing authority (as documented on their signature card) for the period under audit and for the amount authorized.

Only contracts issued under the authority of the School were audited. Contracts issued by PWGSC on behalf of the School were excluded from the audit since most of the procurement processes are under the control of PWGSC. Call-ups against standing offers, however, were audited even though they were approved by PWGSC. In this case, the principal objective was to verify that the call-ups were issued in compliance with the terms and conditions of the applicable standing offers.

1.3.1 Scope Exclusions

Financial delegations allocated by responsibility centre are conditional to the availability of budget. The availability of budget at the time the contract was signed was not verified. Instead, reliance was placed on this key control and tested to ensure the signor had the appropriate level of authorization at the time of signing. Similarly, responsibility centres under the authority of signatories were not verified.

The intent of this audit was to examine contracts issued by the CSPS to ensure that the procurement cycle complied with policy. Therefore the sample was selected, as outlined below, from the lists of contracts issued. The payment portion of the procurement cycle was not examined and therefore an opinion is not provided on the appropriateness of payments made for contracted services. Nor is an opinion expressed on the appropriateness of payments made for goods or services, which did not appear on the list of contracts.

1.4 Approach and methodology

Before initiating the fieldwork, a meeting was held with the Director and the managers of the Finance, Administration and Procurement Directorate. The goal of this meeting was to clarify the project mandate, to arrange the project timelines, and to solicit any management concerns regarding contracting at the School. The management team explained that, because the School is a relatively new organization and that each of its components used to apply its own policies and procedures, it was expected that certain remnants of old contracting practices would be uncovered when examining the contract files.

Various reference documents pertaining to contracting were audited during this phase. They included the following:

• The policy on the delegation of financial signing authorities for the Canada School of Public Service, effective April 1st, 2005 and also the previous delegation chart of signing authorities effective April 1st 2004.
• The CSPS Contracting Policy (last updated November 2004).
• The CSPS Contracting procedures (last updated November 2004).
• Procurement and contracting template documents such as Solicitation Review form, Procurement Plan, Contract Request and Justification form, Contract Review and Approval form, Contract Amendment Request and Justification, Short form contract, Long form contract and Contract amendment form.
• Selected Procurement Quick Reference Guides used by CSPS personnel involved in contracting.

Throughout the audit, interviews were conducted with employees of the School to gather information and to obtain clarifications, opinions and facts. The following School representatives were interviewed:

• Director, Strategic Policy and Planning
• Director, Financial Management
• Senior Project Officer, Strategic Policy and Planning
• Manager of Contracts, Financial Management Directorate
• Contracting Officer, Financial Management Directorate

Compliance with policy during the various contracting phases was assessed. The phases are defined as follows: the initiation process, the sourcing of potential bidders, the bid solicitation process, the bid evaluation and contractor selection, the contract, the delegation of authorities and the issuance of contract amendments. Procurement officer and finance files were examined for each contract. A sample of 32 contract files was selected and each file was subjected to an analysis using a checklist (Appendix A) designed for assessing compliance for each phase of the contracting process.

1.4.1 Sample selection/criteria

A sample of 32 CSPS contracts issued during the period from September 1st, 2004 to September 30, 2005 was selected after a preliminary analysis of the total population of contracts. The sample was chosen subjectively and was not statistically representative of the entire population of CSPS contracts. The categories below represent the sample components by category of contracts issued:

Goods: 2
Services: 6
Printing: 2
Services (consulting and special services): 10
Standing offers (goods): 2
Standing offers (services):10

Total: 32 contract files

The total contract value of the sample was $1,230,874 and the average contract value was $39,907.

The audit criteria are shown in Appendix "A". When reviewing the delegation of authorities for section 32 of the FAA, the audit team examined the specimen signature cards to determine whether the signatories had the proper authority at the time they signed the official documents.

2. Observations and Recommendations

The audit revealed certain weaknesses in applying all elements of the TB Contracting Policy and Government Contracting Regulations, CSPS policy and the Financial Administration Act. Due to the fact that the sample selected was not statistically representative, the results of this audit cannot be extrapolated to comment on systemic CSPS contracting issues. The observations noted below concern only the procurement files examined, however, they do indicate that there are system-wide opportunities for improvement.

Observations are grouped under the following categories:

• Financial approvals and authorities;
• Contract file documentation; and,
• Appropriateness of contracting processes.

Financial Approvals and Authorities

Financial approvals are an integral component of the contracting process. It is imperative that persons signing contracts, or committing funds for contracts, have sufficient authority. In auditing the appropriateness of financial approvals and authorities, the audit team assessed whether the contracts examined were properly processed and approved. The audit team looked for proper FAA Section 32 approval, appropriate contract approval and adherence to contract terms. Authorities are formally delegated through the Financial Administration Act and are supported by delegation matrices and signature specimen cards. Not adhering to the delegated approval authorities is a contravention of the TB Policy on Delegation of Authority.

• In one case, Financial Administration Act Section 32 certification was not declared prior to the initiation of the contracting process.
• In four cases, contract approval was given by persons that did not have adequate delegated authority, as per the signature card in effect.
• In one case, contract work was initiated prior to having a signed contract in place.
• Certain signature cards examined during the course of the work were filled out improperly, some with handwritten notes attached to them explaining limitations. The validity of these notes was questionable, as the information should have been captured in the appropriate section of the signature card.

Contract File Documentation

Treasury Board Policy requires that master contract files contain supporting documentation around all key decision points to facilitate review and audit. Documenting procurement decisions also allows for a transparent account of transactions, should questions arise post award/execution. Our audit revealed several cases of inadequate documentation. The items most often missing were as follows:

• Security clearance requirements - the Government Security Policy requires anyone with access to government property, assets or information to obtain a security clearance. Contracting activities require managers to assess the need for and level of security clearance required for all contractors. Fourteen of the files reviewed did not contain documentation showing an analysis of security clearance requirements. While some of the fourteen cited could have had adequate security clearance levels for the contractors, (e.g. because of pre-clearance by PWGSC on Standing Offers), an explicit consideration of the requirement should still be in the contract file. In some cases the requirement could exceed the level obtained through a Standing Offer or other pre-clearance arrangement.
• Intellectual property (IP) considerations - when a contract results in the creation of intellectual property, the contractor retains the intellectual property by default. If the Crown has determined that it would like to retain, or the contractor has no interest in retaining it, the transfer to the Crown must be specifically referenced in the contract. Documentation showing the consideration of the final ownership of intellectual property should be included in the master contract file. Two contracting files where IP should have been considered contained no such documentation.
• Justification of contracting process selected - When choosing the type of mechanism to employ for contracting requirements (competitive, sole source, standing offer, etc.) the rationale for choosing the selected method should be in the contract file and should be supported by the Contract Review Committee in its assessment. This transparency ensures that exceptions are not invoked to use less onerous processes. Government Contract Regulations are very specific about the exceptions that justify the use of sole source contracting. They also require documentation to support that justification. The audit revealed that six relevant contract files lacked this required documentation.
• Price support - When non-competitive or limited tendering processes (such as ACAN's) are used, the contract file should contain an analysis to support the fairness and reasonability of the price of the service or good being rendered. Contract files examined did not contain such documentation.

Appropriateness of Contracting Processes

The Delegation of Authority Policy and the Contracting Policy dictate which contracting mechanisms can be used under different circumstances. While there is some flexibility in certain cases, the value of the contract being contemplated and the delegated authority limits usually dictate which mechanism is employed. Once a particular mechanism is employed, there are rules that govern its application. Our audit revealed situations where the rules were not applied correctly.

• In one case, apparent contract splitting for printing services was noticed (the total value was just under $22,000). This was uncovered by contracting officers at CSPS while it was taking place, but the manager disagreed with the contracting officer's interpretation of the situation. The contract involved printing various documents in a course package. While the specific documents to be printed differed, they all related to the same course;
• In one case Request For Proposal guidelines were not applied;
• One proposal was not comprehensively evaluated; and,
• Two contracts were let following RFP processes that had expired.

Recommendations

It is recommended that an audit of payments charged against CSPS accounts be conducted in the next fiscal year to ensure proper procurement processes are in place to support all payments made on behalf of the CSPS.

Management Action Plan

• Following completion of the audit in 2006, an internal controls review was completed, procurement was in scope.
  Completed
• Deloitte and Touche are conducting a readiness assessment and controls audit necessary for the preparation of auditable financial statements procurement was in scope.
  Completion Date: 4th quarter 2007-08
• An internal audit function was recently created and the auditor is in the process of developing the risk-based annual audit plan. Procurement will be included in the annual planning risk assessment.
  Given the work done and currently underway, and the fact an internal audit risk-based plan will identify the high risk areas requiring audit, if contracting at the time is perceived as a high risk area, an audit will be undertaken.
  Completion Date: 4th quarter 2007-08

The following recommendations are provided to address the consistent application of policy and legal requirements in the contracting process. The consistent application of the enhancements detailed below should serve to minimize the recurrence of the above noted issues.

It is recommended that the Director General, Corporate Services institute the following process modifications/improvements:

1. Require that cost centre managers complete a pre-procurement checklist/analysis document that would require them to certify that all potential pre-contractual and contractual requirements have been considered and addressed as required. In addition to ensuring funds are encumbered, cost centre managers should be required to provide a written explanation of the rationale behind the selected procurement vehicle and provide documentation outlining the analysis of IP ownership and security clearance requirements. Such issues would be included in the RFP/contract as required.

   Management Action Plan

   • Checklists were prepared and distributed to all Branches to help cost centre managers with the procurement process.
     Completion Date: Completed
   • Checklists were developed for the procurement officers to ensure that all required documentation is on file.
     Completion Date: Completed
   • In April 2006, the Procurement and Contracting Unit (PCU) posted on the School's Intranet site, a revised Contract Request and Justification (CRJ) form and process. Cost Centers Managers are asked to provide a rationale to justify a sole-source requirement against the possible four exceptions.
     Completion Date: Completed
   • A new contract reference guide is being drafted and will be disseminated once approved by the CSPS Senior Management Committee.
     Completion Date: December 2007
2. Ensure that PCU or the Contract Review Committee is authorized and empowered to approve or reject contracting practices before they are completed. PCU personnel should also be given the authority to require cost centre managers to furnish requisite information for inclusion in the procurement file before moving to subsequent phases in the procurement process.

   Management Action Plan

   • The Contract Review Board has been granted the authority to approve or reject contracts.
     Completion Date: Completed
   • PCU personnel have been granted the authority to require managers to provide necessary documentation for each phase of the procurement process.
     Completion Date: Completed
3. Use communication, training or other mechanisms to reinforce CSPS managers' understanding of procurement policy and procedural requirements and the need to adhere strictly to those standards.

   Management Action Plan

   • Training has been reinforced, with the adoption of the Federal Accountability Act. Managers may not exercise their delegations without being assessed and successfully complete their authority delegation training.
     Completion Date: Ongoing
   • Formal training is given to Branch Managers.
     Completion Date: Ongoing
   • "Lunch and Learn" presentations are given to interested parties.
     Completion Date: As required
   • Targeted sessions to management, program and regional teams provided proactively by PCU to discuss and plan operational contracting needs, roles and requirements. In addition, the Manager of Procurement and Contracting is providing all PG staff and CSPS personnel holding contracting authorities with information sessions exclusively on service contracts.
     Completion Date: As required
   • PCU is training all new Administrative Officers arriving at the CSPS. In addition, PCU reinforces Administrative Officers contracting knowledge once or twice a year at the CSPS Administrative conference. Completion Date: Ongoing
4. Institute a quality assurance and control system within PCU to verify adherence to financial and contractual authority and legal/policy requirements before contracts are processed. This would include ensuring that all requisite supporting documentation be completed accurately and completely.

   Management Action Plan

   • The PCU monitors all proposed contracts prior to being issued. This allows PCU to ensure that all competitive process requests have been following proper competitive procedures prior to the declaration of the winning bidder and the issuing of the contract. Completion Date: Completed

3. General Conclusion

It is recognized that significant work has been done by CSPS management since April 2004 to harmonize policies and procedures that applied to the various entities before their integration into the School. Although the integration took place ten months prior to the audit, it is recognized that it takes time to implement important operational changes. In that time, School management advanced harmonization work by implementing a contracting policy (in November 2004) and related procedures that apply to the whole organization.

With regard to this context, the audit team, in consultation with management of the School, selected a sample of contracts that were awarded after the integration to ensure that common policies and procedures had time to percolate to all parts of the organisation. The sample size of 32 contract files was relatively small and the results cannot be extrapolated to the whole population. Findings are presented with high assurance regarding adherence of the files examined to key policy requirements, outlined in Appendix A. Findings with respect to the files examined generally relate to financial approvals and authorities, the completeness of contract file documentation and the appropriateness of contracting mechanisms used. Based on the observations, it is noted that system-wide opportunities for improvement exist in CSPS contracting activities.

It is expected that the implementation of the recommendations noted in this report will improve contracting practices at the School.

Appendix A - CONTRACT REVIEW CHECKLIST

1. Initiation process:
   • 1.1. The requirement is properly authorized under FAA sec.32;
   • 1.2. There is a Statement of Work and goods or services are properly defined;
   • 1.3. Is there evidence that the work started prior to the award of the contract;
   • 1.4. There is no appearance of employer-employee relationships;
   • 1.5. Ownership of the intellectual property has been addressed in the contract;
   • 1.6. Security clearance requirements have been addressed; and
   • 1.7. Deliverables are well defined.
2. Sourcing:
   • 2.1. The sourcing of a non-competitive procurement is in accordance with policy;
   • 2.2. The file contains a document and valid sole source justification; and
   • 2.3. The sourcing of a competitive procurement is in accordance with the policy.
3. Bid solicitation:
   • 3.1. The appropriate terms and conditions were used in the bid solicitation document;
   • 3.2. The bid selection method and evaluation criteria are clearly outlined in the bid solicitation document; and
   • 3.3. Changes to the bidding process have been handled in accordance with policy.
4. Bid evaluation & contractor selection:
   • 4.1. Evaluation of proposals and contractor selection were conducted in accordance with the terms and conditions of the RFP; and
   • 4.2. The evaluation report is on file.
5. Contract:
   • 5.1. The appropriate type of contract document has been used; and
   • 5.2. Evidence of price support is provided for non-competitive contract as required by policy.
6. Use of contracting authorities:
   • 6.1. The contract is approved/signed by an authorized person;
   • 6.2. Contract was signed on or prior to start date;
   • 6.3. The contract Review Committee approval has been obtained when required; and
   • 6.4. A copy of the signed written contract is on file.
7. Contract amendments:
   • 7.1. Contract amendment is issued before contract expiry date;
   • 7.2. Contract amendments were issued for a valid reason; and
   • 7.3 Contract amendments were approved/signed by an authorized person