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Internal audit of procurement and contracting

Table of contents

Executive summary

The Commissioner is supported by the Office of the Commissioner of Lobbying (OCL) of Canada, an agent of parliament which was established in 2008. The Commissioner reports annually to Parliament on the administration of the Act and the Code, and is required to table reports about any investigation conducted in relation to the Code. The OCL, when fully staffed, has 28 full‑time employees and an overall budget of about $4.4 million whereas 59% is for personnel.

OCL's Multi‑Year Audit Plan was updated taking into account the planned audit coverage by central agencies, wherever such audit coverage applies to the OCL. As a result of the multi‑year audit plan developed on a risk based approach it prioritized the audit of procurement and contacting activities.

The audit objectives are:

  1. To determine whether management practices, systems and controls result in goods and services being acquired in accordance with stated requirements;
  2. To verify appropriate delegated financial signing authorities were applied;
  3. To validate adherence to policies and guidelines; and
  4. To confirm that value for money was obtained.

The audit also determined whether management practices, systems and controls meet requirements of the Financial Administration Act, the proactive disclosure of contracts, and the Federal Framework for Aboriginal Economic Development.

The audit covered procurement and contracting activities for the period since the procurement guide was in effect, from to .

The audit results are summarized below with respect to Governance, Risk Management and Internal Controls and include one key recommendation.

Governance

Authority is formally delegated and delegated authority is aligned with individuals' responsibilities.

Accountability and responsibility among key stakeholders are clearly documented in the OCL Procurement Guide and Delegation Instrument. Through interview we confirmed that accountability and responsibility are well understood by managers and staff with contracting responsibilities.

The EMC committee might be better served by reviewing information in a summary format which also enables the identification of trends and practices.

Recommendation

We recommend that OCL uses its financial system to produce summary reports for review by senior management (EMC) and oversight bodies in order that trends and practices can be analyzed for appropriateness.

Risk management

Evidence exists to demonstrate that management has considered the risks with the associated procurement processes and guidelines and have developed appropriate controls to address them. 

Authority is delegated with consideration of risk.

Internal controls

Conclusion

In General, OCL has put in place adequate internal controls and has strengthened the application of these controls in the more recent year.

A. Background

The mandate of the Commissioner of Lobbying is threefold: (i) to establish and maintain the Registry of Lobbyists, which contains and makes public the information disclosed by lobbyists; (ii) to develop and implement educational programs to foster public awareness of the requirements of the Lobbying Act; and (iii) to undertake administrative reviews and investigations to ensure compliance with the Act and the Lobbyists' Code of Conduct. Under the Act, the Commissioner of Lobbying has the authority to grant exemptions to former designated public office holders who are subject to a five‑year prohibition on lobbying activities.

The Commissioner is supported by the Office of the Commissioner of Lobbying (OCL) of Canada, an agent of parliament which was established in 2008. The Commissioner reports annually to Parliament on the administration of the Act and the Code, and is required to table reports about any investigation conducted in relation to the Code. The OCL, when fully staffed, has 28 full‑time employees and an overall budget of about $4.4 million whereas 59% is for personnel.

OCL's Multi‑Year Audit Plan was updated taking into account the planned audit coverage by central agencies, wherever such audit coverage applies to the OCL. The Audit Plan was developed taking into account OCL's business priorities, Corporate Risk Profile and other relevant documents. In addition, interviews were conducted with members of the OCL Executive Management Committee and leaders of enabling functions to obtain comments regarding audit universe components and audit priorities.

As a result of the multi‑year audit plan developed on a risk based approach it prioritized the audit of procurement and contacting activities.

Process overview

Responsibility Centre Managers (RCMs) are those executives within OCL who are allocated a budget for delivery of program activities and/or internal services. In addition to the Commissioner, RCMs include the Deputy Commissioner, the Director of Investigations, and the Director of Registration and Client Services. RCMs are responsible for planning and initiating expenditures for goods and services required for their area of responsibility, and they are responsible for the commitment of funds associated with these expenditures. 

Upon contract award, RCM's will exercise FAA Section 32 authority but transaction (contracting) authority is mostly exercised by the Directors, Chief Financial Officer (CFO), Deputy CFO or Commissioner depending on the value. The same authority is exercised when RCMs sign a purchase order or call‑up against standing offer. Once a contract (or purchase order or call‑up) has been issued, RCMs and the DCFO assume responsibility for overseeing contract performance (with subject matter experts when necessary), and approve supplier invoices for goods or service received (confirmation of contract performance, FAA Section 34). 

The CFO has prime responsibility for the management of procurement activities and is the main source of advice for all procurement methods.Footnote 1 The CFO supports the Commissioner by ensuring that OCL procurement practices are consistent with applicable central agency policies and guidelines, as well as sound management practices. As a general rule, the CFO acts as the Contracting Authority for all service contracts within OCL. 

Both the Corporate Services Committee (CSC) and the Executive Management Committee (EMC) chaired by the Deputy Commissioner and the Commissioner respectively, review most procurement activities prior to entering into a contract.

B. Data analysis

OCL does not prepare consolidated information on contracting activities undertaken that we could use for the purposes of analysis and sampling. However, by reviewing the financial transactions for the period covered by our audit ( to ), we have been able to summarize the spending by procurement method and the number of contracts these spending related to below. It is important to note that the spending does not represent the contract value but the amounts incurred towards a specific contract during the audit period. This information provides us with helpful information about the area we should focus in our audit.

May 2012 – Mar 2013 Year 2013/2014 Apr – Jul 2014 Total Audit Period
$ # $ # $ # $ #
Competitive – ACAN $ 15,876 1 $ 15,878 1 - - $ 31,754 2
Competitive – Call‑up (SO/SA) $ 51,114 8 $ 90,770 19 $ 13,799 5 $ 155,683 32
Competitive – Other $ 181,949 5 $ 72,662 7 $ 19,202 3 $ 273,813 15
Temporary Help Services $ 158,539 5 $ 38,437 3 $ 6,596 1 $ 203,572 9
Sole Source $ 139,525 18 $ 186,917 25 $ 27,402 9 $ 353,844 52
Acquisition Card $ 17,212 - $ 31,280 - $ 11,275 - $ 59,767 -
Other $ 2,738 9 $ 2,219 14 $ 157 9 $ 5,114 32
$ 566,953 46 $ 438,163 69 $ 78,431 27 $ 1,083,547 142

C. Audit objectives, scope and criteria

Objectives

The audit objectives are:

  1. To determine whether management practices, systems and controls result in goods and services being acquired in accordance with stated requirements;
  2. To verify appropriate delegated financial signing authorities were applied;
  3. To validate adherence to policies and guidelines; and
  4. To confirm that value for money was obtained.

The audit also determined whether management practices, systems and controls meet requirements of the Financial Administration Act, the proactive disclosure of contracts, and the Federal Framework for Aboriginal Economic Development.

Scope

The audit covered procurement and contracting activities for the period since the procurement guide was in effect, from to .

The audit did not include issues related to the content and / or adequacy of the delivery of contracts or the goods and services procured through MOUs with other departments or agencies.

Criteria

The criteria for the Audit of Procurement and Contracting were developed to address the areas of risks identified in our preliminary assessment. They address the effectiveness and adequacy of the core management controls that should be in place in federal government organizations, including independent Agent of Parliament like OCL.

Line of Enquiry (LoE)

  • LoE 1 – Governance: OCL has an effective Governance structure is in place to monitor, receive reporting, and make decisions regarding procurement and contracting activities.
  • LoE 2 – Risk Management: OCL considers risk in a systematic manner in order to mitigate emerging risks and identify areas of improvement throughout the procurement and contracting lifecycle.
  • LoE 3 – Internal Controls: Procurement and contracting processes of OCL demonstrate an effective set of controls and compliance with relevant policies and guidelines, legislative requirements and promoting value for money, including favoring an open, fair and transparent process when applicable.

Criteria were developed for each LoE and are presented in Appendix A.

D. Audit approach and methodology

The conduct phase of the audit consisted of an assessment of the controls, processes and practices in place for the review, solicitation, award and management of contracts, including amendments.

The audit work was based on the Policy Framework adopted by OCL for procurement, which includes requirements for procurement and contracting in the Government of Canada.

We interviewed staff and managers with a vested interest in the ultimate success of the contractual process, and reviewed the documentation used to review and approve requirements, solicit bids and approve amendments in light of prevailing policy and guidelines. We also conducted "walkthroughs" of the associated processes with key staff and managers.

We reviewed a number of contract files, selected using a risk‑based judgmental approach, to confirm whether contract requests have been subject to appropriate review and approval requirements, bids have been solicited, awarded and amended in accordance prevailing policy, guidelines and with due consideration of value for money. The audit sample selected and related coverage is as follows:

Total Audit Period Suggested Sample Coverage
$ # $ # $ #
Competitive – ACAN  $ 31,754 2  $ 17,940 1  $ 13,814 56%
Competitive – Call‑up (SO/SA)  $ 155,683 32  $ 112,110 10  $ 43,573 72%
Competitive – Other  $ 273,813 15  $ 155,663 7  $ 118,150 57%
Temporary Help Services  $ 203,572 9  $ 162,902 5  $ 40,670 80%
Sole Source  $ 353,844 52  $ 327,487 16  $ 26,357 93%
Acquisition Card  $ 59,767 -  $ 18,125 -  $ 41,642 30%
Other  $ 5,114 32  $ 1,396 1  $ 3,718 27%
 $ 1,083,547 142  $ 795,623 40  $ 287,924 73%

For acquisition Cards, two users were selected out of a total of three cardholders, where we reviewed transactions of each of the selected users for four separate and distinct months.

All findings and recommendation in this report were presented and discussed with management.

E. Statement of assurance

In our professional judgment, sufficient and appropriate procedures were performed and evidence gathered to support the accuracy of the audit conclusion. The audit findings and conclusion are based on a comparison of the conditions that existed as of the date of the audit, against established criteria that were agreed upon with management. Further, the evidence was gathered in accordance with the Internal Auditing Standards for the Government of Canada and the International Standards for the Professional Practice of Internal Auditing.

F. Observations, conclusions and recommendations

Governance

Observation

The overarching governance structure of the OCL is detailed in their Governance Structure Document. In it the roles of both the Corporate Services Committee and the Executive Management Committee are elaborated. Both committees are directly involved in the review of requests for the acquisition of goods and services. The extracts below are from the Procurement Guide and provide more detail (the last paragraph for each committee is not included in the actual Governance Structure document) on their respective role in the review of requests for contracts.

Corporate services committee

The Corporate Services Committee (CSC) is chaired by the Deputy Commissioner.Footnote 2 It meets bi‑weekly and oversees departmental resource management, accommodation management, human resources, information technology, contracting, procurement, and other corporate services. Its activities include discussions about setting priorities, investing resources, and managing administrative services to improve OCL management. The CSC also recommends items to the attention of the Commissioner or to the Executive Management Committee (EMC) for consideration and/or approval.

In relation to procurement, the CSC is responsible for reviewing all Service Contract Requisitions brought forward by Responsibility Centre Managers, proposing modifications (if appropriate), and recommending that the requisitions be submitted to the EMC for review and approval by the Commissioner.

Executive management committee

The Executive Management Committee (EMC) is chaired by the Commissioner.Footnote 3 It meets bi‑weekly and establishes and oversees strategic policy and management direction. It provides a forum to consider decisions on policy, administrative practices and management issues, and it supports the Commissioner in providing direction on OCL priorities and activities. The EMC supports the Commissioner in making strategic decisions on key policy and operational planning issues, ensures integration of cross‑cutting decisions and addresses items impacting OCL program operations. It specifically provides advice to the Commissioner and supports the oversight function with respect to business planning, finance, human resources, information technology, information management, official languages, outreach activities and workplace health and safety. The EMC also advises the Commissioner on resource allocation.

In relation to procurement, the EMC is responsible for reviewing all Service Contract Requisitions brought forward by the RCMs / CSC, and recommending them for approval by the Commissioner.

Through interview we determined that the activities and roles of both the EMC and CSC relating to contracting are well understood.

Authority for contracting is formally delegated in the Office of the Commissioner of Lobbying (OCL) Delegation of Authorities Instrument. Delegation for Contracting, including Acquisition Cards, is addressed in the Signing Authorities Instrument under A.3 – Transaction Authority. Treasury Board Contracting Policy Notice 2011‑4 amends the definition of a contracting authority to include the heads of organizations listed in the Schedule to the Government Contracting Regulations (GCRs), which includes the Commissioner of Lobbying. We have noted that procurement guide makes a distinction with respect to transaction (contracting) authority that excludes Directors. It is our understanding that the Guide needs to be modified to include Directors.

However, we have noted that there is some confusion regarding delegation authority for goods. The current delegation of authority is limited to $5K for goods while there may be instances where the Commissioner wishes to purchase goods above this limit (where standing offers do not exist for the desired items). As an Agent of Parliament, the OCL could have this limitation modified to better reflect its needs.

Procurement information for senior management and oversight bodies

Procurement information is not summarized in a consistent and readily available format and presented to senior management or Audit Committee (ex: challenges understanding how many contracts of what types). Procurement information is available but not in a consistent and readily available format and is reviewed by senior management on a case by case basis. The financial system should be used to provide necessary information to ensure completeness and accuracy with respect to the number of contracts currently in place, the number of amendments for each, dollar value, sole source or competitive transaction and anticipated renewal date if applicable.    

Conclusion

Authority is formally delegated and delegated authority is aligned with individuals' responsibilities.

Accountability and responsibility among key stakeholders are documented in the OCL Procurement Guide and Delegation Instrument, minor changes are however required in the Guide for transaction (contracting) authority. Through interview we confirmed that accountability and responsibility are well understood by managers and staff with contracting responsibilities.

The EMC committee might be better served by reviewing information in a summary format which also enables the identification of trends and practices.

Recommendations

We recommend that OCL uses its financial system to produce summary reports for review by senior management (EMC) and oversight bodies in order that trends and practices can be analyzed for appropriateness.

We also recommend that OCL update the Guide to better reflect the transaction authority of its Directors.

Risk management

Observation

OCL is a small organization with contracting expenditures of less than $0.5 million per year. Only five managers have been delegated Transaction (Contracting) Authority. In our opinion authority has been delegated with appropriate consideration of risk.

OCL has established Memorandum of Understanding (MOU) with several entities to provide administrative support. For procurement and contracting services this includes an MOU with CHRC for the provision of a review and transaction process for contracts by senior PGs from CHRC. 

OCL has also developed internal guidance documents and/or decided to adhere to existing policies or manual, including:

  • Procurement File Index
  • Procurement Checklist – Goods
  • Procurement Checklist – Services
  • Service contract requisition form
  • Goods Requisition Form
  • Statement of Work – Principles
  • Security Requirements Check List (SRCL)
  • Contractor Performance Evaluation Form
  • Delegation of Financial Signing Authorities Instrument
  • TB Contracting Policy
  • PWGSC Supply Manual
  • PWGSC Standard Acquisition Clauses and Conditions (SACC) manual
  • PWGSC Code of Conduct for Procurement
  • TB Values and Ethics Code for the Public Sector

According to the procurement guide, a Service Contract Requisition Form (SCRF) should be filled out and presented to the CSC and EMC for review when there is a requirement for services. Once reviewed by both the CSC and EMC, the SCRF is approved by the Commissioner on the advice and recommendation of the EMC. Essentially, the SCRF gives the committees and the Commissioner sufficient information about the requirement and budget to make a sound decision. The procurement method used and the justification for sole source are also found on the form. While performing the audit work, we found that the SCRF was partially completed (2012 to 2013). However, it was observed that once the procurement guide was fully introduced in 2014 the SCRF was complete.

There are individual policies to address Acquisition Cards, Purchase Orders, Sole Source, Competitive and ACAN Contracts

Procurement activities and roles are documented in the OCL Procurement Guide (the Guide). However the role and level of involvement of the procurement officer at CHRC in processing contracts could be more clearly addressed in the Guide. 

In addition the Guide states its effective date as yet on pages 4 to 9 and 13 to 29 (of 29) the footer refers to it as Draft V 4.0. 

Conclusion

Evidence exists to demonstrate that management has considered the risks with the associated procurement processes and guidelines and have developed appropriate controls to address them. 

Authority is delegated with consideration of risk.

Recommendation

That OCL update the Guide to more fully describe the role of the procurement officer at CHRC, and delete all references to the Guide being Draft V 4.0. 

Internal controls

Observation

During file testing it was noted that although responsibility for maintaining the contracting related information is clearly assigned it may not have always been well understood and applied. 

Documents of ongoing relevance and importance were not always on file. In 7 of 34 files, auditors were not able to readily locate sufficient documentation on the contract files to determine if the contracting requirements had been adhered to. 

Upon request the contracting authority was able to locate some documentation; however this took some time and effort on their part. During this process we contacted the CHRC procurement advisor who was able to provide some documentation as was the OCL Financial Analyst.

Individuals responsible for initiation of (FAA section 32 – commitment) and/or approval for payment for (FAA section 34) transactions must not be the same individual responsible for payment (FAA section 33 – requisition). Incompatible functions must not be combined. Our testing determined that no individuals responsible for initiation of (FAA section 32 – commitment) and/or approval for payment for (FAA section 34) transactions were the same individual responsible for payment (FAA section 33 – requisition).

Additionally, in all testing there was evidence of approval through email, letters and or signature of contractual initiation documents.

Proactive disclosure was complete and up to date.

The processes in place are understood and adhere to relevant legislative requirements, TBS and PWGSC policies, and the GCRs. These processes address, among other things, former public servants, contract splitting, employer/employee relationships, contractor performance evaluation and sole sourcing.  

Acquisition cards

For acquisition Cards, we reviewed transactions of each of the selected users for four separate and distinct months.

We reviewed a total of 32 transactions. Transactions met all of the policy requirements.

Acquisition Cards are used in accordance with prevailing policy and guidelines. However there was incomplete documentation on file to demonstrate that card holders had acknowledged their responsibilities for the use of AC under their control in accordance with policy.

Value for money

The following table documents the results of our file testing. It demonstrates that for the most part OCL used direct competition or procurement vehicles put in place by PWGSC to obtain market rates, and therefore value, for its requirements. In the sole source contracts reviewed, we can say that we did not observe any rates or per diems that appeared to be above market rates for similar services.

Type of Contract # of Contracts
THS 5
Sole Source under 10K 4
Sole Source for DAC 3
Sole Source between 10 and 20K 1
Sole Source between 20 and 25K 4
Sole Source over 25K 2
Competitive contracts 18
Competitive contracts under 25K 12
Other – Purchase Order for Awards 1

Conclusion

In General, OCL has put in place adequate internal controls and has strengthened the application of these controls in the more recent year.

Recommendation

If the original signed copies of the Acknowledgement of Responsibilities and Obligations form (Acquisition Card) cannot be located, new forms should be created and put on file.


Appendix A

Audit Criteria Sub‑criteria

Line of Enquiry 1:
Governance: an effective Governance structure is in place to monitor, receive reporting, and make decisions regarding procurement and contracting activities.

Governance / Accountability
1.1 Authority, responsibility and accountability are clear and communicated. (AC‑1)
  • Authority is formally delegated and delegated authority is aligned with individuals' responsibilities.
  • Accountability and responsibility among key stakeholders are clearly documented and understood 
1.2 A clear and effective organizational structure is established and documented (AC‑3)
  • The procurement activities and roles are clearly documented and understood.
  • Authority is delegated with consideration of risk.
Governance / Policy and Programs
1.3 Policy and program guidelines exist and are reviewed on a regular and timely basis to guide procurement staff and system users in their daily activities. (PP‑3)
  • Current well documented policy and guidelines exists, are reviewed and updated, and are accessible to users.

Line of Enquiry 2:
Risk Management: the Agencies consider risk in a systematic manner in order to mitigate emerging risks and identify areas of improvement throughout the procurement and contracting lifecycle.

Risk Management
2.1 Management identifies and assesses the existing controls that are in place to manage its risks (RM‑3)
  • Evidence that management has considered the risks with the associated procurement processes and guidelines and have developed appropriate controls to address them.
  • Integral to this aspect will be the qualifications, training and development of staff involved with procurement.

Line of Enquiry 3:
Internal Controls: procurement and contracting processes demonstrate an effective set of controls and compliance with relevant TBS and PWGSC policy, legislative requirements and promoting value for money.

Internal Controls / Stewardship

3.1 Records and information are maintained in accordance with policies, laws and regulations.

(ST‑12)

  • Responsibility for maintaining the contracting related information is clearly assigned, understood, and adhered to.
  • Procurement information is available and produce as necessary to provide senior management with an understanding of trends and practices.

3.2 There is appropriate segregation of duties.

(ST‑13)

  • Individuals responsible for initiation of (FAA section 32 – commitment) and/or approval for payment for (FAA section 34) transactions must not be the same individual responsible for payment (FAA section 33 – requisition).

    Incompatible functions must not be combined.

3.3 Financial and non‑financial reporting with respect to procurement is reviewed and approved.

(ST‑18)

  • Reporting is reviewed for completeness, accuracy, relevance, timeliness, appropriateness, and reasonableness.
  • Approval is documented (signoff, email, minutes, etc).

3.4 Management has established processes to review, approve, solicit, award, and manage procurement and contracting activities including acquisition cards.

(ST‑22)

  • The processes in place are understood and adhere to relevant legislative requirements, TBS and PWGSC policies, and the GCRs.

    (Applies to, among other, former public servants, contract splitting, employer/employee relationships, contractor performance evaluation and sole sourcing)
3.5 Management has established processes to ensure that value for money (fairness, openness and transparency) are considered in addition to policy requirements.
  • The processes and practices in place favor value for money (transparency, openness and fairness)
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