Audit of the Efficiency of Contracting Processes
August 2010
Audit Key Steps
Planning completed / March 2009Fieldwork completed / June 2009
Draft audit report completed / July 2009
Report sent for management response / July 2009
Management response received / September 2009
Final report completed / September 2009
Tabling of report to the External Audit Advisory Committee / September 2009
Approved by the Deputy Minister / August 2010
Prepared by the Audit and Evaluation Team
Acknowledgments
The audit team responsible for this project, composed of Francis Pelletier and StellaLineCousineau under the direction of Jean Leclerc, would like to thank those who contributed to this project, and in particular those employees who provided insights and comments as part of this audit.
Table of Contents
EXECUTIVE SUMMARY i
1 INTRODUCTION 1
1.1 Background 1
1.2 Project Significance 1
1.3 Objective(s) and Scope 2
1.4 Methodology 3
1.5 Statement of Assurance 5
2 FINDINGS AND RECOMMENDATIONS 5
2.1 Data Mining and Analysis 5
2.2 Results of Testing 6
2.3 Efficiency Achievement Information 8
2.3.1 Audit Criteria: actual processing time is measured and results are analysed 8
2.3.2 Audit Criteria: service standards exist and are communicated to all employees 8
2.3.3 Audit Criteria: Client satisfaction is measured and results are used to improve business processes 9
2.4 Management System and Practices 9
2.4.1 Audit Criteria: Current business processes are documented and available to all 9
3 CONCLUSION 11
Annex A Key Control Dates and Definition 13
Annex B Document Types Description 14
Audit of the Efficiency of Contracting Processes
EXECUTIVE SUMMARY
The Audit of the Efficiency of Contracting Processes was identified in the 2008–2009 Annual Risk-based Audit and Evaluation Plan, which was recommended for approval by the External Audit Advisory Committee during its April 2008 meeting.
This project was initially identified as part of the internal consultation and risk assessment process as a high-risk area. A concern was expressed by managers and clients about the time required to process procurement requests, more specifically the requirements of the then-new Procurement Review Board.
Although much work was carried out by the Finance and Corporate Branch in response to concerns about the requirements of the Procurement Review Board, no substantive analysis was carried out to understand and improve overall timeliness of procurement activities. In fiscal year 2008–2009, 13,196 contracts and 1,764 amendments for a value of $185,281,889 were awarded. Given that contracting is an important vehicle for delivering on departmental programs, an audit of the controls surrounding timeliness of the procurement process was considered to be needed.
The audit’s objective was to provide assurance that contracting activities supporting the delivery of the departmental programs were efficient.
The audit’s scope focused on key controls impacting the timeliness of procurement activities that are entirely or partially executed by the Procurement and Contracting unit in the National Capital Region. Benchmarking against two other regions of the Department (Ontario and Quebec) was also conducted.
Summary of Findings and Conclusions
Current business processes and systems do not provide for the capturing and monitoring of the performance of the Procurement and Contracting unit. Actual process time is not captured, service standards are not established, and client satisfaction is not measured. Consequently, the unit is unable to identify areas of improvement on an ongoing basis.
Given the absence of service standards, it is difficult for the audit team to determine whether procurement requests are currently processed within a reasonable time frame. Although the audit provided some insight as to the control areas that could be improved for efficiency, there is a need to develop a process that will enable the capture of the required information, in order to set up service standards.
The results of the testing highlighted some variability in processing time between the regions. Although the audit team could not conclude on the result given the small number of transactions in each of the category, this could be an indication of capacity both in terms of numbers and/or experience. It could also be an indication that some regions deal with more complex contracts. Inconsistency in policies and procedures application could also have an impact on the timely processing of contracts.
Overall, given the right tools and guidance, improved efficiency could be achieved by the procurement units.
The Assistant Deputy Minister, Finance and Corporate Branch, should implement the following:
1. Develop and implement a “tracking event” system to facilitate the recording of dates necessary to measure actual processing time. This could leverage lessons-learned from previous application development with the perspective of developing a web portal and a tracking system to support recurring activities across all regions. The system should support the following activities:
o monitoring of actual results and investigation of the root cause of results that do not meet expected service standards
o communication of corrective action to senior management
o communication of actual processing time to clients
2. Develop, implement and communicate service standards for the different types of procurement activities. Establishment of service standards could be phased in. For example, a procurement process that currently shows less variability between regions and represents a larger transaction volume, such as Local Purchase Order, could be the first one implemented. Furthermore, service standards should be reviewed regularly and updated as necessary.
3. Develop a tool to measure client satisfaction on an ongoing basis. The results should be communicated to Procurement and Contracting employees and senior management. The results should also be used to improve business processes.
4. Realign the procurement and contracting structure to allow for functional leadership for all regional procurement units.
5. Develop and implement workflow and administrative procedures related to the different procurement processes. These must be made available and communicated to all employees.
Management Response:
Management agrees with the recommendations and a detailed action plan to address the audit recommendation has been developed.
Environment Canada ii
Audit of the Efficiency of Contracting Processes
1 INTRODUCTION
The Audit of the Efficiency of Contracting Processes was identified in the 2008–2009 Annual Risk-based Audit and Evaluation Plan, which was recommended for approval by the External Audit Advisory Committee during its April 2008 meeting.
1.1 Background
Legislative authority to contract is derived from the Financial Administration Act and the Public Works and Government Services Act. The Treasury Board Secretariat is responsible for issuing policies and procedures for contracting in the federal government. Public Works and Government Services Canada acts as the procurement authority for the Government and is responsible for improving the overall efficiency of the contracting process as well as providing advice and contracting services. Departments are subdelegated some contracting services. In the last years alone, Public Works and Government Services Canada has introduced 18 new trade regulations along with a number of tools. This combined with the increased scrutiny and transparency required in the delivery of procurement activities, the complexity in terms of the number of different vehicles along with the stakeholders involved in the process, certainly had a considerable impact on procurement units.
At Environment Canada, procurement services are delivered through six regional procurement and contracting units reporting to the Director General, Assets, Contracting and Environmental Management Directorate.
The procurement and contracting units of Environment Canada provide services such as advice, assistance and approval, in the following areas:
· planning and best methods to be used for the acquisition of goods and services
· development of specifications and selection criteria
· co-ordination of the tendering process, requests for proposals, negotiations, and contract awards
· delivery of training and information sessions
In the execution of the procurement services, the units work closely with the Procurement Review Board, which is the principal management review and approval forum within Environment Canada for the procurement of goods, services and construction. The Board is primarily concerned with how the planned procurement will be processed.
1.2 Project Significance
This project was initially identified as part of the internal consultation and risk assessment process as a high-risk area. A concern was expressed by managers and clients regarding the time required to process procurement requests, more specifically the requirements of the then-new Procurement Review Board.
The results of our preliminary assessment revealed that, in January 2007, the Finance and Corporate Branch mandated its Integrated Enterprise Services group to develop a baseline of the current situation in contracting, using a fact-based approach to identify and prioritize key opportunities for improvement. As result, a number of improvements were implemented, such as the following:
· Single source contracts equal to or exceeding $25K will require Procurement Review Board approval (up from $10,000)
· competitive contracts for goods equal to or exceeding $32.4K and competitive contracts for services equal to or exceeding $50K will require Procurement Review Board approval (up from $25,000).
· Changes in the management approval levels required to send requests to Procurement Review Board’s approval
In addition, in the spring of 2009 the Office of the Procurement Ombudsman conducted a practices review of nine departments and agencies, including Environment Canada. The objective of the review was to assess management of the senior committee responsible for the challenge and oversight function of the procurement process at the senior departmental level (i.e., the Procurement Review Board). Their findings indicated that Environment Canada had a well-established senior review committee governing the challenge and oversight function.
Although much work was carried out in response to concerns over the requirements of the Procurement Review Board, no substantive analysis was carried out to understand and improve the overall timeliness of procurement activities. In the fiscal year 20082009, 13,196 contracts and 1,764 amendments for a value of $185,281,889 were awarded. Given that contracting is an important vehicle for delivering on departmental programs, an audit of the controls surrounding the timeliness of procurement process was considered to be needed.
1.3 Objective(s) and Scope
The main objective of the audit was to provide assurance that contracting activities supporting the delivery of departmental programs are efficient.
Within the Scope
The scope of this audit focused on key controls affecting the timeliness of procurement activities that are entirely or partially executed by the Procurement and Contracting unit in the National Capital Region. Benchmarking against two other regions of the Department (Ontario and Quebec) was also conducted.
It should be noted that the audit focused exclusively on procurement process efficiencies rather than individual performance.
Outside of the Scope
The audit was not designed to provide assurance on compliance with Treasury Board contracting policy. However, evidence of non-compliance, identified as part of the testing of control points, was noted and is included in this report.
The reason for not assessing compliance in this audit is essentially because an audit of contracting conducted in 2002 assessed the compliance of the Department with governmental and departmental regulation and policies. This audit also looked at the extent to which the Department used contracts appropriately to achieve results. A followup to audit recommendations, conducted in 2004, revealed that all recommendations had been implemented.
The audit did not include the processes used to purchase goods and services through acquisition cards and/or Local Purchase Order Authority, as the Procurement and Contracting unit is not involved in these processes.
Procurement processes related to construction contracts were also excluded from the testing portion of this audit. The data analysis showed that, in fiscal year 2008-2009, 176construction contracts were awarded for a value of $14,100,000. The volume associated with this type of contracts was not significant. Furthermore, discussions with the Procurement and Contracting unit informed the audit team that this type of contract is currently processed by one individual, and consequently offers limited potential for efficiency improvements.
1.4 Methodology
The audit was conducted in four phases and in accordance with the Treasury Board Policy on Internal Audit.
Background Work
The audit included a review of background information, such as previous audit reports and relevant work processes. It also included an in-depth examination and validation of the work performed by Enterprise Integrated Services in 2007, and mapping of procurement processes in order to identify control points required for the testing of the contracting files.
Interviews
In order to gain a good understanding of the issues and the different procurement processes, interviews were conducted with senior management and staff from the procurement units. Furthermore, the audit team met with the staff involved in the baseline study conducted by Integrated Enterprise Services.
Data Mining and Analysis
The statistics provided in this report are based on information obtained from the Material - Policy and Systems group of the Assets, Contracting and Environmental Management Directorate. All contracting transactions processed between fiscal years 2006–2007 and 2008–2009 were downloaded from the Discoverer data base. It should be noted that amendments to original contracts were not included in the scope because the nature of an amendment may not always result in the exact same process covered by the audit.
Sample Selection and Testing
The population for the testing included contracting transactions of the fiscal year
2008–2009. Furthermore, the sample included transactions in the National Capital Region and Ontario and Quebec regions for benchmarking. The selection of the regions was based on the similarity in operations and in the volume of transactions. The population for the testing accounted for 75 percent of all contracting transactions. A random sample of 356 goods and services contracts was selected. The sample was based on a 95% level of confidence with a 2.5 precision rate. The sample was representative of the whole population. The following tables present the distribution by region and by document type (i.e. the type of procurement vehicle used to acquire the goods and services; the sample was broken down by document type to ensure that most common procurement processes were covered by this audit). A detailed description of document types is provided in Annex B.