Follow-Up Audit of Communications and Marketing Branch Contracting Activities

1. Background

A previous audit of contracting within the Communications and Marketing Branch (CMB) was conducted by the Department's Audit and Evaluation Branch (AEB) in November and December 2004. A Final Audit Report was issued in January 2005. The 2004 audit had been carried out in response to a commitment made by the AEB to conduct contracting audits annually of two Branches of Industry Canada as a result of the Comptroller's Branch having initiated a contracting framework in 2000.

The objectives of the 2004 audit were to provide management with assurance that the contracting processes in CMB met with the principles of best value and open access, contracting policies and regulations, fairness and transparency, and operational requirements. The review period included contracts with start dates between April 1, 2003 and September 30, 2004.

The audit concluded that the contracting practices within CMB were generally compliant with the Government Contract Regulations, Treasury Board Secretariat Contracting Policies and Industry Canada policies and procedures. While it was acknowledged that management had strived towards awarding and managing its contracts in relation to best-value, open-access, fairness and transparency, the quality of contract file documentation had not consistently demonstrated achievement of these objectives. The Report highlighted three areas where improvement was required and made three recommendations (containing eight components) to improve the contracting process. CMB management, at the time, responded positively to the findings and indicated that action and new internal procedures had been implemented in an effort to foster a quality approach to contracting. It also responded that procedures would be monitored on a regular basis to ensure compliance.

2. Objective of the Follow-Up Audit

The objective of this follow-up audit is to assess the extent to which CMB management has progressed in implementing its intended course of action arising from the recommendations contained in the January 2005 Contracting Audit Report.

3. Scope of the Follow-Up Audit

The follow-up audit focused on the current processes in place and a selection of contracting files covering the period April 1, 2006 to February 28, 2007. The period for selecting contract files was based on the fact that the current Manager of the Administrative and Financial Services was hired in CMB in March 2006. This audit period was agreed to by the AEB. A random sample of contracting files was selected. Appendix A outlines the various types of contracts let during the audit period, the total number of contracts and their dollar value, and the number and dollar value of contracts that were selected for audit. In all, 20 contracting files were randomly selected for the follow-up review, a minimum of two from each of the seven categories of contracts. The contracts reviewed represented seven percent (7%) of the total dollar value of contracts issued during the follow-up audit period.

4. Approach and Methodology

In executing the follow up audit, the audit team undertook the following actions:

• Issued a follow-up notification letter to the Director General, CMB.
• Developed a follow-up questionnaire aligning the CMB management response and proposed actions.
• Distributed a follow-up questionnaire to CMB management.
• Obtained a listing of contracts issued from April 1, 2006 to February 28, 2007 by contract type to analyze the CMB contract population and select, on a sample basis, supporting documentation.
• Obtained and reviewed key documentation to assess the degree to which the proposed actions have been implemented.
• Interviewed the Manager, Administrative and Financial Services, CMB.
• Selected a random sample of 20 contracting files of various types for compliance with Industry Canada and TB contracting policies.
• Ensured the proposed actions in the Audit Report dated January 2005 were still relevant.
• Communicated with CMB Management on the results of the follow-up audit.

5. CMB Actions and Detailed Follow-Up Audit Findings

The following summarizes the actions developed by CMB management to address the recommendations raised in the January 2005 Audit Report and the current status of their implementation.

Recommendation #1

1. Contracting authorities in (CMB) should ensure that there is sufficient detail in the Statement of Work clearly defining deliverables, timeliness, service and cost expectations.
2. CMB contract authorities should ensure that at least three bids are requested when the value of a purchase order for goods is between $2,500 and $5,000.

Findings

1. This recommendation has been satisfactorily addressed. The channelling of all contracts through one of the three Administrative Officers in the Administrative and Financial Services Unit, coupled with verification by the Manager, provides sufficient assurance that there is an appropriately written Statement of Work that clearly defines the deliverables, timeliness, service and cost expectations. The mandatory requirements for staff engaged in contracting to now take appropriate training and make use of the "Request for Contract" form to initiate a contract further strengthens and re-enforces the contracting process. The Manager recognizes that there may be rare occasions when it is difficult to explicitly articulate, with precision, the details of work to be performed. Examples cited were editing and translation projects when there is urgency to get the work requirement launched for clients such as the Minister's Office or a particular program initiative. Our review of a sample of 16 service contract files confirmed that, within each of the files examined, sufficient detail and clarity was contained in the Statements of Work.
2. This recommendation has been satisfactorily addressed. The mandatory training offered to staff emphasizes the need for a minimum of three bids to be received when the value of a Purchase Order (PO) for goods is between $2,500 and $5,000. The processing of contracts through the Administrative and Financial Services Unit and the mandatory use of the Request for Contract form offers the necessary controls to preclude issues of non-compliance from happening. Moreover, recent presentations on October 25 and 30, 2006 to CMB staff involved in contracting specifically emphasized the conditions under which three quotes are needed. One of the conditions cited was when a goods requirement exceeds $2,500. The sample of 20 contracting files selected for review included two where a PO was used to purchase goods. In both cases there was evidence that three bids were received.

Recommendation #2

1. CMB contracting authorities should adequately justify on the contract file the reasons for entering into sole-source contracts with suppliers.
2. At the completion of service contracts, including POS and confirming orders, CMB contract authorities should complete a performance evaluation on the work performed by the contractor.
3. CMB contract authorities should ensure that all payments made to contractors are in accordance with existing policies and guidelines for payment and comply with conditions for payment as stipulated in the contracts.

Findings

1. This recommendation has been satisfactorily addressed. CMB officers requesting a contract are now required to complete the Request for Contract form and submit it to the CMB Administrative and Financial Services Unit. All areas of the form must be completed to the satisfaction of the reviewing Administrative Officer before proceeding. An area of the form that must be completed (if the condition exists) is the "Justification for Sole Source Contract". Should there be a particular contracting issue, it is immediately brought to the attention of the Manager of the Unit for resolution. In our sample of 20 contracting files examined, six contracts were of a non-competitive nature. In all six cases, justification was on file supporting the rationale for sole-sourcing with a chosen supplier.
2. This recommendation has been satisfactorily addressed. Following the 2005 audit, a Contractor Performance and Evaluation Report was developed by the Administrative and Financial Services Unit. It is now a mandatory requirement for CMB employees to complete this report following completion of any contract, including POs and confirming orders. In fact, final payment on a service contract will not proceed if this report has not been completed. In our sample of 20 contracting files, 10 of the 16 service contracts examined had yet to be completed. In the 6 completed service contracts, the Performance and Evaluation Report was properly completed and signed by the appropriate officer.
3. This recommendation has been satisfactorily addressed. Contracting authorities in CMB have been instructed to ensure that all payments to contractors must be made according to existing policies and guidelines and comply with the conditions for payment as outlined in the contracts. Contractors are notified if they do not comply with the terms of payment as stipulated in their contracts. The CMB Administrative and Financial Unit will refuse to pay an invoice if it does not meet the terms as set out in each contract. Copies of all invoices are retained on the contracting file. In our sample of 20 contracting files, invoices (some progress invoices) were found on 18 of the files. In the two exceptions, invoices had yet to be received from the contractor. All invoices matched to the requirements of the contract and were signed by an individual delegated appropriate authority (i.e. spending or payment).

Recommendation #3

1. All contract amendments should be adequately justified by CMB contracting authorities and included in the contract file.
2. Contracting authorities in CMB should be aware of the maximum call-up limits on SOAs they are using and not split contracts that together would exceed the call-up limit.
3. CMB, in consultation with the Contracts and Materiel Management (CMM) group in the Comptrollership and Administration Sector, should put a procurement tool in place such as an SOA or a supply arrangement for translation services.

Findings

1. This recommendation has been satisfactorily addressed. A new "Request to Amend Contract" form has been developed following the 2005 audit to facilitate the task of providing adequate justification when contract amendments are required. CMB staff has been instructed that before any contract is amended this form must be appropriately completed to clearly articulate the justification for the amendment. It must then be submitted to the Administrative and Financial Services Unit for review and processing. All documentation is retained on file and is reviewed periodically by the Manager, Administrative and Financial Services Unit. In our sample of 20 files selected for review, four included amendments. The Request to Amend Contract form was properly completed in the four files.
2. This recommendation has been satisfactorily addressed. The introduction of the Request for Contract form, which must be completed to the satisfaction of the CMB Administrative and Financial Services Unit, addresses this particular issue. An area of the form deals specifically with Standing Offer Agreements (SOA) and ensures the initiator/requestor has referred to the value limits per call-ups. Unless the SOA limits are respected, the contract will not proceed. Contracting authorities have been instructed to be aware of and respect SOA call-up limits. The CMB Administrative and Financial Services Unit created a reference guide of frequently used suppliers/contractors that is currently available on various SOAs. This tool assists in ensuring CMB contracting authorities adhere to the terms of the SOA call-up limits.
3. This recommendation is in the process of being implemented. CMB has held discussions with the Contracts and Materiel Management Division (CMM-CAS) on the subject of the need for a Standing Offer Agreement (SOA) with editors, proofreaders and translators. It was anticipated that an SOA for the whole Department would be in place by the end of this fiscal year (i.e. 2006–07). In the interim, CMB has been advised by CMM to enter into sole-source contracts with editors and translators as needed. This is the current practice in CMB when services of editors and translators are required.

Appendix A

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