Audit of Contracting

1.0 Executive summary

1.1 From October to December, 2014, Audit and Evaluation Services conducted a core control audit (an audit of certain common management controls identified by the Office of the Comptroller General) on the Policy on Contracting. All Canadian Grain Commission purchasing is centralized at headquarters in Winnipeg, with the Procurement, Contracting and Materiel Management team in the Finance and Administration division managing most purchases. Certain contracts (construction, leases) are managed by the Facilities unit, which is also within Finance and Administration.

1.2 The objective of the audit was to ensure the current procurement process at the Canadian Grain Commission is in compliance with the Policy on Contracting, the Financial Administration Act, and other related instruments, as well as to assess the quality of controls that help to ensure compliance. Audit and Evaluation Services analyzed recent contract and lease files and conducted various interviews to determine if the criteria established by the Office of the Comptroller General (Appendix A) was met.

Conclusion

1.3 The Procurement, Contracting and Materiel Management team executes a large number of contracts and other contract instruments (ex. purchase orders, call-up of standing offer). The team is knowledgeable and guides Canadian Grain Commission management in making good procurement decisions. Procurement strategies for contracts reviewed during the audit were sound and resulted in vendors being selected in a fair and transparent manner. To further enhance controls, Audit and Evaluation Services identified opportunities for improvement related to documentation and file management.

1.4 Audit and Evaluation Services also identified opportunities to improve both file and project management related to lease files included in the contract sample. The Facilities group has already implemented these recommendations to keep better records of lease-related decisions.

1.5 Although this was primarily a compliance audit, Audit and Evaluation Services made additional observations while executing the audit steps. Two of these observations resulted in recommendations that were identified as being “high impact,” as follows:

  • Budget managers should be responsible for authorizing payments (section 34) rather than Procurement staff (ref. 3.9); and
  • Management should seek guidance on Canadian Grain Commission’s signing authority related to leases (ref. 3.13).

1.6 Management has provided action plans for each recommendation. Management has, however, decided to rely on mitigating controls and accept the residual risk of not fully implementing two of the recommendations made in this report (Ref: 3.9, 3.27). Audit and Evaluation Services encourages management to continue to monitor these areas to ensure sufficient controls remain in place.

Statement of Assurance

1.7 In the professional judgment of the Chief Audit Executive, sufficient and appropriate audit procedures have been conducted and evidence gathered to support the accuracy of the opinion provided and contained in this report. The opinion is based on a comparison of the conditions as they existed at the time, as described in the audit scope, against pre-established audit criteria. The opinion is applicable only to the entity examined. This audit engagement was planned and conducted to be in accordance with the Internal Auditing Standards for the Government of Canada.

Summary of recommendations and management action plans

1.8 The following is a summary of recommendations contained in this report with management’s action plans to address the topics identified. Please see Appendix B for a description of the recommendation impact (high, medium, low).

Summary of recommendations and management action plans
High Impact
Reference Recommendations Management action plans
3.9 We recommend that Financial Administration Act Section 34 authorization for payment for all purchases be obtained from the responsible budget manager, rather than Procurement. Management disagrees with this recommendation and Procurement will remain the Section 34 authorization for purchases as there are compensating controls that exist to minimize risk to the organization. The budget manager signs off on the purchase requisition and Procurement only signs off on Section 34 if the invoice amount has a variance that is either less than 10% or less than $1,000 higher than the signed purchase requisition. If the variance is beyond this threshold, the budget manager signs off on the invoice. This is monitored by both Procurement staff and Accounting Operations. The compensating controls are documented in our blanket signing authority document.
The Manager of Accounting Operations will email both Procurement and Accounting Operations staff to remind them of these requirements and will identify issues of non-compliance. Status: To be implemented by August 31, 2015.
3.13 We recommend that Management consult with central agencies (Treasury Board Secretariat, Public Works and Government Services Canada) and  the Canadian Grain Commission’s legal counsel if necessary, to assess  the Canadian Grain Commission’s signing authority for future lease situations and determine if further actions or disclosures are required in respect of a recent lease Management agrees with this recommendation and has received clarification from Public Works and Government Services Canada on our leasing authorities. There are no further disclosures required for the recent lease.
Status: Complete.
Summary of recommendations and management action plans
Medium Impact
Reference Recommendations Management action plans
3.5 Although the contracts sampled were in compliance with the Contracting Policy for the strategies chosen, the control required to show compliance was not complete. Having appropriate justification documents provides proof that the Canadian Grain Commission’s decisions were sound and the best procurement strategy was chosen. We recommend that all of the following documents and notes, as applicable, be kept on file (either in the contract file or with the purchase order) for support and future reference:
  • Sole source justification;
  • Justification for not using a mandatory standing offer;
  • A note stating that the contract is fulfilling a Procurement Strategy for Aboriginal Business or Green Procurement requirement.
Management agrees with this recommendation and the Manager of Procurement, Contracting and Materiel Management will ensure that the procedure will be enhanced to amend the Purchase Requisition to include: (Check offs for Y/N or N/A)
  • Standing Offer
  • Competitive
  • Sole source
  • Procurement Strategy for Aboriginal Businesses
  • Green Procurement
Sole source justifications will be included for goods exceeding $10,000 and professional services exceeding $5,000.
Status: To be implemented by November 30, 2015.
3.10 If Management elects to continue delegating Section 34 signing authority to Procurement (item 3.9), we recommend that the restriction on signing both the “formal” contract and the Section 34 authorization be enforced and monitored by Accounting Operations. Management agrees with this recommendation and the Manager of Accounting Operations will enforce that there should be different individuals signing the formal contract and the Section 34 authorizations and identify issues of non-compliance. The current Blanket Authority has been amended to clarify the signing requirement with respect to service contracts and will be monitored as part of the transaction processing function in Accounting Operations, and additionally as part of the S. 33 review.
Status: Complete
3.17 We recommend that the Facilities group retains the necessary documentation to support all actions related to leasing arrangements and construction contracts that are not managed by Public Works and Government Services Canada. Management agrees with this recommendation and the Manager of Accounting Operations will enforce that there should be different individuals signing the formal contract and the Section 34 authorizations and identify issues of non-compliance. The current Blanket Authority has been amended to clarify the signing requirement with respect to service contracts and will be monitored as part of the transaction processing function in Accounting Operations, and additionally as part of the S. 33 review.
Status: Complete
3.27 In order to ensure compliance with proactive disclosure requirements, we recommend that until such time as the Canadian Grain Commission’s financial system can facilitate reporting of contracts, Procurement implements a control procedure to ensure all contracts and amendments are tracked, regardless of value. Contracts that do not require disclosure because of exceptions to the Contracting Policy should be indicated as such on the tracking. Management agrees with this recommendation; however we have accepted certain risks in the interim as the Canadian Grain Commission is in the process of implementing a new financial system effective April 2016 and we assume that there will be enhanced controls in the system to facilitate automated proactive disclosure reporting.
The Manager of Procurement, Contracting and Materiel Management will ensure that proactive disclosure reporting requirements are defined and implemented in the new system for automated reporting.
Status: To be implemented by June 30, 2016.
In the interim the Manager of Procurement, Contracting and Materiel Management will ensure that Procurement will continue to track contracts more than $10,000 on a manual spreadsheet. The senior procurement officers will review the quarterly reports for completion. The Manager of Procurement, Contracting, and Materiel Management will reconcile the report to the Procurement Review Board’s minutes and approve and sign off on the proactive disclosure reports before posting.
Status: To be implemented by October 31, 2015.
Summary of recommendations and management action plans
Low Impact
Reference Recommendations Management action plans
3.18 We recommend that the Facilities group, along with the Project Management Office, ensures that Canadian Grain Commission project management procedures are followed for all facilities projects, including updated project documents and records related to projects. Management agrees with this recommendation and the Manager of Administration will ensure that the Facilities group, along with the Project Management group follow Canadian Grain Commission project management procedures for all facilities projects, including updated project documents and records related to projects.
Status: Complete.
3.22 We recommend that the Procurement and Accounting Operations units of Finance have one central file for contracts. This would prevent missing files, eliminate duplicates, and encourage the units to determine a tracking system that works for both of their reference numbers. Management agrees with this recommendation and the Manager of Accounting Operations will ensure that the Accounting Operations unit maintain central contract files with complete documentation and invoices.
Status: To be implemented by December 31, 2015.
3.28 We recommend that Procurement proactively disclose any omitted contracts at the earliest opportunity. Management agrees with this recommendation and the Manager of Procurement, Contracting and Materiel Management will report missing contracts identified in this report and audit.
Status: To be implemented by October 31, 2015.