Audit of Contracting
Table of contents
3.0 Findings and Recommendations
Observation 1: Procurement strategies (Criteria 1, 2, 3)
Justification for strategy chosen
3.1 Various strategies are used by procurement to obtain goods or services for the Canadian Grain Commission. While competitive procurement can often provide the greatest opportunity for best value to the Crown, there are many other strategies that can be used effectively in different situations. Sole sourcing is an allowable method of procurement when certain conditions are met. Other initiatives that are considered include Procurement Strategy for Aboriginal Businesses and Green Procurement, in which suppliers may be selected based on factors other than price alone. In all cases, the choice of strategy, especially when non-competitive, needs to be clearly justified.
3.2 To simplify some purchasing requirements and leverage government-wide purchasing power, Public Works and Government Services Canada has a list of mandatory standing offers that applies to all departments. Should a department require any of the items on the list, a standing offer must be used first before any other procurement strategy, unless otherwise justified.
3.3 Within the audit sample there were examples of each of these procurement strategies. In all cases, Procurement used sound strategies and selected the vendors in a fair and transparent manner. Although Audit and Evaluation Services concluded that Procurement’s decisions to use non-competitive strategies were justified, these decisions were not always supported by documentation in the files. Of the 5 contracts in the sample that were sole-sourced by the Canadian Grain Commission only 2 had justification on file. In another sample, the justification for not using a mandatory standing offer was not documented.
Documentation in a contract file
3.4 Because there is no listing of all of the Canadian Grain Commission’s contracts (see Observation 4), Audit and Evaluation Services selected the sample of contracts from the population of purchase orders and the proactive disclosure listing for the audit time frame. Of the sample of 27 contracts selected, only 12 had actual contract files that could be used for testing against the audit criteria. The remainder only had purchase orders as documentation, which are filed along with the invoice in the Accounting Operations unit’s files. The 15 contracts that could not be tested included call-ups on standing offers, contracts that meet Green Procurement and Procurement Strategy for Aboriginal Businesses requirements, and sole-sourced contracts that are allowable under the Government Contracting Regulations. It was not clear throughout the audit why some contracts were documented in a contract file, and others were treated as “just purchase orders” with no further documentation.
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 Businesses or Green Procurement requirement.
Objective 2: Signing authority (Criteria 4, 6)
Procurement signing authority and segregation of duties
3.6 The Canadian Grain Commission purchase requisition requires the signature of the budget manager to indicate an unencumbered balance is available to pay for the purchase (Financial Administration Act Section 32) and a “pre-authorization” for payment (Financial Administration Act Section 34). Although not budget managers, Canadian Grain Commission management granted the Procurement team blanket authority for Section 34 in an effort to help expedite the payment process. This authority allows Procurement, with restrictions, to sign Section 34 on behalf of any budget manager, acknowledging receipt of the purchased item in good order and authorizing payment. Prior to implementing this authority all invoices had to be sent to the appropriate budget manager for approval signatures, and documents were sometimes lost or delayed.
3.7 Because Procurement is also the contract signing authority, Accounting Operations enforces restrictions surrounding Procurement’s blanket authority, preventing them from signing Section 34 in cases where they have already signed the contract on behalf of the end user. There were 2 instances within the sample of 12 “formal” contracts (where there was a contract document separate from the purchase order) where this segregation of duties was not maintained. In the cases where no separate contract document was used and the purchase order served as the contract, it was common for Procurement to sign both the purchase order and the Section 34 authorization.
3.8 The primary reason for granting Procurement blanket Section 34 signing authority is convenience which does not support principles of strong controls over purchasing and payment. Because the procurement area in any organization is inherently high risk, efforts to maintain adequate segregation of duties at all times should be made. Only the budget manager should approve payment for his or her collator.
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.
3.10 If management elects to continue delegating Section 34 signing authority to Procurement, we recommend that the restriction on signing both the “formal” contract and the Section 34 authorization be enforced and monitored by Accounting Operations.
Canadian Grain Commission signing authority for lease transactions
3.11 Leases and construction contracts are managed by the Administration unit (Facilities group) of Finance rather than Procurement. Public Works and Government Services Canada manages the majority of Canadian Grain Commission’s leases and construction contracts; however, recently Canadian Grain Commission has taken a more active file management role in relation to a lease of laboratory space. This included signing the lease agreement with the lessor.
3.12 Because this particular lease had not been proactively disclosed, Audit and Evaluation Services researched whether the lease required proactive disclosure. During the course of research it was revealed that both Canadian Grain Commission representatives and Public Works and Government Services Canada are uncertain of Canadian Grain Commission’s authority to enter into a lease agreement. As the laboratory does not include office or residential space, it is currently unclear whether the lease falls under the Federal Real Property Act, the Contracting Policy, or another instrument. Consequently, it is also unclear what Canadian Grain Commission’s signing authority is in this situation and whether proactive disclosure was required.
3.13 We recommend that Management consult with Central Agencies (Treasury Board Secretariat, Public Works and Government Services Canada) and Canadian Grain Commission’s legal counsel if necessary to assess 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.
Objective 3: File Management (Criterion 5)
3.14 As discussed in Observation 2, the Canadian Grain Commission has taken an active role in managing a recent laboratory lease. Although leases are not specifically covered under the Contracting Policy, the same principles for file management should apply. For instance, Audit and Evaluation Services expected that the leasing file for the laboratory space would contain justification for selection of the lessor demonstrating why the selection provided the best value. There was little documentation in the facilities file illustrating how decisions and approvals occurred related to this investment. Through research, Audit and Evaluation Services determined there were a number of due diligence steps that preceded the selection of the laboratory location, but due to departure of several employees that were originally involved in the project, some information and knowledge have been lost.
3.15 Other key information such as financing approvals, subsequent to the original project plan approval, were not captured through the Canadian Grain Commission’s project management process. The Project Management Office did not have any updates after the project was initiated in May 2013, although email evidence and meeting minutes confirm the laboratory lease project was discussed at the Executive Management Committee several times since then.
3.16 Laboratory environments are required by the Canadian Grain Commission for some core mandate and revenue-generating activities; consequently, it is possible the Facilities group will be working with other laboratory lease or construction files in the future. It is important that all relevant documentation be retained in the file to ensure the transaction can be reviewed by Canadian Grain Commission management, Internal Audit, or Central Agencies if required. Examples of documentation may include:
- Project management information (project plans, project charter, status updates, close-out documents)
- Project approvals and financing decisions and arrangements
- Legal review of documents (leases, contracts, etc.)
- Details about competitive or non-competitive process (options, analysis, justification).
3.17 We recommend that the Facilities group retains the necessary documentation to support all of the actions related to leasing arrangements and construction contracts that are not managed by Public Works and Government Services Canada.
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.
Procurement and accounting operations
3.19 The Procurement unit is responsible for setting up and managing contracts as well as reporting any contracts meeting the minimum proactive disclosure requirements on the Canadian Grain Commission website. Contracts are referenced by the unit using the standing offer agreement, purchase order, or contract number.
3.20 The Accounting Operations unit’s responsibilities include accounts payable and capital related transactions. With regard to contracts the unit is responsible for paying associated invoices, using the invoice number as reference for these payments.
3.21 The two units use different reference numbers to identify the contract files making matching invoices to the contract number or purchase order difficult. The documents within the contract files (or even sections of some documents) can become separated as they moved from desk to desk throughout each unit of Finance. The risk associated with this is the possibility of important files going missing or being misfiled; for example, during the audit one of the sample files could not be located for several weeks. Having one central file would prevent documents from going missing and eliminate the need for Procurement to make duplicate copies of many of the files. Holding duplicate records in the files does not align with Canadian Grain Commission’s Records and Information Management guidelines.
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
Objective 4: Proactive disclosure (Criterion 8)
3.23 As a federal government department, the Canadian Grain Commission is expected to maintain transparency at all times. This open government initiative is part of the federal government's efforts to help Canadian citizens hold the government and its departments accountable for how taxpayer money is spent. One such measure is the mandatory proactive disclosure of contracts exceeding $10,000 by all departments and agencies.
3.24 The Procurement team uses a spreadsheet to track ongoing contracts within each quarter that need to be disclosed on the Canadian Grain Commission website. For the contracts in the sample there were several small errors found in the disclosed information. One service contract worth $205,000 was not disclosed because it had inadvertently been omitted from the spreadsheet. Separate testing by Finance of the Canadian Grain Commission’s Internal Controls over Financial Reporting (Policy on Internal Control) for the 2014-15 fiscal year also identified a concern over the completeness of the proactive disclosure report, and Audit and Evaluation Services was advised that at least one other contract, worth $90,000 was also missed.
3.25 During the course of the audit, Audit and Evaluation Services sought clarification from the Treasury Board Secretariat of Canada on which types of contracts require proactive disclosure and was advised that contracts for the fit-up of an office are excluded. The contract noted in 3.24 above was executed as a regular service contract by Procurement, not a construction or lease-related contract, which would be managed by Facilities. However, as the services provided related to leasehold improvements there is a possibility it may not have required disclosure.
3.26 Canadian Grain Commission’s financial system does not include a specific contracting module, which makes it necessary to use spreadsheets or other manual methods to track Canadian Grain Commission’s purchase contracts. As the Procurement team only tracks contracts over $10,000, there is currently no complete inventory of active contracts. Tracking all contracts would create a routine to help ensure no contracts are missed when completing the quarterly disclosure report and assist with monitoring. It would also capture amendments that cause lower-value contracts to reach the disclosure threshold, which are difficult to identify with Canadian Grain Commission’s current financial system.
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.
3.28 We recommend that Procurement proactively disclose any omitted contracts at the earliest opportunity.
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