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Table of Contents Executive Summary 1.0 Introduction 2.0 Findings and Recommendations 3.0 Conclusion Annex A - Key Control Dates and Definition Annex B - Document Types Description

Table of Contents Audit Key Steps

Planning completed Fieldwork completed Draft audit report completed Report sent for management response Management response received Final report completed Tabling of report to the External Audit Advisory Committee Approved by the Deputy Minister March 2009 June 2009 July 2009 July 2009 September 2009 September 2009 September 2009 August 2010

Prepared by the Audit and Evaluation Team

Acknowledgments
The audit team responsible for this project, composed of Francis Pelletier and Stella Line Cousineau 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.

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Executive Summary
The Audit of the Efficiency of Contracting Processes was identified in the 20082009 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 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 timeliness of the procurement process was considered to be needed. The audits objective was to provide assurance that contracting activities supporting the delivery of the departmental programs were efficient. The audits 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. Top of Page

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. Top of Page

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

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recurring activities across all regions. The system should support the following activities: monitoring of actual results and investigation of the root cause of results that do not meet expected service standards communication of corrective action to senior management 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.

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1.0 Introduction
1.1 1.2 1.3 1.4 1.5 Background Project Significance Objective(s) and Scope Methodology Statement of Assurance

The Audit of the Efficiency of Contracting Processes was identified in the 20082009 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 sub-delegated 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. Top of Page

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:

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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 Boards 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. Top of Page

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 follow-up 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 20082009, 176 construction 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
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currently processed by one individual, and consequently offers limited potential for efficiency improvements. Top of Page

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 20062007 and 20082009 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 20082009. 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.

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Description for above charts

Based on the documentation review, a process map of all contracting processes was developed. Given the complexity, the different document types and the number of stakeholders in the process, a preliminary review of 20 files was conducted to identify/confirm key control dates from initiation of contract to contract award date. Subsequently, all the sampled contracting files were tested against the key control dates. Annex A provides a listing of key controls identified during the preliminary review, and their definition. Top of Page

1.5

Statement of Assurance

This audit was conducted in accordance with the International Standards for the Professional Practice of Internal Auditing, and the Policy on Internal Audit of the Treasury Board of Canada. In our professional judgment, sufficient and appropriate audit procedures have been conducted and evidence gathered to support the accuracy of the conclusions reached and contained in this report. The conclusions were based on a comparison of the situations as they existed as the time, against the audit criteria.

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2.0 Findings and Recommendations

2.1 2.2 2.3 Data Mining and Analysis Results of Testing Efficiency Achievement Information 2.3.1 Audit Criteria: actual processing time is measured and results are analysed 2.3.2 Audit Criteria: service standards exist and are communicated to all employees 2.3.3 Audit Criteria: Client satisfaction is measured and results are used to improve business processes Management System and Practices 2.4.1 Audit Criteria: Current business processes are documented and available to all

2.4

2.1

Data Mining and Analysis

Over the past three years, the Department has processed 37,777 contracts (excluding amendments) for a total value of $510,211,266. This represents an increase of approximately 11 percent in the number of contracts awarded, from 11,882 in 20072008 to 13,196 in 20082009. The value of the contract awarded during that same period of time also represents approximately 11 percent. Over last fiscal year alone, a total of 1,764 amendments were processed representing an amendment rate of approximately 13 percent. Contracts Over the Past Three Years Fiscal Year 2006/2007 2007/2008 2008/2009 Totals Number of Contracts 11,882 12,699 13,196 37,777 % of Number of Contracts 31.45% 33.62% 34.93% 100% Dollar Value $161,806,811.10 $163,142,566.68 $185,281,889.08 $510,221,266.86 % of Dollar Value 31.71% 31.97% 36.31% 100%

During fiscal year 20082009, the National Capital Region Contracting unit processed 35 percent of all contracts (4,641) for a value of $84,588,466. It should be noted that these numbers do not reflect the number of amendments made to original contract. In the National Capital Region, the amendment rate is close to 6 percent (276). The following table shows the distribution by region. Contract Distribution by Region Region ATL CMC DOR NCR ONT PNR PYR Number of Contracts 984 449 4,641 3,610 1,086 735 % of Number of Contracts 7.46% 3.4% 35.17% 27.36% 8.23% 5.57% Dollar Value $6,715,934.20 $5,147,340.88 $84,588,466.57 $43,173,712.98 $17,442,633.61 $14,315,035.00 % of Dollar Value 3.62% 2.78% 45.66% 23.3% 9.41% 7.73%

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Region QUE Totals

Number of Contracts 1,691 13,196

% of Number of Contracts 12.81% 100%

Dollar Value $13,888,765.04 $185,271,888.28

% of Dollar Value 7.5% 100% Top of Page

2.2

Results of Testing

The results of the following analysis are based on the testing of a representative sample of 356 contracting transactions. Performance of some contracting files (20) could not be measured because of missing information on key control dates. These are isolated cases and relate to one program manager who does not date his requisition forms (6) and one region that did not date its contracts (12) at signature. All of theses issues were discussed with management for their immediate action. Average Processing Time in Days by Dollar Value < $25,000 NCR ONT QUE 15 19 23 > $25,000 27 48 54

Overall, contracts of higher value take longer to process and there is a significant processing time variance between regions. On average, there is a difference of up to 9 working days (approximately 2 weeks) between regions for contracts under $25,000. This gap increases to 27 working days (approximately 6 weeks) for contracts over $25,000. Average Processing Time in Days by Commodity Commodity Goods Services Overall 12 20 NCR 9 16 ONT 14 23 QUE 13 25

The following table confirms that goods contracts are processed faster than services contracts. Processing time for goods is relatively consistent across the regions. In the case of services contracts, there is a gap of up to 9 working days between regions (approximately 2 weeks). Our analysis of the testing did not show any correlation between contract value and processing time within each commodity. The following analysis is based on the document type. As previously noted, the document type is used to differentiate the procurement vehicle used to acquire the goods or the services. Therefore, we expected that the average time would vary from one document type to another. The following table highlights the results of the different region by document types. Overall results shows some variability between regions, however given the small number of sample tested in each category, the audit team cannot draw conclusion at the category level.

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Average Processing Time in Days by Document Type Overall 9200 Contract Local Purchase Order Standing Offer Temporary Help Task Authorization 19 17 17 NCR 151 19 8 8 15 Ontario 8 21 23 16 5 Quebec 29 19 30 11

Processing time is calculated from the date the requisition is signed by the manager to the date the contract is signed by procurement The level of variability between the regions 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 delivery of contract. The audit team did not have sufficient information to determine whether there was a correlation between time required to process requisitions and availability of resources. The audit team also looked at the time required to transmit and triage the information (a triage, carried out by one individual, involves assessing the completeness of the information and the quality of the request before it is assigned to a procurement officer). This analysis is specific to the National Capital Region, as this is the only region where an electronic worksheet is used to log procurement requests. The assessment revealed that it takes approximately 3 days between the date the request is signed by the program manager and the date it is logged as received in the Procurement and Contracting unit. An additional 4 days is then required for the triage. It should be noted that procurement requests subject to the Procurement Review Board are assigned to the procurement officer only once it is cleared by the Board. The analysis pertaining to the time required for obtaining approval of the Procurement Review Board revealed that, on average, 67 percent of the requests are processed within 5 working days. 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. Top of Page

2.3
2.3.1

Efficiency Achievement Information

Audit Criteria: actual processing time is measured and results are analysed

There is currently no mechanism in place to measure the actual time required to process contracts from beginning to end. The current computer system does not provide the ability to record the necessary control dates in order to calculate processing time. Although the National Capital Region has developed an electronic log book that captures some of the control dates, the type of information gathered is not sufficient to calculate processing time from beginning to end and only allows for partial monitoring capability. Other regions included in the audit did not have any electronic tracking capability.

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Consequently, Material Management is unable to monitor and identify significant processing-time delays and apply measures to improve the situation. Furthermore, without capturing actual process time, the establishment of service standards is impossible.

Recommendation 1
The Assistant Deputy Minister, Finance and Corporate Branch, should 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 region. The system should support the following activities: monitoring of actual results and investigation of root cause of results that dont meet expected services standard communication of corrective action to senior management communication of actual processing time to clients Top of Page

2.3.2

Audit Criteria: service standards exist and are communicated to all employees

Procurement service standards have not been established. The lack of documentation relevant to actual processing time does not allow Material Management to establish performance measurement, such as service standards. Based on the actual processing time and performance of the different procurement processes, expected service standards should be developed, implemented and communicated to departmental employees and clients of the procurement services. Establishment and communication of service standards provides a practical way to manage performance and help shape the expectation of clients regarding procurement services.

Recommendation 2
The Assistant Deputy Minister, Finance and Corporate Branch, should 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. Top of Page

2.3.3 Audit Criteria: Client satisfaction is measured and results are used to improve business processes
Material Management does not have a tool to measure and document the level of satisfaction of program managers. Conducting a client satisfaction survey is currently not recognized as an added value by procurement management. A client satisfaction survey should be sent to clients that have recently used the services of Material Management. The resulting lessons learned should be used to improve the process and build relationships with clients.

Recommendation 3
The Assistant Deputy Minister, Finance and Corporate Branch, should develop a tool to measure client

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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.

2.4
2.4.1

Management System and Practices

Audit Criteria: Current business processes are documented and available to all

There is a lack of centralized and documented internal procedures. Although procurement management in the National Capital Region indicated the existence of internal procedures, results of our interviews in the three regions revealed that employees were not aware of their existence and that processes were often based on managerial preferences. For example, the audit team noted that one region did not date their contracts at signature. This has since been resolved. The two other regions included in the scope of this audit also expressed concerns regarding the limited support and guidance received from Headquarters. Interview results clearly indicated that regions are currently operating in isolation from each other. In fact, the procurement units are currently reporting to two different directors in the National Capital Region. The lack of documented and formalized administrative procedures increases the risk of error in the application of key controls of procurement activities. In addition, it reduces training ability and does not support continuous improvement. The testing of procurement files noted that many different forms are used to request goods or services. Discussions with procurement staff informed us that although the forms are made available through the departmental public folder, program areas are sometimes creating their own forms that are better suited to their requirements. Although this is not an issue in itself, it raises the risk that mandatory information is not provided, which ultimately will result in delays in processing the procurement request. In fact, procurement officers raised concerns over the quality of the information received from managers and that they have to deal with numerous emails and phone calls from the program area inquiring about the status of their procurement request. In addition, requests for procurement of goods and services are currently forwarded to procurement via internal mail, adding to the processing time. Requisitioning of goods and services through a web portal would mitigate some of these issues. It would streamline the process, ensure consistency in the use of a procurement form, support compliance with internal controls (e.g. completeness), and significantly reduce transmission time, especially in a decentralized department. Given the capture of the right information and adequate controls, this tool could also be used as a tracking device for both the managers and procurement staff. Actual processing time could be measured and results used to set service standards. Discussion with procurement staff informed the audit team that a web application to capture information relevant to the procurement review board activities was developed a few years ago. However, the application was never launched because of a lack of buy-in by procurement staff. Discussion with an employee from the Chief Information Officer Branch leads us to believe that the work already carried out as part of that initiative could be used in the development of electronic requisitioning of goods and services. A change in management strategy for the deployment and implementation of such a tool is essential to its success. The Fast Track initiative implemented by our Human Resources Branch one year ago is a good example of success in deploying electronic requisitioning. The risk of not acting on the above issues may impact managers ability to deliver on their program objectives in a timely manner. Furthermore, managers are now expected to ensure realistic and timely forecasting of their spending by being within five percent of their total spending by the third quarter. Consequently, foreseeable and timely processing of procurement requests is of the utmost importance.

Recommendations 4 and 5

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The Assistant Deputy Minister, Finance and Corporate Branch, should implement the following recommendations. 4. 5. Realign the procurement and contracting structure to allow for functional leadership for all regional procurement units. Develop and implement workflow and administrative procedures related to the different procurement processes; these must be made available and communicated to all employees.

Management responses to recommendations 1 to 5

Management agrees with the recommendations and a detailed action plan to address the audit recommendation has been developed.
1

The requisition form of 2 contracts were dated after approval of the contract by PWGSC.

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3.0 Conclusion
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.

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Annex A - Key Control Dates and Definition

Annex A Key Control Dates and Definition Key Control Request date Definition Date that the requisition for acquisition is signed by program manager

Internal request approval

Date received in procurement (as stamped or as captured in log book) Date approved by the Procurement Review Board (when applicable)

External approval

Approval of Public Works and Government Services Canada (check-in and check-out dates when applicable)

Tendering period

Proposal posting date Proposal closing date Supplier proposal date (supplier quotation in cases of sole source)

Evaluation selection

Proposal opening date Final supplier selection date (based on evaluation results date)

Contract negotiation Contract award date

Contract award date

Date contract was signed by the procurement officer

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Annex B - Document Types Description

Annex B - Document Types Description Document Type 9200 Contract Description The 9200 Requisition is used to request goods for which the cost exceeds the departmental delegation. This document type is a grouping of English Long Term Contract (ELTC) and English Short Term Contract (ESTC) types. The ELTC is used for requirements where the dollar value is higher then $25,000 and that are deemed to be of a complex nature. The ESTC is used when there are no major risk factors and the dollar value is $25,000 or lower. The local purchase order is used for low-dollar-value purchases. The standing offers are not contracts but an administrative means to provide for the supply of goods or services at pre-arranged prices with set terms and conditions, for specific periods of time. Once an agreement has been established, the Department can make call-ups against the agreement to order goods and services by a call-up against a standing offer. Temporary help has primarily the same functionality as for the call-up against a standing offer and is used to hire staff from a temporary help agency. Task authorization is used to instruct a contractor to carry out specific work.

Local purchase order

Temporary help Task authorization

Note: This is a partial inventory of document type. Only those that were included in our sample are explained above. Date Modified: 2013-07-26

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