audit of the efficiency of contracting processes_ca(2011)

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Home > About Environment Canada > A&E Reports > 2010-2011

Planning completed March 2009

Fieldwork 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 AdvisoryCommittee

September 2009

Approved by the Deputy Minister August 2010

Table of Contents

Executive Summary1.0 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

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 particularthose employees who provided insights and comments as part of this audit.

ironment Canada - About Environment Canada - Audit of the E... http://www.ec.gc.ca/ae-ve/default.asp?lang=En&n=66B07097-1&...

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Executive Summary

The Audit of the Efficiency of Contracting Processes was identified in the 20082009 Annual Risk-basedAudit and Evaluation Plan, which was recommended for approval by the External Audit AdvisoryCommittee during its April 2008 meeting.

This project was initially identified as part of the internal consultation and risk assessment process as ahigh-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 aboutthe requirements of the Procurement Review Board, no substantive analysis was carried out to understandand improve overall timeliness of procurement activities. In fiscal year 20082009, 13,196 contracts and1,764 amendments for a value of $185,281,889 were awarded. Given that contracting is an importantvehiclefor 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 thedepartmental programs were efficient.

The audits scope focused on key controls impacting the timeliness of procurement activities that areentirely 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.

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Summary of Findings and Conclusions

Currentbusiness processesand systems do not provide for the capturing and monitoring of the performanceof the Procurement and Contracting unit. Actual process time is not captured, service standards are notestablished, and client satisfaction is not measured. Consequently, the unit is unable to identify areas ofimprovement on an ongoing basis.

Given the absence of service standards, it is difficult for the audit team to determine whether procurementrequests are currently processed within a reasonable time frame. Although the audit provided some insightas to the control areas that could be improved for efficiency, there is a need to develop a process that willenable 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 anindication that some regions deal with more complex contracts. Inconsistency in policies and proceduresapplication 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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The Assistant Deputy Minister, Finance and Corporate Branch, should implement thefollowing:

Develop and implement a trackingevent system to facilitate the recording of dates necessary tomeasure actual processing time. This could leverage lessons-learned from previous applicationdevelopment with the perspective of developing a web portal and a tracking system to support

1.


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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 meetexpected service standardscommunication of corrective action to senior managementcommunication of actual processing time to clients

Develop, implement and communicate service standards for the different types of procurement

activities. Establishment of service standards could be phased in. For example, a procurementprocess that currently shows less variability between regions and represents a larger transactionvolume, such as Local Purchase Order, could be the first one implemented. Furthermore, servicestandards should be reviewed regularly and updated as necessary.

2.

Develop a tool to measure client satisfaction on an ongoing basis. The results should becommunicated to Procurement and Contracting employees and senior management. The resultsshould also be used to improve business processes.

3.

Realign the procurement and contracting structure to allow for functional leadership for all regionalprocurement units.

4.

Develop and implement workflow and administrative procedures related to the differentprocurement processes. These must be made available and communicated to all employees.

5.

Management Response:

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


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1.0 Introduction

1.1 Background1.2 Project Significance1.3 Objective(s) and Scope1.4 Methodology

1.5 Statement of Assurance

The Audit of the Efficiency of Contracting Processes was identified in the 20082009 Annual Risk-basedAudit and Evaluation Plan, which was recommended for approval by the External Audit AdvisoryCommittee during its April 2008 meeting.

1.1 Background

Legislative authority to contract is derived from the Financial Administration Actand the Public Works andGovernment Services Act. The Treasury Board Secretariat is responsible for issuing policies and proceduresfor 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 thecontracting process as well as providing advice and contracting services. Departments are sub-delegatedsome contracting services. In the last years alone, Public Works and Government Services Canada hasintroduced 18 new trade regulations along with a number of tools. This combined with the increased scrutinyand transparency required in the delivery of procurement activities, the complexity in terms of the numberof different vehicles along with the stakeholders involved in the process, certainly had a considerable impacton procurement units.

At Environment Canada, procurement services are delivered through six regional procurement andcontracting units reporting to the Director General, Assets, Contracting and Environmental ManagementDirectorate.

The procurement and contracting units of Environment Canada provide services such as advice, assistanceand approval, in the following areas:

planning and best methods to be used for the acquisition of goods and servicesdevelopment of specifications and selection criteriaco-ordination of the tendering process, requests for proposals, negotiations, and contract awardsdelivery 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 plannedprocurement will be processed.

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1.2 Project Significance

This project was initially identified as part of the internal consultation and risk assessment process as ahigh-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 Branchmandated its Integrated Enterprise Services group to develop a baseline of the current situation incontracting, using a fact-based approach to identify and prioritize key opportunities for improvement. Asresult, 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 Boardapproval (up from $10,000)competitive contracts for goods equal to or exceeding $32.4K and competitive contracts for servicesequal 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 ReviewBoards 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 assessmanagement 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 findingsindicated that Environment Canada had a well-established senior review committee governing the challengeand oversight function.

Although much work was carried out in response to concerns over the requirements of the ProcurementReview 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 beneeded.

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1.3 Objective(s) and Scope

The main objective of the audit was to provide assurance that contracting activities supporting the deliveryof departmental programs are efficient.

Within the Scope

The scope of this audit focused on key controls affecting the timeliness of procurement activities that areentirely 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 thanindividual 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 isincluded in this report.

The reason for not assessing compliance in this audit is essentially because an audit of contracting conductedin 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 toachieve results. A follow-up to audit recommendations, conducted in 2004, revealed that allrecommendations had been implemented.

The audit did not include the processes used to purchase goods and services through acquisition cards and/orLocal 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 thisaudit. The data analysis showed that, in fiscal year 20082009, 176 construction contracts were awarded fora 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 efficiencyimprovements.

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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 workprocesses. It also included an in-depth examination and validation of the work performed by EnterpriseIntegrated Services in 2007, and mapping of procurement processes in order to identify control pointsrequired for the testing of the contracting files.

Interviews

In order to gain a good understanding of the issues and the different procurement processes, interviews wereconducted with senior management and staff from the procurement units. Furthermore, the audit team metwith 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 andSystems group of the Assets, Contracting and Environmental Management Directorate. All contractingtransactions processed between fiscal years 20062007 and 20082009 were downloaded from theDiscoverer 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 theaudit.

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 oftransactions. The population for the testing accounted for 75 percent of all contracting transactions. Arandom sample of 356 goods and services contracts was selected. The sample was based on a 95% level ofconfidence with a 2.5 precision rate. The sample was representative of the whole population. The followingtables present the distribution by region and by document type (i.e. the type of procurement vehicle used toacquire 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 inAnnex B.


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Description for above charts

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

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1.5 Statement of Assurance

This audit was conducted in accordance with the International Standards for the Professional Practice ofInternal 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 evidencegathered to support the accuracy of the conclusions reached and contained in this report. The conclusionswere 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 Data Mining and Analysis2.2 Results of Testing2.3 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 employees2.3.3 Audit Criteria: Client satisfaction is measured and results are used to improvebusiness processes

2.4 Management System and Practices2.4.1 Audit Criteria: Current business processes are documented and available to all

2.1 Data Mining and Analysis

Over the past three years, the Department has processed 37,777 contracts (excluding amendments) for atotal 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 awardedduring that same period of time also represents approximately 11 percent. Over last fiscal year alone, a totalof 1,764 amendments were processed representing an amendment rate of approximately 13 percent.

Contracts Over the Past Three Years

FiscalYear

Number ofContracts

% of Number ofContracts

Dollar Value% of Dollar

Value

2006/2007 11,882 31.45% $161,806,811.10 31.71%

2007/2008 12,699 33.62% $163,142,566.68 31.97%

2008/2009 13,196 34.93% $185,281,889.08 36.31%

Totals 37,777 100% $510,221,266.86 100%

During fiscal year 20082009, the National Capital Region Contracting unit processed 35 percent of allcontracts (4,641) for a value of $84,588,466. It should be noted that these numbers do not reflect thenumber of amendments made to original contract. In the National Capital Region, the amendment rate isclose to 6 percent (276). The following table shows the distribution by region.

Contract Distribution by Region

RegionNumber ofContracts



Value

ATL 984 7.46% $6,715,934.20 3.62%

CMCDOR

449 3.4% $5,147,340.88 2.78%

NCR 4,641 35.17% $84,588,466.57 45.66%

ONT3,610 27.36% $43,173,712.98 23.3%

PNR 1,086 8.23% $17,442,633.61 9.41%

PYR 735 5.57% $14,315,035.00 7.73%


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RegionNumber ofContracts



Value

QUE 1,691 12.81% $13,888,765.04 7.5%

Totals 13,196 100% $185,271,888.28 100%

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2.2 Results of Testing

The results of the following analysis are based on the testing of a representative sample of 356 contractingtransactions.

Performance of some contracting files (20) could not be measured because of missing information on keycontrol dates. These are isolated cases and relate to one program manager who does not date his requisitionforms (6) and one region that did not date its contracts (12) at signature. All of theses issues were discussedwith management for their immediate action.

Average Processing Time in Days by Dollar Value

< $25,000 > $25,000

NCR 15 27

ONT 19 48

QUE 23 54

Overall, contracts of higher value take longer to process and there is a significant processing time variancebetween 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 (approximately6 weeks) for contracts over $25,000.

Average Processing Time in Days by Commodity

Commodity Overall NCR ONT QUE

Goods 12 9 14 13

Services 20 16 23 25

The following table confirms that goods contracts are processed faster than services contracts. Processingtime for goods is relatively consistent across the regions. In the case of services contracts, there is a gap ofup to 9 working days between regions (approximately 2 weeks). Our analysis of the testing did not show anycorrelation 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 todifferentiate the procurement vehicle used to acquire the goods or the services. Therefore, we expected thatthe average time would vary from one document type to another. The following table highlights the resultsof the different region by document types. Overall results shows some variability between regions, howevergiven the small number of sample tested in each category, the audit team cannot draw conclusion at thecategory level.


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Average Processing Time in Days by Document Type

Overall NCR Ontario Quebec

Processing time is calculated from the date the requisition is signed by the manager to the date thecontract is signed by procurement

9200 151 8

Contract 19 19 21 29

Local Purchase Order 17 8 23 19

Standing Offer 17 8 16 30

Temporary Help 15 5

Task Authorization 11

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 betweentime 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 outby one individual, involves assessing the completeness of the information and the quality of the requestbefore it is assigned to a procurement officer). This analysis is specific to the National Capital Region, as thisis the only region where an electronic worksheet is used to log procurement requests. The assessmentrevealed that it takes approximately 3 days between the date the request is signed by the program managerand the date it is logged as received in the Procurement and Contracting unit. An additional 4 days is thenrequired for the triage. It should be noted that procurement requests subject to the Procurement ReviewBoard 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 Boardrevealed that, on average, 67 percent of the requests are processed within 5 working days.


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2.3 Efficiency Achievement Information

2.3.1 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 frombeginning to end. The current computer system does not provide the ability to record the necessary controldates in order to calculate processing time.

Although the National Capital Region has developed an electronic log book that captures some of thecontrol dates, the type of information gathered is not sufficient to calculate processing time from beginningto end and only allows for partial monitoring capability. Other regions included in the audit did not have anyelectronic tracking capability.


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

Recommendation 1

The Assistant Deputy Minister, Finance and Corporate Branch, should develop and implement a trackingevent 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 webportal and a tracking system to support recurring activities across all region. The system should support thefollowing activities:

monitoring of actual results and investigation of root cause of results that dont meet expectedservices standardcommunication of corrective action to senior managementcommunication of actual processing time to clients

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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 actualprocessing time does not allow Material Management to establish performance measurement, such asservice standards.

Based on the actual processing time and performance of the different procurement processes, expectedservice standards should be developed, implemented and communicated to departmental employees andclients of the procurement services.

Establishment and communication of service standards provides a practical way to manage performance andhelp shape the expectation of clients regarding procurement services.

Recommendation 2

The Assistant Deputy Minister, Finance and Corporate Branch, should develop, implement andcommunicate service standards for the different types of procurement activities. Establishment of servicestandards 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 firstone implemented. Furthermore, service standards should be reviewed regularly and updated as necessary.

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2.3.3 Audit Criteria: Client satisfaction is measured and results are used to improvebusiness processes

Material Management does not have a tool to measure and document the level of satisfaction of programmanagers. 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 MaterialManagement. 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 Contractingemployees and senior management. The results should also be used to improve business processes.

2.4 Management System and Practices

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

There is a lack of centralized and documented internal procedures. Although procurement management inthe National Capital Region indicated the existence of internal procedures, results of our interviews in thethree regions revealed that employees were not aware of their existence and that processes were often basedon managerial preferences. For example, the audit team noted that one region did not date their contracts atsignature. This has since been resolved.

The two other regions included in the scope of this audit also expressed concerns regarding the limitedsupport and guidance received from Headquarters. Interview results clearly indicated that regions arecurrently operating in isolation from each other. In fact, the procurement units are currently reporting to twodifferent directors in the National Capital Region.

The lack of documented and formalized administrative procedures increases the risk of error in theapplication of key controls of procurement activities. In addition, it reduces training ability and does notsupport 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 thedepartmental public folder, program areas are sometimes creating their own forms that are better suited totheir 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, procurementofficers raised concerns over the quality of the information received from managers and that they have todeal 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 toprocurement via internal mail, adding to the processing time.

Requisitioning of goods and services through a web portal would mitigate some of these issues. It wouldstreamline the process, ensure consistency in the use of a procurement form, support compliance withinternal controls (e.g. completeness), and significantly reduce transmission time, especially in a decentralizeddepartment. Given the capture of the right information and adequate controls, this tool could also be used asa tracking device for both the managers and procurement staff. Actual processing time could be measuredand 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, theapplication was never launched because of a lack of buy-in by procurement staff. Discussion with anemployee 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. Achange in management strategy for the deployment and implementation of such a tool is essential to itssuccess. The Fast Track initiative implemented by our Human Resources Branch one year ago is a goodexample of success in deploying electronic requisitioning.

The risk of not acting on the above issues may impact managers ability to deliver on their programobjectives in a timely manner. Furthermore, managers are now expected to ensure realistic and timelyforecasting 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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4. Realign the procurement and contracting structure to allow for functional leadership for allregional procurement units.

5. Develop and implement workflow and administrative procedures related to the differentprocurement processes; these must be made available and communicated to all employees.

The Assistant Deputy Minister, Finance and Corporate Branch, should implement the followingrecommendations.

Management responses to recommendations 1 to 5

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

1The 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 performanceof the Procurement and Contracting unit. Actual process time is not captured, service standards are notestablished, and client satisfaction is not measured. Consequently, the unit is unable to identify areas ofimprovement on an ongoing basis.


The results of the testing highlighted some variability in processing time between the regions. Although theaudit team could not conclude on the result given the small number of transactions in each of the category,this couldbe an indication of capacity both in terms of numbers and/or experience. It could also be anindication that some regions deal with more complex contracts. Inconsistency in policies and proceduresapplication 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 Definition

Request dateDate that the requisition for acquisition is signed by program manager

Internal requestapproval Date received in procurement (as stamped or as captured in log book)

Date approved by the Procurement Review Board (when applicable)

External approvalApproval of Public Works and Government Services Canada (check-inand check-out dates when applicable)

Tendering period Proposal posting dateProposal closing dateSupplier proposal date (supplier quotation in cases of sole source)

Evaluationselection Proposal opening date

Final supplier selection date (based on evaluation results date)

Contractnegotiation Contract award date

Contract awarddate Date contract was signed by the procurement officer


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Date Modified: 2013-07-26



DocumentType

Description

9200 The 9200 Requisition is used to request goods for which the cost exceeds the

departmental delegation.

Contract This document type is a grouping of English Long Term Contract (ELTC) andEnglish Short Term Contract (ESTC) types. The ELTC is used for requirementswhere the dollar value is higher then $25,000 and that are deemed to be of acomplex nature. The ESTC is used when there are no major risk factors and thedollar value is $25,000 or lower.

Localpurchaseorder

The local purchase order is used for low-dollar-value purchases. The standing offersare not contracts but an administrative means to provide for the supply of goods orservices 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-upsagainst the agreement to order goods and services by a call-up against a standingoffer.

Temporaryhelp

Temporary help has primarily the same functionality as for the call-up against astanding offer and is used to hire staff from a temporary help agency.

Taskauthorization

Task authorization is used to instruct a contractor to carry out specific work.

Note: This is a partial inventory of document type. Only those that were included in our sample are

explained above.


audit of the efficiency of contracting processes_ca(2011)

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