Audit of G8/G20 Summit Management Office

January 2011

Personal and sensitive information has been edited from this report (shown in the report as "*****") in accordance with the provisions of the Privacy and Access to Information Acts.

Executive Summary

On June 19, 2008, Prime Minister Harper announced that Canada would host the 2010 G8 Summit in Huntsville, Ontario. Following this, during the G20 meeting in Pittsburgh in September 2009, the Prime Minister further announced that Canada would host the G20 Summit immediately after the G8 Summit.

This would be the first time that any nation had hosted two international summits in the same year.

As host country for both summits, a number of departments and agencies of the Government of Canada were involved, including Foreign Affairs and International Trade Canada (DFAIT), the Privy Council Office, the Office of the Coordinator for the 2010 Olympics and G8 Security, Public Works and Government Services Canada (PWGSC), the Department of Finance, and others.

In keeping with its role in organizing such international summits, DFAIT set up a Summit Management Office (SMO) - led by an assistant deputy minister - to assume responsibility for overall organization and for co-ordination among federal departments/agencies.

The SMO received funding of approximately $167 million to cover the costs of the two events. The SMO was supported by the G8 and G20 summit policy division, which is a permanent policy coordination unit responsible for providing direct support and policy advice on summit related issues to the Sherpa (the Prime Minister’s personal representative in the G8 / G20 planning process) and the inter-departmental community.

***************************************, DFAIT was required to perform independent reviews of the SMO, including summit financial information, within three months of the end of the summits. These reviews were to be managed by the Office of the Chief Audit Executive (CAE) at DFAIT.

This was judged to be an important step so that lessons learned could be documented and made available to all stakeholders during the planning process of future Summits.

The specific objectives of this audit were to assess whether and to what extent:

• a clear and effective organizational structure had been established and documented;
• effective oversight bodies had been established;
• the oversight bodies had a clearly communicated mandate that included roles with respect to governance, risk management and control;
• the oversight bodies had requested and received complete, timely and accurate information;
• financial management policies and authorities (including contracting) had been designated and communicated;
• management had identified the risks that had precluded achieving objectives;
• management had identified and assessed existing controls in place to manage risks;
• authority, responsibility and accountability had been clear and well communicated; and
• employees had formally acknowledged their understanding and acceptance of their accountability.

Whether the above noted objectives had been met was assessed through detailed lines of enquiry relating to three key components of the management of the SMO:

• Management oversight;
• Contracting management; and,
• Expenditure management, including operations, maintenance and salaries.

In conducting our audit, we applied Management Accountability Framework (MAF) criteria/core controls and various relevant policy requirements to assess the prevailing risks within each of the functional areas of the SMO.

Key Findings

This was the first ever instance where the G8 and G20 were hosted “back-to-back” by any nation.

The lack of precedents with events of this nature and importance, the changeable nature and size of delegations and the uncertainty of final locations and venues presented significant logistical challenges.

To strengthen governance and oversight of the planning for and delivery of the G8 and G20 summits, DFAIT implemented several strategic practices and procedures. These included assigning an assistant deputy minister to manage and be accountable for the overall process; incorporating key partners into the oversight process; involving the key partners as members of the various committees responsible for specific elements of the summit planning process; and developing and documenting mandates and roles and responsibilities for all committees. Additionally, contracting and account verification were highly centralized.

The SMO received funding to cover the costs of the two events and operated with a budget of approximately $167 million. The estimated budget for these events appears to have been overestimated, in large part because of the many unknowns. Notably, more than $50 million was over-budgeted over two fiscal years. However, since funds could be used only for the G8 and G20 Summits, all surplus funds must be returned to the government’s Consolidated Revenue Fund.

The key governance committees for oversight were the SMO Management Committee and the SMO Logistics Committee, which met regularly and often. A number of SMO sub-committees were created and they also met regularly to resolve issues related to, for example, policy-logistics co-ordination and security-logistics co-ordination.

Strategically, the SMO had higher value / higher risk procurement transactions processed through PWGSC, that is $47.6 million or 82 per cent of dollar value. While we noted several files where there were issues of non-compliance, on the whole we believe that compliant and effective procurement of goods and services was in place, including the definition of requirements, procurement planning, solicitation activities, contract award, contract administration and contract close-out.

A strong control function was implemented within the Administration, Finance and Human Resources Division (DSMF) to manage the expenditure process within the SMO. The overall process was very centralized. Managers were given appropriate training before receiving authority. The Director DSMF conducted a supplemental review of Section 34 approvals before forwarding payments for final Section 33 approval. Furthermore, the SMO instituted additional controls over hospitality and engaged Audit Services Canada to review all ex gratia claims received in relation to G8 and G20 Summit extraordinary security measures.

Overall Audit Conclusion

While we have noted some specific areas where improvements could be achieved in the management of future summits, our overall assessment is that there was a strong control environment established within the SMO for the planning and management of the G8 and G20 Summits. Specifically:

• senior management established a clear and effective organizational structure which was documented and communicated to all stakeholders;
• effective oversight bodies were established with clearly communicated mandates that included roles with respect to governance, risk management and control;
• those oversight bodies requested and received complete, timely and accurate information and met regularly, including daily meetings during the summits;
• financial management policies and authorities (including contracting) had been identified and communicated to management and staff through training and familiarization sessions;
• prior to the Summits, management conducted a rigorous review to identify the risks that might have precluded achieving objectives;
• management actively assessed the controls in place to manage risks through simulation exercises;
• authority, responsibility and accountability was clear and well communicated through a combination of policy, procedure, written instructions, training and familiarization sessions; and,
• employees formally acknowledged their understanding and acceptance of their accountability.

Key Recommendations

• For future summits, the lead office (SMO or equivalent), should ensure that funding requirements are subject to critical review and that effective communications with partners are established to improve budgetary estimates and to reduce lapsing.
• The SMO should amend its Request for Contract form to make it more explicit about what information is required when contracting work to former public servants in receipt of a pension. Such an amendment would improve the decision making process for contract staff and for initiating managers.
• The SMO should introduce an aging table to monitor contracts approaching termination date. Such a table should note any major incidents as they occur, such as contract amendments, cancellation, and the 50 per cent and 75 per cent expenditure milestones.

Other recommendations are included in the text of this document.

Statement of Assurance

In my professional judgment as Chief Audit Executive, sufficient and appropriate audit procedures have been conducted and evidence gathered to support a high level of assurance on the accuracy of the information in this report. The results are based on a comparison of the conditions, as they existed at the time, against pre-established audit criteria that were agreed upon with management. The results are applicable only to the processes examined. The evidence was gathered in compliance with Treasury Board Policy, Directives, and Standards on internal audit for the Government of Canada.

Original signed by:

Yves Vaillancourt, CAE, January 31, 2011

1.0 Introduction

On June 19, 2008, Prime Minister Harper announced thatCanada would host the 2010 G8 Summit inHuntsville,Ontario. Following this, during the G20 meeting inPittsburgh in September 2009, the Prime Minister further announced thatCanada would host the G20 Summit immediately after the G8 Summit. This would be the first time any nation hosted two international summits in the same year.

The G8 and G20 summits are forums for leaders of member nations to discuss key issues with a view to finding common ground and coordinated solutions. A theme is developed by the country hosting the G8 Summit each year and may cover economic, political, social and other global issues. Economic issues are the focus of the G20 Summit, as it is considered the most effective forum to lead global efforts in stemming the current economic crisis because of the diversity in economic development among its member countries.

The G8 and G20 summits are held annually and are hosted by countries on a rotational basis. In the absence of an administrative headquarters, a permanent secretariat, and membership dues, the costs of summits’ activities are borne by participants, with most cost falling to the host country. As for both summits, a number of Canadian departments and agencies of the federal government were involved. They included Foreign Affairs and International Trade Canada (DFAIT); the Privy Council Office; the Office of the Coordinator for the 2010 Olympics and G8 Security; Public Works and Government Service Canada (PWGSC); the Department of Finance; and others.

In recognition of the role it plays in organizing these international summits, DFAIT set up a Summit Management Office (SMO) and appointed an Assistant Deputy Minister (ADM) to be responsible for overall organization and co-ordination among federal departments/agencies. The SMO received funding to cover the costs of the two events and operated with a budget of approximately $167 million. The SMO was supported by the G8 and G20 Summit Policy Division, a permanent policy co-ordination unit responsible for providing direct support and policy advice on summit related issues to the Sherpa and the inter-departmental community.

*******************************************, DFAIT was required to perform independent reviews of the SMO, including summit financial information, within three months of the end of the summits. These reviews were to be managed by the Office of the Chief Audit Executive at DFAIT (ZDB).

Entity Background

The SMO was created as a branch of Foreign Affairs and International TradeCanada. Its mandate was to ensure that the G8 Summit inHuntsvilleand the G20 Summit inTorontowere properly organized and effectively delivered on behalf of the Prime Minister of Canada. The office’s mandate was to provide the logistical and technical resources in support of the G8 and G20 Summits.

Both events were organized in co-operation with all relevant federal, provincial and municipal departments and agencies. The SMO acted as coordinator for all these partners.

2.0 Audit Objective and Scope

The overall objective of this audit was to assess the adequacy of the SMO’s management control framework and its expenditure operations, including contracting processes.

Specifically, this audit assessed whether and to what extent:

• a clear and effective organizational structure had been established and documented;
• effective oversight bodies had established;
• the oversight bodies had a clearly communicated mandate that included roles with respect to governance, risk management and control;
• the oversight bodies had requested and received complete, timely and accurate information;
• financial management policies and authorities (including contracting) had been established and communicated;
• management had identified the risks that precluded achieving objectives;
• management had identified and assessed the existing controls to manage risk;
• authority, responsibility and accountability had been clearly enunciated and communicated; and,
• employees had formally acknowledged their understanding and their acceptance of accountability.

2.1 Specific Audit Scope

The audit was conducted in accordance with the standards and requirements set out in the Government of Canada Treasury Board Policy on Internal Audit and the Institute of Internal Auditors International Standards for the Professional Practice of Internal Auditing.

The audit was strictly limited to the operations of the SMO and none of the partners was assessed. The audit scope included all phases of the procurement and expenditure process for goods and services from April 1^st 2009 toSeptember 30th 2010.

The audit included the review and assessment of relevant documentation not covered in the planning phase. The testing of contracting and expenditure processes was conducted against the established audit criteria (see Appendix A). Based on an analysis of the information and evidence collected, the audit team formulated audit findings, which were validated through discussions with the entity being audited.

Three lines of inquiry were identified to facilitate the audit work and reporting:

Management Oversight

The audit focused on assessing the effectiveness of the SMO with regard to planning, risk assessment and program delivery.

Contracting Management

We considered the five components of the contracting process: Requirement definition, bid solicitation, contract award, contract administration and contract close out.

Expenditure Management

The audit concentrated on the financial reporting of expenditures to assess accuracy, completeness and reliability. The focus was on the Financial Administration Act (FAA) Section 32 and 34 delegated authority. Section 33 is performed by Corporate Finance; therefore, this component was not included in our audit.

3.0 Findings and Recommendations

3.1 Management Oversight

We met with managers and staff of SMO to gain knowledge of and insight into their operations. We gathered information and documentation, which we subsequently analyzed and, where necessary, requested clarification on potential issues that we identified.

In the course of the audit, we learned that during the planning phase for the summits, executive retreats had been held to establish roles and responsibilities with respect to governance, risk management and control processes. ******************************* *************************************************************.

Budgets were developed by a working group of partners using available historical information such as that related to 2002 Kananaskis G8 Summit and le Sommet de la Francophonie. Estimates were then reviewed by management and used to support a memorandum to Cabinet (MC) and the submission to Treasury Board (TB).

SMO management identified numerous risks as part of their planning process and documented them in a risk table. Given the nature of the events, there was the potential for numerous unplanned interventions that could seriously disrupt the summits. The risk table identified threats by likelihood and impact. Furthermore, SMO conducted scenario testing to assess planning parameters. The detailed risk table document considered all manner of risks and their potential impacts on the delivery of the summits. Several of the scenarios did arise, notably the addition of meetings and conferences, some of which ran concurrently with the G8 and G20 summits. The detailed risk table was tested in real time as the Haiti Conference and two youth summits were added to the SMO workload during G8 and G20 planning.

A recruitment plan was developed and organization charts were created for each directorate. SMO used secondments primarily, drawn from DFAIT first, then through the public service, and then from the general public. Competitions were held to create pools of AS 2/3/4/5 etc. Staff and managers drew from the pool as requirements arose. There were 600 staff at peak but some were employed for just a month during actual events. As a standard procedure, staff received a familiarization session and signed work descriptions to ensure they understood their roles and responsibilities.

To strengthen governance and oversight of the G8/G20 Summit planning and delivery, the SMO implemented several practices and procedures. These included assigning an ADM level manager to be accountable for the overall process; incorporating key partners into the oversight process; involving partners as members of committees responsible for various elements of the summit planning process; and developing and documenting mandates, roles and responsibilities for all committees.

Governance

The two main oversight committees were identified as the following:

• The Management Committee (EXCO): including theADM, directors general and directors of the summit; and
• The Operational Committee whose role was to identify and review risks and to decide on mitigating strategies for program delivery.

Approximately 30 sub-committees were created and they met regularly on issues related to, for example, policy-logistics co-ordination and security-logistics co-ordination. However, our assessment concentrated on the two senior governance committees.

SMO Management Committee

The ADM, directors general, all divisional directors and a small number of key deputy directors met weekly beginningJuly 27, 2009 to discuss management issues related to summit preparations and to make decisions on issues of concern. Meetings were chaired by theADM and structured by issue (old business and new business). Issues not resolved appeared on the following week’s meeting agenda as old business. Issues that were resolved were marked on the meeting notes as closed items. Meeting notes fed the critical path and planning calendar and served to prompt directors on required follow up. Each week, directors were invited to submit items of new business. Following the move of most SMO staff toToronto, management meetings were incorporated into the daily operational meetings which began onApril 14, 2010.

Embedded partners included HealthCanada, JusticeCanada, and PWGSC. Security (RCMP) was not always present.

SMO Operational Committee

The objective of the SMO Operational Meeting was to identify and address priorities for the day that needed resolution. The director general of planning and divisional directors (a deputy director/senior manager in the absence of a director) met every other week beginning onSeptember 8, 2009, to identify and co-ordinate operational issues by reviewing the critical path line-by-line. Following the move toToronto, the SMO operational meeting was held daily, early in the morning. These meetings, chaired by the director general of planning, incorporated the SMO management meeting and directors meeting. Meeting notes were distributed by email shortly after the meeting (same day), in short form, and action items for follow up were noted.

Other Related Committees

There were a total of 30 committees established, including those for security; another for programs; PWGSC committees for monitoring telecommunications, electrical and generator purchases; and an internal SMO group to monitor print material and the acquisition of promotional items.

The Director of Administration, Finance and Human Resources Division held weekly meetings with directors, directors general and the ADM as well as some critical partners to monitor all aspects of budget and plans. There were also one-on-one meetings with directors to establish and monitor budgets. Other supplemental controls at the transactional level are discussed elsewhere in this document.

Conclusion

Overall, we observed that the SMO had effective processes for oversight in place. These included a well-defined and documented committee structure; documented risk assessment; and regular updates to management. The ability of the SMO to deliver these additional services speaks to the diligence and robustness of the planning process.

3.2 Budgetary Control and Reporting

As stated earlier, budgets were developed by the working group of partners with reference to historical information available from the experience related to staging, for example, 2002 Kananaskis and le Sommet de la Francophonie. Budget estimates were established in early 2009 for the G8 Summit only, based on assumptions with regard to sites and program (for example, North Bay Airport,TCC). These estimates were developed using past summit experience; the knowledge that the location chosen for the summits had limited infrastructure; and the standard G8 program. However, as the program evolved, many changes transpired. Estimates were based on the best information available at the time and worst case scenarios. There was no previous experience with regard to the G20 Summit and estimates were developed without a confirmed program or venues. As a result, it appears that many items were over budgeted given the lack of certainty and a need to ensure that there was sufficient funding for this critical event. There was also one case of miscommunication where both PWGSC and SMO received funding for accommodation requirements in the order of $16.56 million, which alone accounted for approximately 30 per cent of DFAIT’s surplus.

The following tables demonstrate SMO budget levels for the G8 and G20 summits for both fiscal years 2009/2010 (Tables 1a and 1b) and 2010/2011 (Tables 2a and 2b).

Financial Reporting

The Guide on Budget Management requires that managers conduct reviews of their financial expenditures and commitments as presented on their monthly financial reports to confirm their validity and accuracy.

Weekly meetings were held with directors, directors general and the ADM as well as some critical partners to monitor all aspects of budgets and plans. There were also one-on-one meetings with directors to establish and monitor budgets. In 2009-2010, quarterly projections/financial reports were prepared starting in August 2009 for the Management Committee. One quarterly projection report was prepared for the 2010-11 fiscal year. However, there were monthly expenditure and free balance reports prepared at the end of each month beginningApril 30, 2009.

The Manager, Financial Services of the Administration, Finance and Human Resources Division, performed a monthly procedure reconciling integrated management system (IMS – the departmental financial system) with his Excel reports. There were some differences between the IMS and the Excel commitment totals because some totals were combined and others were broken down for ease of management understanding. Reconciliation was done by comparing over-all divisional expenditure and commitment totals to IMS. Quarterly reports – after input from and discussion with directors -- were produced three times in 2009-2010. One quarterly report was produced prior to the summits for the DFAIT resource management committee to let them know how much funding had to be advanced until the department received supplementary funding.

The Director of the Administration, Finance and Human Resources Division, reviewed and approved the reports, then individual Funds Centre reports were sent to each director. Directors general received all reports for their own sectors and theADMreceived the full package of reports. As discussed under oversight, the Management Committee met regularly and discussed budget status.

As of January 20, 2011approximately 79 per cent of the total budget had been spent or committed. It was anticipated that all invoices, with the exception of ex gratia payments, would be processed by January 2011. Requests for ex gratia payments could be submitted up to the end of November 2010. The budget estimation for ex gratia payments is $10 million for the G20 atTorontoand $3.5 million for the G8. The claim process is discussed in greater detail in Section 3.4 of this document.

SMO presented a number of reasons why some expenses had been over-budgeted:

• Budget estimates were established in early 2009 for a G8 Summit based on assumptions related to sites and the program (for example, North Bay Airport, TCC). These estimates were developed using experience from past summits; the knowledge that the location chosen for the summits had limited infrastructure; and the standard G8 program. Estimates were based on best information at the time and worst case scenarios. However, as the program evolved, many changes transpired after the budgets had been established and approved.
• There was no previous experience with regard to the G20 Summit and estimates were developed without a confirmed program or venues.
• A concerted effort was made to reduce expenditures and to identify possible savings. In this regard, the decision was made to piggyback G20 contracting requirements with the G8 contracts already in process. This resulted in considerable savings by eliminating duplication and by consolidating labour efforts.

2009 – 2010

• $ 4 million from a vote reallocation (from DFAIT unutilized Vote 10 funds transferred with approval to Vote 1) for expenses which by their nature became the responsibility of PWGSC instead of SMO.
• $ 2 million from stopping a contracting process due to not knowing the final venue for the G20 (that is, Toronto or elsewhere).

2010 – 2011

• $10 million for the unused reserve for contingencies;
• $12 million for unexpended funds for facilities and site preparation;
• $6 million accommodation division, related to lower than expected attrition and rooming charges;
• $2 million DG programs, related to cancellation of cultural events;
• $2 million communications, related to cancellation of advertising/outreach program and savings on host broadcaster due to rate card sales; and,
• $4 million administration, related to lower than expected costs for printing, commissionaire services, warehousing and moving as well as savings from renting office fixtures/furnishings rather than buying them in both Huntsville andToronto.

*********************************************************************. However, even though certain expenditures have yet to materialize (for example, ex gratia payments) it appears that certain expenses were over budgeted or unlikely to occur.

Given the high profile nature of the G8 and G20 summits, management resources and efforts were sufficient to ensure successful outcomes. The result is the surpluses detailed above. However, since the surplus funds could only be used for the G8 and G20 summits, all surplus funds are to be returned to the Government’s Consolidated Revenue Fund.

Conclusion

While there were significant surpluses due to over budgeting as discussed earlier, financial reporting of expenditures to all levels of management was accurate, complete and reliable.

Recommendation

1. For future summits, the lead office (SMO or equivalent), should ensure that funding requirements are subject to critical review and that effective communications with partners are established to improve budgetary estimates and to reduce lapsing.

3.3 Contracting Management

At SMO, the contracting and procurement function was centralized. Goods and services contracts, with the exception of acquisition card transactions, were prepared by the goods and services unit, which had overall responsibility to act as the contracting authority on behalf of SMO.

PWGSC acted as the contracting authority when it issued contracts on behalf of SMO. Contracts for advertising services could be awarded only by PWGSC. Additionally, PWGSC processed all of the major contracts issued as part of the G8 and G20 summits.

The project authority’s role was fulfilled by SMO managers who were responsible for identifying and defining the requirement; developing the statement of work, evaluation and selection criteria; and for the overall management of the performance of the selected contractor. The project authority was responsible for requesting contract amendments and for certifying contractor invoices.

The SMO processed 582 goods and services contracts for a value of $52,836,126. Of these, PWGSC handled 41 contracts with a value of $43,567,532, or 82 per cent of dollar value. SMO contracting staff processed the remaining 541 contracts for $9,268,595. A total of $48 million, or 90.9 per cent of total contracts value, was competitive, that is 61 per cent of transactions. Another $4.8 million of transactions sole source, that is, 39 per cent of transactions.

To strengthen governance and oversight of contracting, the SMO implemented several practices associated with contracting and procurement processes during the G8/G20 summit planning and delivery. These relate to delegation of financial authority, control and training. For example:

• While there was no contract review committee, procurement professionals were the challenge mechanism. They reviewed all requirements and issued all contracts or arranged for their processing via PWGSC.
• Higher dollar value contracts - that is, those exceeding the NAFTA threshold - were normally issued by PWGSC ($47.6 million) and represented 82 per cent of contract value.
• PWGSC staff were co-located with SMO and processed larger contracts, with about two to four dedicated staff at various times and locations.
• All staff who required contracts received an orientation / information session.
• The Manager of the goods and services unit or the Director of Administration, Finance and Human Resources Division signed all contracts.

Additionally, we noted a best practice within SMO for major service contracts. This called for individual work orders or call-ups to be prepared by staff on site at the various venues and for contractors to provide written quotes to perform the work. This applied to the major audio visual support and site preparation or staging contracts. This allowed better control of the work and the associated costs.

The audit team completed a high level process map of key procurement control processes to reflect goods and services unit practices.

To conduct detailed file testing, 30 distinct sub-criteria were developed and applied during the examination phase. These were established to address all of the noted phases of the contracting process and to ensure compliance with the numerous TBS, PWGSC and DFAIT contracting policy and procedural requirements.

Notwithstanding the sound contracting practices based on the risk mitigation measures mentioned earlier, there were some files where there was a degree of non-compliance with prevailing policy or practice.

The audit found eight examples of files where there were missing requests for contracts (the initiating document to permit contracting to solicit bids or forward 9200 forms to PWGSC for that agency to solicit bids). This happened because multiple contracts were awarded as a result of a single request for contract or where contracts were separated for management and financial accounting reasons (for example, commissionaires). In several instances, the document was subsequently located by contracting staff and provided.

The shortcomings noted in file maintenance resulted from multiple PGs working on files and working in two locations, making file maintenance more difficult, as did the requirement to physically move locations during the process. More specifically, we noted that:

• There were two files where there was no evidence that the terms and conditions of using the Standing Offers and Supply Arrangements had been complied with, namely the right of first refusal and / or the formal evaluation of bids. The non-compliance with the use of Supply Arrangements and Standing Offers may have been due to a lack of familiarity with requirements of the tools given their low usage.
• There were two cases where it appeared that sole source contracts entered into with former public servants in receipt of pensions were amended to values greater than $25,000 without TB approval as required by policy. One was for a final amount of $29,000 for an individual to help write a scope of work. Per diems were very reasonable at $500. The other contract was for $53,000 for assistance with planning. Again, per diems were reasonable at $850.
• As regards the sole source contracts with former public servants on pension, there was a diminished challenge due to unfamiliarity with government contracting regulations. Managers requesting sole source contracts should have confirmed the pension status of former public servants and acknowledged that under no circumstances would amendments over $25,000 (including HST) be permitted. Contracting staff should have had sufficient information on which to base contracting decisions.
• There were seven instances of Confirming Orders, which are effectively after-the-fact amendments that are made to permit payment. These confirming orders are to be expected in situations where final quantities of goods or levels of service cannot be predicted with complete accuracy. Three of the seven were not well founded. One was for additional hotel rooms where one supplier backed out and another was used for additional rooms ($53,000), but it was known in March that the supplier had reneged and an amendment could have been processed via PWGSC as opposed to by DFAIT in October. The second was for local movers where the file just “got out of hand” and numerous call-ups were made over the $60,000 limit, leading to a onetime $198,000 confirming order. The last was for additional work after the contract had lapsed, for $5,800 worth of GPS survey of a site already subject to an environmental assessment.
• For Confirming Orders, there were numerous situations where the final quantity or level of demand could not be forecast with complete accuracy, and there were numerous active contracts which made it difficult to be completely pro-active in their management.

While there were several files exhibiting issues of non-compliance, on the whole we believe that compliant and effective procurement of goods and services was carried out, including requirements definition, procurement planning, solicitation activities, contract award, contract administration and contract close-out.

Recommendations

2. SMO should initiate a one-time clean-up of files and institute a document check list for future events to assist procurement staff to ensure that all critical documentation is on file.

3. All staff should receive training or refresher training in the use of PWGSC Standing Offers and Supply Arrangements and pay closer attention to the application of required processes when using these tools.

4. SMO should amend its Request for Contract form to make it more explicit about the information required when dealing with former public servants who are receiving pensions to improve information available for decision making for contracting staff and initiating managers.

5. SMO should introduce an aging table to monitor contracts approaching their termination date, noting any major incidents or events as they occur, including amendments, cancellation, and the 50 per cent and 75 per cent expenditure milestones.

3.4 Expenditure Management

The audit team interviewed the management and staff of the Administration, Finance and Human Resources Division and the Director General (DG), Programs. Supporting documentation was provided and analyzed by the audit team. The team also reviewed the internal policies and procedures inherent to the applicable financial management framework. A process flowchart and identification of control points of the expenditure process has been produced and validated by SMO.

The expenditure process was based on a formal delegation of authority and a segregation of duties. It started at the point where a decision was made to initiate a transaction and continued up to the request for payment to a supplier.

At the SMO, all DGs and Directors were delegated formal authority for spending. Every delegated manager was required to take the established training before being granted commitment authority. ****************************************************************************, the following specific processes were established:

• Pre-payment account verification was performed on all transactions regardless of their level of risk and specific processes were put in place to for sensitive transactions. The coding and input into SAP were performed by financial officers from the Administration, Finance and Human Resources Division. This process greatly reduced the risk of coding errors; and,
• The account verification process was centralized at the Administration, Finance and Human Resources Division to ensure a high level of expertise and consistency of accounts verification.

Corporate Finance was responsible for developing, maintaining and publishing all financial policies, including the Delegation of Financial Signing Authorities documents. Departmental financial policies and procedures could be found on the DFAIT Intranet site and could be accessed by all employees. In addition to the corporate policies and procedures, the Administration, Finance and Human Resources Division produced and communicated to SMO staff specific administrative procedures related to financial operations. Examples of procedures include procurement of office supplies and other goods; use of taxi vouchers; procedures on Contract Services; procedures on accounts payable, hospitality, hiring, file archiving, procurement; and invoicing of cellular telephones and blackberries.

Specific processes for sensitive transactions were implemented and all delegated managers received essential training before being able to exercise their delegated authority.

Hospitality

The Administration, Finance and Human Resources Division produced and distributed to all managers a procedure regarding hospitality requests. All managers were required to communicate with them before any hospitality events were organized. The Administration, Finance and Human Resources Division had the mandate to ensure the hospitality requests were in compliance with the departmental policy on hospitality before final approval by the appropriate manager. The procedure included specific instructions regarding the process, the required forms and the level of authority and approval required for each event.

Ex Gratia Payments

The authority to authorize ex gratia payments was granted in accordance with the Treasury Board’s Policy on Claims and Ex Gratia Payments.

Ex gratia payments were guided by ******************* guidelines established for past summits. These same guidelines were also used for the G8 and G20 Summits. The objective of the guidelines is to establish criteria that can be used to examine potential claims. The guidelines address situations where the Government of Canada may consider making ex gratia payments to commercial businesses, non-profit organizations and individuals to mitigate adverse financial consequences as a result of extraordinary security measures implemented at designated meetings hosted by Canada as part of its international obligations.

SMO engaged Audit Services Canada (ASC) to evaluate all claims received in relation to the G8 and G20 Summits’ extraordinary security measures. ASC reviewed the claims to ensure that all claimants clearly demonstrated that their losses were directly related to the G8 and G20 Summits’ extraordinary security measures. ASC had the authority to request any supportive documents that it deemed necessary to complete the audit. Payments were provided based on ASC’s recommendation after the claimant had signed a release and waiver form. ****************************************************************** *******************************.

The claims could be presented only for the period during which the Security Authority prohibited public access inside the perimeter. All compensation claims had to be submitted byNovember 18, 2010.

Audit Services Canada was responsible for: assessing the claims received; formulating recommendations to DFAIT; producing the summary report on audit claims; and, producing a short audit report of each claim submitted.

The budget estimate for ex gratia payments was $10 million for the G20 atTorontoand $3.5 million for the G8. Final claims are estimated at $11.2 million for the G20 and $670,000 for the G8.

The result of our sample testing revealed that:

• Transactions were coded correctly for most transactions tested. Minor G/L coding errors were found in only eight transactions, and were minor in nature (for example, repair of machinery was coded verses repair of equipment, the incorrect line object, but was under the correct economic object and had no impact on Financial Statements).
• There were current and valid signature cards on file for all transactions tested.
• There was appropriate segregation of duties in place within the SMO and the Administration, Finance and Human Resources Division reviewed all transactions.
• Detailed processes were put in place to verify payments approved by PWGSC for contracts managed on behalf of SMO.

The expenditure process at SMO was very centralized. Account verification was centralized within the Administration, Finance and Human Resources Division for all transactions. In addition to the delegated manager approving the expenditure request under the FAA Section 34, the Director of Administration, Finance and Human Resources also conducted a supplemental review and signed that compliance with accounts verification had been met before forwarding for final FAA Section 33 approval.

However, there were a few situations where improvements could be made:

• The Deputy Director of Administration, Finance and Human Resources did not date his signatures for the transactions tested, making it difficult to determine if his Section 34 authority was exercised only during the absence of the Director. It was also difficult to determine whether account verification was carried out by the account verification officer. For all payment transactions, although the name of the account verification officer was printed on the payment document produced by the financial system, there was no evidence that full account verification had been performed and that the account verification officer recommended the Section 34 approval.
• Supporting documentation was not always easily or readily available and SMO recognized that record keeping had not been effective. It happened particularly with transactions with PWGSC where external contracts were signed between PWGSC and the suppliers. An invoice was sent by PWGSC without supporting documentation from the suppliers providing details of services provided. The missing documentation in the files may have been caused by the large number of payments in a short time frame and the fact that the paid files had been moved several times.

While there were a few situations where improvements could be made, we believe a strong control function was implemented within the Administration, Finance and Human Resources Division for the management of the expenditure process, including commitment, review and approval for payment.

Recommendation

6. For future events, DFAIT should implement a procedure that would confirm that all steps relating to the accounts verification had been performed and that all required documentation was on file. This process should include evidence of who has performed the accounts verification and what has been performed. This could be as straight forward as a brief procedure supplemented with a checklist.

4.0 Overall Audit Conclusion

While we have noted some specific areas where improvements could be achieved in the management of future summits, our overall assessment is that there was a strong control environment established within the SMO for the planning and management of the G8 and G20 Summits. Specifically:

• senior management established a clear and effective organizational structure which was documented and communicated to all stakeholders;
• effective oversight bodies were established with clearly communicated mandates that included roles with respect to governance, risk management and control;
• those oversight bodies requested and received complete, timely and accurate information and met regularly, including daily during the summits;
• financial management policies and authorities (including contracting) had been identified and communicated to management and staff through training and familiarization sessions;
• prior to the summits management conducted a rigorous review to identify the risks that might have precluded achieving objectives;
• management actively assessed the controls in place to manage risks through simulation exercises;
• authority, responsibility and accountability was clear and well communicated through a combination of policy, procedure, written instructions, training and familiarization sessions; and
• employees formally acknowledged their understanding and acceptance of their accountability.

Appendix A – Audit Criteria

The criteria that were applied during the examination phase of the audit were:

Audit Criterion 1

Governance structure, policies, project risk assessments and mitigation strategies, procedures and roles existed at the SMO and were communicated for consistent implementation across the Branch.

Audit Criterion 2

Delegated managers received formal delegation of authority through signature forms, and received essential training before using their authority.

Audit Criterion 3

Compliant and effective procurement of goods and services were in place, including requirement definition, procurement planning, solicitation activities, contract award, contract administration and contract close-out.

Audit Criterion 4

Expenditure transactions were approved in accordance with the departmental delegated authority and the FAA, Section 32, 33 and 34.

Audit Criterion 5

Accurate and timely financial information was provided to support decision-making.

Appendix B – Management Action Plan