Audit of International Platform Service Delivery to Canada's Network Abroad

Effectively Supporting the Provision of Common Services

Foreign Affairs, Trade and Development Canada
Office of the Chief Audit Executive

September 2014

Executive Summary

In accordance with its approved Risk-Based Audit Plan for 2013-2016, the Office of the Chief Audit Executive conducted an internal audit of International Platform Service Delivery to Canada's Network Abroad at the Department of Foreign Affairs, Trade and Development (DFATD, the Department).

Why is this Important?

DFATD manages Canada's diplomatic and consular missions and services abroad to enable the Government of Canada to effectively serve Canadians and advance our country's interests. The maintenance of a functional mission network of infrastructure and services plays a crucial role in achieving the Government of Canada's international priorities.

In accordance with the Treasury Board Common Services Policy, DFATD, defined as a common service organization, provides a wide range of services to government departments and agencies (partner departments) and co-locators (Crown Corporations, Provincial Governments, other national governments, and finally non-governmental organizations).  According to the Department's Financial Statements 2012-13, the Governance, Strategic Direction and Common Service Delivery Activities had operating expenses of $609.5 million, representing almost 30% of the Department's total operating expenditures.

As of March 31, 2013, Canada's network abroad, including its 172 missions in 105 countries, serves as the international platform for 26 federal departments and agencies and 10 co-locators.  In support of the international programs of all federal departments and agencies of the Government of Canada, DFATD has an Interdepartmental Memorandum of Understanding (MOU) on Operations and Support at Missions aimed at providing the framework for an efficient and cost-effective delivery of operations and common services.

The Department is accountable for providing timely, high-quality and competitive services where it has established diplomatic relations. It is expected that the International Platform Branch, through a sound management control framework, provides common services at missions and headquarters in a sustainable and financially responsible manner that support cost-effective and efficient delivery.

What did we examine?

The objective of the audit was to assess the effectiveness of the Department's management control framework for the provision of common services to Canada's network abroad including the:

• Application of the common service cost recovery framework;
• Appropriateness of the costing methodology associated with supporting its clients at missions abroad; and
• Monitoring and management of service performance.

The audit scope included the International Platform Branch Common Services key activities, cost recovery approach and its application related to the Department's common service delivery to Canada's network abroad for the fiscal years 2012-2013 and 2013-2014 up to June 30, 2013.

The audit examined the methodologies for the following cost categories/elements:

1. Project Construction Charges
2. Chancery Operating Charge
3. Recapitalization
4. Staff Quarters Rent
5. Staff Quarters Maintenance
6. Staff Quarters Utilities
7. Staff Quarters Fit-up
8. Staff Quarters Furniture and Fixtures
9. Mission Operating
10. Common Services Abroad Charge IM/IT
11. IT Connectivity
12. Long-term Storage
13. Relocation
14. Foreign Service Allowance
15. Salary and Benefits

These were selected based on the level of risk.  The complete list of the DFATD standard cost elements can be found in Appendix A:  About the Audit.

What did we find?

The Department has a strong governance and operational model in place with well-established accountability and oversight functions for the provision of common services to Canada's network abroad. The Department also has a cost recovery framework in place, including a comprehensive costing methodology for internal and external stakeholders. While good practices were noted, improvements could be made to the design and the application of the costing methodology as well as monitoring and reporting.  These improvements would enable the Department to confidently provide assurance to internal and external stakeholders that the Department delivers cost effective and quality common services across the mission network.

The Department has a strong governance structure in place; however, minor improvements would strengthen decision making.

The Department has an appropriate governance structure in place to address policy and delivery issues relating to common service delivery to Canada's network abroad. The oversight functions are well established and documented.  Minor improvements could be made to the organization and coordination of the oversight bodies to achieve more productive meetings and allow more effective decision making.

The Department has an appropriate operational model; expectations regarding internal roles and responsibilities should be clarified to strengthen accountability.

The Department has an appropriate operational model in place to address policy and delivery issues relating to common service delivery to Canada's network abroad with clearly defined roles and responsibilities for internal and external stakeholders, as well as oversight and challenge functions.  Internally, roles and responsibilities for common service delivery need to be clarified to ensure understanding and consistency regarding expectations for management and administration of the costing methodologies and service delivery standards.

The Department has comprehensive costing methodologies in place but can improve the design and application to enhance its ability to validate the Common Service Charges.

The Department has a comprehensive costing framework to allow it to identify and appropriately calculate the costs associated with providing common services.  To ensure accuracy and appropriateness of the common services charges and demonstrate that the Department is operating in a cost effective manner, the costing methodologies employed need to be documented and centrally available so that they can be validated, used consistently and assessed on an ongoing basis.

Developing an integrated approach for performance results would help to measure service delivery to clients.

The Department has service standards in place, undertakes performance monitoring and has a performance measurement framework.  Clarifying service delivery standards, introducing an integrated monitoring approach and continuing to improve the performance measurement framework including indicators and data collection, will allow the Department to respond to clients service expectations more effectively. 

Key Recommendations

The International Platform Branch should:

• Review the Terms of Reference of the ADM Council and the Interdepartmental Working Group on Common Services Abroad to include provisions regarding coordination and organization of meetings, attendance, maintenance of records of decision and timely provision of information for decision making.
• Improve the design and application of the common service delivery costing methodology by:
  • clarifying ownership as well as expectations for management and administrators;
  • ensuring that the methodology and assumptions are well-documented and readily accessible;
  • reviewing the methodology for appropriateness and consistency; and,
  • implementing a validation process.
• Formally document and review the procedures and guidelines for developing and applying charges for position creations and deletions to ensure that they are cost-effective for the Department.
• Improve the monitoring and reporting on performance by clarifying service standards, reviewing the performance measurement framework and introducing a data collection methodology.

Statement of Conformance

In my professional judgment as the Chief Audit Executive, this audit was conducted in conformance with the Institute of Internal Auditors' International Standards for the Professional Practice of Internal Auditing and with the Internal Auditing Standards for the Government of Canada, as supported by the results of the quality assurance and improvement program. Sufficient and appropriate audit procedures were conducted, and evidence gathered, to support the accuracy of the findings and conclusion in this report, and to provide an audit level of assurance. The findings and conclusion 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 and are only applicable to the entity examined and for the scope and time period covered by the audit.

Jean Goulet
Chief Audit Executive

1. Background

The Audit of International Platform Service Delivery to Canada's Network Abroad was approved as part of the former Department of Foreign Affairs and International Trade's three-year Risk Based Audit Plan 2013-16, which was tabled at the Departmental Audit Committee meeting on February 13, 2013 and approved by the Deputy Ministers. 

Mandated by the Department of Foreign Affairs, Trade and Development Act (DFATD Act), Foreign Affairs, Trade and Development (DFATD) manages Canada's diplomatic and consular missions and services abroad to enable the Government of Canada to effectively serve Canadians and advance our country's interests. The maintenance of a functional mission network of infrastructure and services plays a crucial role in achieving the Government of Canada's international priorities.

Canada's network of missions serves as the international platform for 26 partners and 10 co-locators. It offers service priority to federal departments and agencies (partner departments), followed by Crown Corporations, Provincial Governments, other national governments, and finally non-governmental organizations (co-locators). The Department is responsible for providing a wide range of common services to the network abroad in accordance with the Treasury Board Common Service Policy. This includes the provision of:

• Financial Services
• Property and Materiel Services
• Information Management and Information Technology Services
• Foreign Service Directives Administration
• Security Services
• Locally Engaged Staff Administration
• Diplomatic Mail and Logistics Services
• Other Professional and Administration Services

In support of the international programs of all federal departments and agencies of the Government of Canada, DFATD has an Interdepartmental Memorandum of Understanding on Operations and Support at Missions. The Memorandum of Understanding is aimed at providing the framework for an efficient and cost-effective delivery of operations and common services. For resources related to representation abroad, partner departments provide DFATD with agreed levels of funding prior to the delivery of common services, using the appropriate financial instruments: Supplementary Estimates and reference level funding through the Annual Reference Level Update. On an exceptional basis, DFATD headquarters may agree to cash-manage the requirements of a particular partner department, subject to written commitment of intent to proceed and to the completion of reference-level transfers via financial transfer processes.

According to the Department's Financial Statements 2012-13, the Governance, Strategic Direction and Common Service Delivery Activities had operating expenses of $609.5 million, representing almost 30% of the Department's total operating expenditures.

2. Observations And Recommendations

The Department has a solid foundation to enable it to improve the management and costing of its Common Service Delivery.

The Department has a strong governance and operational model in place with well-established accountability and oversight functions for the provision of common services to Canada's network abroad. The Department also has a cost recovery framework in place including a comprehensive costing methodology for internal and external stakeholders. While good practices were noted, improvements could be made to the design and the application of the costing methodology and its monitoring and reporting functions.  These improvements would enable the Department to confidently provide assurance to internal and external stakeholders that the Department delivers cost effective and quality common services across the mission network.

2.1 The Department has a strong governance structure in place; minor improvements would strengthen decision making.

The Department has an appropriate governance structure in place to address policy and delivery issues relating to common services delivery to Canada's network abroad. The oversight functions are well established and documented. The interdepartmental and departmental committees provide opportunities to involve other government departments, co-locators and the Department of Foreign Affairs, Trade and Development (DFATD) programs in decisions related to common services delivery, to raise concerns and to share information among clients. However, minor improvements could be made to the organization and coordination of the oversight bodies to achieve more productive meetings and more effective decision making.

2.1.1 Oversight bodies are established and well documented.

Governance is the combination of processes and structures implemented to inform, direct, manage and monitor the activities of the organization toward the achievement of its objectives. The presence of oversight bodies is important to ensure that management's direction, plans and actions are appropriate and responsible. DFATD, partner departments and co-locators are engaged in common services decisions through various interdepartmental and departmental committees. This governance structure is outlined in the Interdepartmental Memorandum of Understanding on Operations and Support at Missions (MOU) and the Common Services Cost Recovery Framework. The committees have clear Terms of Reference that set out the purpose, reporting, requirements, composition, and frequency of meetings, core agenda items and explanation of the committees' process and responsibilities.

The following interdepartmental and departmental committees address policy and delivery issues relating to common services, and provide strategic direction for the management of the network of missions abroad:

a) Committees with Interdepartmental Representation

The interdepartmental committees are responsible for addressing policy and delivery issues relating to common services. DFATD chairs each committee with representation from partner departments. It is important to note that the names of some Departmental committees were changed following amalgamation (i.e. Operations Committee became Corporate Management Committee).

• Deputy Minister Sub-Committee on Representation Abroad (DM Sub-Committee) - chaired by the Deputy Minister of Foreign Affairs, is made-up of federal deputy ministers from partner departments. The sub-committee is responsible for promoting the coordination of policy, programs and the use of common services among federal government departments with respect to DFATD's missions. It approves the Interdepartmental MOU and interprets Head of Missions accountability.
• Assistant Deputy Minister Council on Representation Abroad (ADM Council) - chaired by the ADM of International Platform Branch, advises the DM Sub-committee on the coordination of programs at missions. It is responsible for reviewing operational resource allocation plans provided by partner departments and promoting resource allocation alternatives for more cost-effective delivery of common services. The committee approves cost-recovery approach for common services, standards for common services abroad and reviews the investment plans and priorities of the International Platform Branch.
• Interdepartmental Working Group on Common Services Abroad (IWGCSA) - chaired by the Director, Client Relations Division of DFATD, consists of a Director-level official from each partner department and co-locator. The working group advises the ADM Council and provides direction and guidance on common services policy and delivery issues; and, evaluates the operation and implementation of the MOU. It also reviews and addresses issues of common services financial arrangements and charges, related cost or services levels, and serves as the body of dispute resolution related to the Interdepartmental MOU.
• Missions Committee - led at Director General level, advises the Operations Committee and makes decisions regarding mission operational issues and configuration. It also provides strategic direction and oversight for broad resource and policy issues concerning the mission network.
• Costing Policy and Procedure Committee (CPPC) – a working level committee chaired by the Client Relations Division, is responsible for reviewing DFATD's cost recovery mechanisms to ensure financial sustainability. The committee, through the Director of Client Relations Division, advises the Interdepartmental Working Group on Common Services Abroad members on the proposed changes or new costing methodology. Membership of the committee was expanded in 2012 to include all clients.

b) Committees Composed of DFATD Representatives

There are also departmental committees that provide strategic direction for the management of network of missions abroad and make decisions regarding mission operational issues:

• Operations Committee — a Director General/Assistant Deputy Minister level committee that advises the ADM Council and provides strategic direction for the management of the mission network abroad.
• Information Management/Information Technology Strategy Committee (Director General level) — oversees all Information Management/Information Technology investments in the department and advises the Operations Committee on the delivery of major Information Management/Information Technology investments and projects.
• Locally Engaged Staff (LES) Governance Committee (Director General level) — makes decisions for human resource management policies regarding locally engaged staff in missions. Also provides strategic direction and oversight for broad human resources issues concerning LES.
• Committee on Representation Abroad (CORA) (Deputy Director level) — a sub-committee of the Missions Committee that reviews all requests for making changes to positions abroad in order to examine financial and operational implications. It recommends changes to positions when required authorities have been received and the source of funding has been confirmed

Chart: Common Services Governance – Committees and Working Groups
(Prior to DFAIT and CIDA amalgamation)

2.1.2 Governance committees and working groups provide appropriate forums for DFATD and partner departments to share information and raise concerns.

The committees and working groups meet regularly to foster clarity in roles and responsibilities for the governance of the mission network as well as for information sharing among partner departments.  The Interdepartmental Working Group on Common Services Abroad serves as a venue to involve internal and external clients, particularly to communicate with Directors General and Directors. The Costing Policy and Procedures Committee is a forum for business process owners, clients and internal stakeholders to bring forward any issues they have with the current costing methodology.  During meetings, various topics regarding costing methodology are discussed and cost elements are reviewed. The purpose is to reach consensus on costing policies and procedures to ensure they are applied equitably and consistently.

2.1.3 Improved coordination with stakeholders for committee and working group meetings could have a positive impact on decision-making.

Coordination with stakeholders for committee and working group meetings, specifically the Assistant Deputy Ministers Council and the Interdepartmental Working Group on Common Services Abroad, can be improved to achieve more productive meetings. It is essential for any service provider to understand client needs and concerns as it leads to improved client satisfaction.  Without proper and timely coordination, it could result in unfulfilled meeting objectives due to low attendance; a delegate without authority; and, insufficient information available for the meeting to allow effective decision-making.

The Client Relation Division acts as the secretariat for governance committees, including the Deputy Minister Sub-Committee on Representation Abroad, Assistant Deputy Ministers Council on Representation Abroad, and the Interdepartmental Working Group on Common Services Abroad. The audit team met with four external clients, namely Citizenship and Immigration Canada, Canadian Border Services Agency, Agriculture and Agri-Food Canada, and Export Development Canada. While the clients acknowledged that key roles and responsibilities related to common service delivery are clearly communicated, concerns were raised with regard to the coordination of some meetings of the Assistant Deputy Ministers Council and Interdepartmental Working Group on Common Services Abroad:

• Assistant Deputy Ministers Council: clients indicated that information and agenda were not always sent with sufficient time for the Assistant Deputy Ministers to prepare or to attend the meeting. In one example, because of the short notice, the Assistant Deputy Ministers had to send a Director who was not able to vote on specific items that were important to the Department, as only Assistant Deputy Ministers can cast a vote during the meeting. Thus, communicating the date of the Assistant Deputy Ministers Council meeting earlier on would greatly enhance its effectiveness to achieve intended results.
• Interdepartmental Working Group on Common Services Abroad: the rationale and documentation related to the escalation of issues to Assistant Deputy Ministers Council was not always clear. Meeting notices and agendas were usually sent three days before the meeting. This did not give enough time to provide input to the agenda, especially when issues that were postponed for subsequent meeting did not appear on the agenda.
• One client felt that committee meetings were not beneficial since the client was fairly new to the position. For this client, an annual meeting to provide an overview briefing for Other Government Departments on various issues and changes in the management of the network of missions abroad would be helpful. A comment made by a small department indicated that attending all 10 Interdepartmental Working Group on Common Services Abroad meetings is difficult for small partner departments due to limited resources working with DFATD and staff abroad.

Recommendation

1. The International Platform Branch should update the Terms of Reference of the Assistant Deputy Minister Council and the Interdepartmental Working Group on Common Services Abroad to include provisions regarding coordination and organization of meetings, attendance, maintenance of records of decision and timely provision of information for decision-making.

2.2 The Department has an appropriate operational model; however, expectations regarding internal roles and responsibilities should be clarified to strengthen accountability.

The Department has an appropriate operational model in place to address policy and delivery issues relating to common service delivery to Canada's network abroad. There are clearly defined roles and responsibilities for internal and external stakeholders as well as for oversight and challenge functions.  Internally, roles and responsibilities for common service delivery need to be clarified to ensure understanding and consistency regarding expectations for management and administration of the costing methodologies and service delivery standards.

2.2.1 Roles and responsibilities related to Common Service Delivery for internal and external stakeholders are clearly defined in the Interdepartmental Memorandum of Understanding on Operations and Support at Missions. 

The accountability framework of the Common Services Policy specifies the respective roles and responsibilities of common service organizations (common service providers) and federal departments (users of common services). Clear roles and responsibilities are designed to provide a structured roadmap for key stakeholder involvement, set expectations and reduce confusion.

Roles and responsibilities related to common service delivery for internal/external stakeholders are clearly defined in the Interdepartmental Memorandum of Understanding. The Memorandum of Understanding defines the role and responsibilities of DFATD, the Deputy Minister of Foreign Affairs, Heads of Missions, Partner Departments at Headquarters, Program Managers, Canada-Based Staff and Locally Engaged Staff, as well as clarifying roles and responsibilities with regard to the management of Human Resources, Property, Materiel and Information Management / Information Technology Services.  Finally, the Memorandum of Understanding addresses the financial arrangements, cost recovery and financial authorities for representation abroad.

Within DFATD, the Assistant Deputy Minister, International Platform Branch, has functional authority for common services and is accountable for matters relating to the Memorandum of Understanding. The primary operational contact and the coordinator for the Memorandum of Understanding is the Director, Client Relations Division.  Partner departments designate a Director-level or equivalent principal contact and working contacts for common services.

Functional bureaux within the Department responsible for common services activities also play a critical role in the development of costing as they regularly review cost elements associated with the services they provide.

2.2.2 Internally, roles and responsibilities for common service delivery are not always clear which may lead to confusion and gaps in application.

Externally, the roles and responsibilities related to common service delivery are clearly defined in the Memorandum of Understanding and communicated through interdepartmental and departmental committees/working groups meetings. Internally, however, roles and responsibilities for common service delivery are not clear and/or accountability is not reinforced. This can lead to confusion regarding ownership and responsibilities.  Specifically,

• Currently ownership of the costing methodologies is not clear and is undertaken by different groups throughout DFATD, making it more prone to inconsistencies and misunderstandings.
• There is currently no focal point in the International Platform Branch responsible for on-going monitoring and reporting on performance against service delivery standards which leads to duplication of effort.
• The oversight/challenge function of the Chief Financial Officer over common services activities is defined in the Corporate Finance Operations mandate as well as in the Accountability Agreement between the Department's Chief Financial Officer and the Assistant Deputy Minister, International Platform Branch. According to the agreement, the Chief Financial Officer has an oversight/challenge function related to budgeting, financial planning and resource management at the department and branch levels, and at missions and Regional Service Centres. The accountability agreement between the Chief Financial Officer and the Assistant Deputy Minister, International Platform Branch specifies that the Chief Financial Officer Branch offers services in the area of cost management such as the development of costing models for the departmental initiatives through its Centre of Expertise on Resource Costing. The Chief Financial Officer sits on the ADM Council and his staff participate at the Costing Policy and Procedures Committee. It is unclear, however, how these responsibilities are being formally executed.  

Recommendation

2. Roles and responsibilities for common service delivery should be clarified regarding:

a) The ownership of the overall costing methodology including expectations for management and administration of the underlying costing processes, costing components, validation and challenge processes. 

b) The ownership and expectations for management and administration of the on-going monitoring and reporting on performance against service delivery standards.

2.3 The Department has comprehensive costing methodologies in place but could improve design and application to enhance its ability to validate the common service charges.

Ensuring that common services are delivered in a sustainable and financially responsible manner requires a comprehensive and accurate understanding of the underlying costs for charging for these services across the Department's network abroad. The Department, following Treasury Board guidance for costing, has developed and utilized a comprehensive costing framework to allow The Department to identify and calculate the costs associated when providing common services. To ensure accuracy and appropriateness of the common services charges and demonstrate that the Department is operating in a cost effective manner, the costing methodologies employed need to be documented and centrally available so that they can be validated, used consistently, and assessed on an ongoing basis.

2.3.1 The design of the costing methodologies and assumptions could be more clearly documented to facilitate review and to ensure appropriateness, consistency and transfer of knowledge between responsible employees.

Documenting the costing methodologies and the underlying components and making them easily accessible will allow the Department to more easily review the design on a regular basis to ensure appropriateness, consistent application and transfer of knowledge between responsible employees. At the time of the audit work, the design of the costing methodologies used was not clearly documented.  As a result, there may be inconsistency in the assumptions and methodologies applied to determine costs, while the costing methodologies utilized may not be appropriate and not consistently utilized.  These factors present challenges in understanding the calculation of costs. 

a) The design of the costing methodologies used, including source data, calculations and underlying assumptions for common services is not clearly documented, making it difficult to understand how individual common services costs are calculated and how the per position charges are set.

In order to obtain a comprehensive understanding of how the common services costing methodology works, it was necessary to spend time with each of the different methodology/costing model owners to clarify the source of cost data, how costs were calculated and the assumptions used to arrive at the estimated cost of a component and the estimated per-position charge.

Common services consist of a number of different products and services, grouped into cost categories, many with several individual cost elements.  Each of these cost elements is based upon one or more costing methodologies. Each methodology is administered by different people within different bureaux. Often times, the owners did not have documentation to support assumptions or total costs.   

• One specific example is the Common Services Abroad Charges with respect to the Information Management/Information Technology charge in 2012-2013 which was set at $8,000. The audit team interviewed the persons responsible for this cost element to discuss the methodology, source data and assumptions used to calculate the cost of providing these services. The interviewee informed the audit team that they were unsure as to how the cost and charge were calculated and was unable to provide any supporting documentation. 
• Another example is staff quarters maintenance and utilities. It was explained that each mission provides a five year forecast of maintenance and utilities costs per building and the cost is assumed to be the average of the five year forecast. The underlying assumptions and data used to develop this forecast by the missions were not known by the owner of the methodology.

b) There is inconsistency in the assumptions used to determine costs and in the methodology applied.

Based on the Treasury Board's Guide to Costing, “cost base” refers to all the costs that are considered relevant to a cost object, taking into account the purpose of the costing. The source of relevant costs may be the actual or average expenditures, budgets, standard costs or even multi-year averages of expenditures or budgets. Adjustments may be warranted to remove anomalies, such as the costs associated with one-time events that would otherwise distort the costing results. Depending on the purpose of the costing information and the availability of data, the organization will recommend the most appropriate approach and data source. At DFATD, there are a number of common service costs that use historical data as the source for the cost base; however, the fiscal year and time horizons used can vary.

• Mission operating costs are based on a four year average of historical expenses (with the exception of protection service costs, which use a two year average). The costs are recalculated annually.
• Long-term storage costs are based on a three year average of historical expenses; the cost used for 2012-2013 was based on an analysis conducted in 2008-2009.
• Relocation costs for 2012-2013 are based on actual expenses from 2008-2009 as the assumed cost for relocation.
• Chancery recapitalization costs are based on actual expenses from the previous fiscal year as the assumed cost for go-forward recapitalization. The costs are recalculated annually.
• Chancery operations costs are based on actual expense from the previous fiscal year as the assumed cost of going forward. The costs are recalculated annually.

Mission operations, chancery operations and chancery recapitalization costs are similar in that the creation of a new position would have minimal impact on cost. In other words, these costs are generally fixed relative to positions. Although these costs have similar behaviours in that respect, the costing methodologies being applied are different.

Relocation and long-term storage are similar in that the creation of a new position would have a direct impact on costs. Again, although these costs have similar behaviours in that respect, the costing methodologies being used are different.

Across DFATD, there is inconsistency in the methodology applied and assumptions used for costs that, in essence, behave similarly.

c) The costing methodologies used for four specific common services may not be the most appropriate to ensure an accurate reflection of costs.

The audit examined the methodologies for several of the cost elements based upon the level of risk.  The audit assessed the costing methodologies to determine whether it was reasonable. This involved examining each of the individual components (e.g. staff quarters furniture and fixtures, chancery operations) to understand if:

• the appropriate costs were considered;
• the source of cost data was appropriate; and,
• the treatment of costs was appropriate.

Below is a summary of the relative reasonableness of each of the cost elements reviewed.

Reasonable^{Footnote 1}

• Project Construction
• Mission Operating
• Information Technology Connectivity
• Foreign Service Allowance
• Salary and Benefits

Somewhat Reasonable

• Chancery Operating
• Staff Quarters Maintenance
• Staff Quarters Utilities
• Staff Quarters Fit-up
• Common Services Abroad Charge - Information Management/Information Technology
• Relocation

Least Reasonable

• Recapitalization
• Staff Quarters Rent
• Staff Quarters Furniture and Fixtures
• Long-term Storage

Based on the above results, the costing methodologies used for four specific common services may not be the most appropriate to ensure an accurate reflection of costs:

Staff Quarters Furniture and Fixtures

Staff quarters costs are based on various inputs and historical analysis and may create a risk of over or underestimating costs. The methodology for calculating staff quarters furniture and fixtures uses standard costing whereby the individual pieces of furniture and fixtures required by a new position are estimated and costs calculated using an existing catalogue of items with pre-set prices established with various vendors.

Based on an analysis conducted by the Foreign Service Directives Policy and Monitoring Bureau in 2012, 48% of Canada-Based Staff positions have a family configuration of one, and 26% have a family configuration of two. Therefore, approximately 75% of the Canada-Based Staff population has a family configuration of one to two people. The Foreign Service Directive indicates that this arrangement is entitled to a three-bedroom staff quarter. 

The costing methodology in place during the audit assumed furniture costs for staff quarters comprised of three bedrooms, family room, kitchen, study, dining room and living room. However, it is unlikely that an apartment would have a family room, a living room, and a study. Therefore, the assumed furniture requirements for a three bedroom apartment could be overstated, which represents 75% of staff quarters for new positions. In addition, the costing methodology assumes that the staff quarters will be furnished with the most expensive items of furniture; there is no evidence to support this assumption. 

As a result, the standard costing methodology does not adequately consider cost variability and does not align with other data that defines staff quarters requirements. The variables that will impact which staff quarters furniture and fixtures will be required for a mission (i.e. family configuration/staff quarters configuration and preferences/buying behaviour) are not factored into the methodology.

Staff Quarters Rent

The methodology for costing staff quarters rent is derived from setting a standard cost per mission based on a number of variables, including: historical average family configuration of Canadian Based Staff abroad; salary bands; and, the mission-specific rental rates to account for cost variances resulting from changing family configurations and entitlements over time. The methodology also uses mission-specific “rent ceilings” that are set by analyzing market rental rates provided by a 3rd party research organization (Mercer). DFATD determines what type of staff quarters is appropriate for a position given the different salary band. This data is input into a formula that will calculate a standard cost per mission, accounting for family configurations and market rates. One of the costing principles adopted is that staff quarters costs and the recovery of costs are managed as a pool.

Regardless of whether the staff quarters is Crown owned or leased, the same staff quarters rental rate is applied. From the audit perspective, the concept of costing and charging imputed rent for Crown owned staff quarters is reasonable. The methodology, however, does not explicitly consider what it takes to operate a Crown owned staff quarter (excluding maintenance and utilities costs as these are accounted for in a different model). Rather, it infers that the cost of renting is equivalent to the cost of operating an asset. There is no evidence to support the assumption that the market rates for a leased staff quarters are an accurate reflection of the cost to operate a Crown owned staff quarters.

In summary, the costing methodology is successful at accounting for staff quarters rent variability across markets, using appropriate source data, and accounting for cost variability resulting from changing family configurations and individual requirements over time. The methodology, however, does not explicitly consider costs associated with operating Crown owned staff quarters. The cost base may be understated (thus the cost recovery is understated). There is a risk therefore that the rental rates are not sufficiently recovering costs as intended.

Long-term storage

Based on discussions with multiple key personnel and review of documentation, the methodology for costing long-term storage is as follows:

Prior to fiscal year 2013-2014, the cost for long-term storage was based on an analysis done in 2008-2009. In 2008-2009, long-term storage costs were calculated as the average of long-term storage actual expenses incurred over the three prior fiscal years. The data for actual long-term storage expenditures was derived from five selected General Leger accounts to which storage costs are coded. Since long-term storage expenses are paid centrally (by headquarters) and recovered centrally, the costing methodology applies to total long-term storage costs for all missions.

The occurrence of long-term storage costs is directly attributable to the movement of employees between headquarters and missions. Costs will vary depending upon changes to storage rates and the amount that a person needs to store. This can vary depending on:

• lease type - a private lease would require less storage as one's possessions would be shipped to the mission;
• family configuration - family of five would likely have more storage requirements than a single person. The average family configuration throughout the course of a position in a given region may be different.

From a costing point of view, these variables are not factored in. Although the cost of providing long-term storage is known, the way the per-position cost is calculated does not represent the various storage needs of different incumbents. Regardless of the need (e.g. storage for the contents of a five bedroom house and two cars, or storage of just a few appliances), a client is charged the same amount. Although the methodology may result in appropriate cost recovery at an aggregate level, the reality is some clients would be overcharged and some clients would be undercharged relative to the actual cost of posting an individual.

A more appropriate costing methodology would involve setting standard costs based on average storage needs of the average family configuration (i.e. storage area or volume requirements), and multiplying these needs by market rates for storage area or volume. The cost to clients would vary depending on storage needs, which could be driven by whether or not the position is created in a mission where private leases are used.  The Foreign Services Directives Bureau is starting to code long-term storage expenses to missions in order to track differences between Crown leases and private leases so the next version of the costing methodology can be more reflective of client demand.

Determining long-term storage costs is a relatively easy and accurate exercise as the methodology only captures direct costs, which are expenses that are clearly attributed to specific General Ledgers for storage. On an aggregate basis, the methodology is reasonable; however, it does not reflect cost variability that would result from differing lease types and family configurations. It would be more appropriate to cost or charge positions based on variable storage consumption. 

Chancery Recapitalization

The concern with the methodology is that the cost of recapitalization is not, in reality, consistent year over year. In fact, it is typically quite the opposite. The older the building systems get, the more that needs to be invested in support and/or replacement. Recapitalization costs will vary year over year for a given mission. Recapitalization costs are specific to the condition of a given building's systems and sub-systems and therefore would not typically be the same. Also, the amount to be recapitalized in a given fiscal year is discretionary; depending upon the strategy and plan for a given building. Therefore, using data only from one previous year as the cost base may not provide an amount that is indicative of expected recapitalization costs over time.

As such, the risk for DFATD is that its methodology, based upon previous year actuals, may result in rates that are not reflective of actual costs over a longer period of time. Basing future expected recapitalization costs on financial actuals from a single previous fiscal year is not necessarily the most appropriate means of costing.

d) The lack of procedures or guidelines for dealing with position deletion creates inconsistency in determining the amount of the refund which in turn has an adverse impact on the Department's financial sustainability

There is no procedure/guidance in place with regard to equitable costing for position deletions.  Based on the review of sampled position deletion transactions and from interviews with key personnel in the Client Relations Division, this has resulted in inconsistency in determining the amount of refunds for position deletions.

Refunds for position deletions are calculated based on current rates (as opposed to the rates in effect at the time of position creation) for the following cost elements: Chancery Operating Charge, Staff Quarters Maintenance, Rent and Utilities, Mission Operating Costs (e.g. advertising, freight, telecommunications) and Foreign Service Allowance.  Costs tend to increase over time which could have an adverse impact on the Department's financial sustainability – the greater the variance, the higher the impact. The Treasury Board takes this factor into account by compensating for the rate of inflation and currency fluctuation at an aggregate level. While this helps to partially mitigate the risk, there is no way of determining the actual impact on a per-position basis.

e) Rates used for certain cost elements did not reflect the applicable rates set in the cost models and refunds for certain position deletions were applied inaccurately applied based on established departmental Property Growth Charge Operational Policies

Based on the review and interpretation of various costing models, a sample of cost templates and invoices for position creations and deletions were reviewed in order to determine whether the charges to DFATD programs, partner departments and co-locators are in line with the rate set based on established policies and cost models. Auditors reviewed the fiscal year 2012-2013 costing invoices associated with 12 position creations and 37 position deletions. The testing results indicated that the amounts charged for various services did not always reflect the rates set in the cost models.

Errors or inconsistency in the documentation were noted in the application of the following cost elements:

• Freight: as per the cost model, the cost for Freight represents 15% of the total capital purchases listed on the costing invoice.  For one position creation it was noted that there was an amendment issued to correct a previous error made on the file. The amendment, however, was not cross-referenced to the initial invoice.
• Staff Quarters Furniture & Fixtures:  The one-time charge applied for Staff Quarters Furniture and Fixtures in one mission was lower than the standard rate applicable to all other missions.  It was not clear in the documentation that this location was an exceptional situation and that a different set of rates applied as a result of the unique housing environment. 
• Chancery Furniture and Fixtures: as per the cost model, the ‘Chancery Furniture & Fixture' charge is based on the position type (i.e. Executive, Non-Executive/Officer and Support). There were two transactions related to position deletions where an incorrect amount was returned to the client.  The return of funds should be aligned with the original creation date; instead, the current cost was applied.
• Recapitalization Charge: the rate for Recapitalization Charge is based on the regional location of a position and whether the chancery is Crown-owned or Crown-leased. According to the costing model, a refund to clients for a position deletion is based on the historical rate charged when the position was originally created. It was noted that for three out of 37 transactions, the incorrect fiscal year rate was applied.

Errors identified in the application of the rate set in the costing models were aggregated and compared to the total cost of sampled position creations and deletions for Fiscal Year 2012-2013. Although immaterial in dollar value, the rate of error (roughly 10%) is significant.

In addition, the rate set for security training is not in line with the governing principles in the common services cost recovery framework. As a result, the Department is not charging the appropriate amount for providing Personal Security Seminars. Security training is a mandatory common service. As such, the Department is entitled to recover its costs but must not exceed the cost of providing this common service.  This training is outsourced by DFATD to service providers at a set rate for providing the training which is not dependent on the number of participants.  Consequently, the method of billing and the method of charging are not aligned, resulting in the costs recovered exceeding the actual cost.

Recommendation

3. The International Platform Branch should:

1. Document the costing methodologies and underlying assumptions in a consistent format and make them centrally accessible for review and application purposes.
2. Review its costing methodology framework to examine the appropriateness and consistency of its cost base structure i.e. consistent and appropriate use of historical costs, the underlying assumptions and components for standard costing.
3. Formally document and review its procedures and guidelines for developing and applying charges for position creations and deletions, to ensure they are cost effective for the Department.

2.3.2 Implementing a periodic validation process would demonstrate the appropriateness and accurate application of the common service delivery charges

It is critical to the Department's financial sustainability that common services are charged with accuracy and appropriateness.  The Department needs to ensure it effectively applies the common service delivery charges; this requires a robust validation process to ensure that common services are sufficiently recovered as intended.  The Department validated its costs recovered in 2012 based on 2009-2010 data; however, it does not have a periodic cost recovery assessment process to ensure the cost methodologies and cost delivery principles are validated and consistently applied. The Department also lacks a tracking process to assess the financial impact of common service delivery charges. It was noted that the tools being developed by the Mission Business Process Innovation and Best Practices Division will help improve cost estimation and tracking.

a) There is no periodic cost recovery assessment carried out to determine whether a sufficient amount is recovered for common service delivery.  Consequently, the Department does not have adequate information to determine its financial sustainability for providing common services across the mission network.

The Treasury Board Common Services Policy requires that common services organizations have practices in place to assess and report on the sustainability of the cost recovery approach.

Periodic assessment and reporting on the cost recovery approach would inform senior management and client departments on the cost-effectiveness of services offered. This would validate that the Department was recovering sufficient funds to continue supporting partner departments and co-locators. It helps to enhance policy and program decision making and to demonstrate accountability for the efficiency of operations. 

[RETRACTED] 

Despite acknowledging the need for monitoring sustainability, no further cost recovery reviews were conducted. According to key personnel, it is viable to conduct subsequent year cost recovery assessments using the 2009-2010 review method.

b) There is no process in place to validate the accuracy of many of the costing methodologies

 There is a lack of process to validate that costing methodologies and the per-position charges are appropriate and accurate, which means there is no direct way of determining if costs of common services delivery are sufficiently recovered as intended. The Costing Policy and Procedure Committee reviews costing methodologies, but this does not include a comprehensive financial analysis.

To assess the degree of comfort with the costing methodologies being employed, costing methodology owners were asked what mechanisms were adopted to ensure that clients are not being over/under charged, and what documentation is available to validate and/or reconcile charges to actual costs incurred.

Only one of the 15 methodologies reviewed had evidence of a validation process occurring; specifically, Information Management/Information Technology costs. For the other methodologies, no evidence was provided that a review of per-position charges and costs is completed to validate those amounts. The lack of a review process is less concerning for methodologies that are based on average actual expenses from multiple, historical fiscal years, such as mission operations and long-term storage, or for methodologies that are based on recovering actual costs incurred, such as project charges. The lack of a review process is more concerning for methodologies that are based on standard costs and for methodologies that are based on actual expenses from a single fiscal year, especially when there is a trend of expense variability year over year. For example:

• The methodologies for Staff Quarters Furniture & Fixtures and Staff Quarters Rent use standard costing whereby a per-position cost is determined by estimating a bottom-up cost based on consumption volumes and unit rates.  Since these cost estimates are not based on actual historical data, it is important that they are calibrated to ensure that when the per-position standard cost is implemented, it is a reasonable proxy for the actual cost.
  
  The standard cost for staff quarters rent is based on current market rates and does not account for estimated changes in rental rates over the duration of the position. This means that in a given market, costs recovered could be greater or less than actual costs incurred; however this risk is managed at an aggregate level through annual adjustments by Treasury Board. There is a risk that since the methodology has not been calibrated, there is no assurance that the rates charged will sufficiently cover the cost base.  The cost base is assumed to be actual rent costs (i.e. payments to landlords) as well as costs associated with the recapitalization of Crown owned staff quarters. It should be noted, though, that for staff quarters rent, the methodology owner does intend to conduct a validation exercise and provided documentation for an analysis that has been started.

• The Mission Operations Charge uses a four year average cost to arrive at the charge per position which has not been validated. The date used to calculate the mission operations costs for 2013 was not accurate due to a calculation error.

c) There is no tracking mechanism in place to assess the costs associated with Short Duration Employees at missions.  As a result it is difficult to determine their financial impact which could affect the Department's common service delivery resources.

Short Duration Employees exist to ensure there is enough flexibility in the system to deal with unforeseen circumstances, and allow DFATD to react quickly to the demand of its partners and co-locators. Short Duration Employees include emergency employees, contractors, employees on temporary duty, volunteers, interns and any other paid or unpaid workers making use of mission resources.  

While the International Platform Branch acknowledges that some programs use Short Duration Employees instead of creating a position at missions abroad, there is no mechanism in place to track these numbers on a regular basis. DFATD, therefore, lacks information to thoroughly assess the financial impact on the Department's cost recovery approach.

Clients using Short Duration Employees in missions are not currently required to pay commons services charges.  Clients currently pay salary costs and DFATD absorbs the associated overhead costs. The International Platform Branch, therefore, is concerned about the Department's financial sustainability as the employees require additional resources, which may include the applicable mission operations costs, general administration costs and an Information Management/Information Technology connectivity fee.  Short Duration Employees also create funding pressures at missions as they may not be resourced to support additional requirements directly attributed to the presence of these employees. 

To resolve this issue, the International Platform Branch developed a draft policy on Cost Recovery for Short Duration Employment in 2012. This draft policy would have applied equally to all partner departments' programs, including DFATD programs and co-locators, which have diplomatic and consular presence within the mission network.

The draft policy, however, was not approved by the ADM Council. Although the usage of Short Duration Employees by clients is an important issue, there was not consensus on how to measure the incremental costs resulting from the use of Short Duration Employees, or its financial impact on the Department's cost recovery approach. The Department did not have any mechanism in place to track the number of Short Duration Employees within the missions' network. The International Platform Branch has considered developing tools (e.g. IT signet tracking, templates) to enable Missions to track Short Duration Employees. No system, however, has been implemented so far.  As a result, it is difficult to determine the financial impact associated with Short Duration Employees that could affect the Department's common service delivery resources.

d) The costing automation tool developed by the Mission Business Process Innovation and Best Practices Division offers a wide range of business intelligence, reporting and efficiency capabilities for cost estimation and tracking on various cost transactions.

According to the Memorandum of Understanding, DFATD shall provide partner departments with financial information on the cost of providing common services at individual missions, information that is available within DFATD's financial systems. Prior to April 2014, cost estimation and monitoring was carried out through a tool that involved front-end manual input (excel spreadsheets).  These practices had shortcomings, including limited access for partner departments to forecast costs of position changes abroad. Further, contrary to the requirements outlined in the Memorandum of Understanding, at the headquarters level, overall financial information on the cost of providing common services at individual missions is not being provided to partner departments. This has a negative impact on the clients' ability to forecast their resources for programs abroad.

The Mission Business Process Innovation and Best Practices Division, on behalf of the Client Relations Division, has developed and is implementing a costing automation tool with a wide range of business intelligence, reporting and efficiency capabilities which enhance efficiency in the costing process for both DFATD and its partners. Once fully implemented, the costing automation tool will assist partner departments in their cost forecasting to enhance their decision making. Ultimately, clients will be able to get position cost estimates to determine the total costs of changes to positions abroad.  Since November 2013, partner departments have used the tool to submit all their position changes. This increases partners' ability to have effective information for decision-making.

At the time of the audit the tool did not provide reporting capabilities which limited its usefulness; however, the plan is to include a reporting module in the next phase of the implementation of the tool.

Recommendation

4. The International Platform Branch should:

1. Develop and implement a periodic common service delivery charges validation process including mechanisms to track and assess cost recovery to actual costs, and validation of the accuracy and application of cost recovery principles and the cost methodologies; to monitor financial sustainability and correct errors in application on a timely basis where necessary.
2. Continue with developing the costing automation tool.

2.4 Developing an integrated approach for performance results would help to measure service delivery to clients.

Measuring performance allows the Department to understand if its clients' service delivery expectations are being met, if the quality of service can be improved and to identify useful performance information to inform strategic and operational decision making regarding service delivery.  The Department has service standards in place, undertakes performance monitoring and has a performance measurement framework.  Clarifying service delivery standards, introducing an integrated monitoring approach and continuing to improve the performance measurement framework (including indicators and data collection) will allow the Department to respond to clients' service expectations more effectively. 

2.4.1 Currently, service delivery standards are not clearly defined to meet the clients' needs

Service delivery standards are vital because they hold an organization accountable for the level of service it provides.  Good service delivery standards are relevant to the client, based on consultation, measurable, endorsed by management, communicated and updated regularly.

Currently, common services delivery standards are not clearly defined. As a result, they are not as useful to common service providers and clients as they could be.  The International Platform Branch has undertaken a number of initiatives to update service delivery standards. The completion of these initiatives may address issues identified.

The Memorandum of Understanding defines common services delivery standards. There is a template that lists the generic standards grouped under service categories provided by DFATD (e.g. human resources, property and materiel). Missions use the template to develop their own service delivery standards. Each mission identifies mission-specific variances from the generic standard to reflect the service delivery in the local conditions. Both generic and mission-specific service delivery standards are published on the International Platform Branch's Intranet site.

However, the service delivery standards are not well defined. Specifically:

• Service standards are not well written as they include multiple intermediate steps needed to deliver a service. While this information may be useful for common service employees (e.g. Management Consular Officers, common services staff), it is not necessarily important for common service users (e.g. program officers and managers) in missions. Furthermore, the template consists of a mix of standards and pledges which are not easy to measure. One example of a pledge is to “Provide support services including administration of the Foreign Service Directives where feasible.” Finally, the template is approximately 30 pages long. It is hard to navigate through the document to find a specific service standard. Eight out of nine Management Consular Officers interviewed indicated that the Service Delivery Standards template is too long, poorly communicated and not useful from users' perspective.
• Missions' service delivery standards are not up-to-date. According to the Services Delivery Standards template, “service delivery standards are to be reviewed annually at a mission level.”  The majority of the services standards date back to 2004, 2005 and 2006, specifically, 80% in the Americas, 75% in Asia Pacific, 88% in Europe, and 77% in Africa and Middle East are from 2004-2006. 
• There is a lack of core service standards that are common to all missions.  Feedback from common service providers also indicated that it would make sense to have “core” services standards that are common to all missions with clearly defined performance targets. 

There are best practices at mission level that could be utilized by the International Platform Branch.  Particularly:

• The mission in Seoul used a colour scheme to differentiate between measurable and non-measurable services.
• The mission in Vienna posted a one pager document on the Missions Wiki entitled “Service Standards at a Glance” where employees can quickly get the performance targets (in days) for the most used services. According to the mission's Management Consular Officer, this approach improved awareness and understanding of service standards at this mission.

The International Platform Branch is also implementing two initiatives to improve the standards:

• Strategia: launched in November 2013, it is an online planning tool for missions and regional offices developed by the Planning, Reporting and Coordination Division that brings existing mission planning tools together. Strategia will encourage missions to keep their service standards up-to-date, since they will be required to submit the most current version of service standards along with their Business Plans. The tool was used for 2014-15 Business and Budget Planning for Common Service Delivery.
• Service Delivery Standards Review: the Client Relations Division initiated a review of service standards in October 2013, along with the renegotiation of the Memorandum of Understanding. A sub-committee has been created within the Interdepartmental Working Group on Common Services Abroad to undertake the review in consultation with client departments, co-locators and DFATD's programs. The sub-committee will issue a new service standards template in 2014.

2.4.2 There is no integrated approach for monitoring and reporting performance results on Service Delivery Standards to provide relevant information for decision-making

Service standards are an integral part of any service improvement initiative. As such they must be monitored and measured to enable the analysis of trends and identification of potential areas for improvement.  The absence of a centralized monitoring and reporting system may lead to duplication of monitoring activities at the branch and the bureau levels. There is no clear strategy to integrate and streamline the branch corporate and bureaux interdependent processes for tracking performance. An integrated strategy would reduce the duplication within the International Platform Branch in conducting surveys, monitoring, reporting and communicating services delivery standards in missions.

Currently, there are multiple independent monitoring activities undertaken within the International Platform Branch. At the branch level, the Planning, Reporting and Coordination Division measures the overall effectiveness of common services standards through an annual client survey. Some of the bureaux within the International Platform Branch also conduct their own surveys (e.g. the Foreign Service Directive and Policy Bureau). Other bureaux have no monitoring mechanisms in place to track performance against service standards (e.g. the Locally Engaged Staff Bureau and the Physical Resources Bureau).

There is a duplication of effort between the survey at the branch and bureaux levels. There are overlapping questions between the two surveys which creates burden to the mission personnel.

In addition, there is no tracking system that monitors clients' feedback. The data generated by various bureaux is not integrated to produce meaningful information for decision-making and reporting purposes. Currently the Planning, Reporting and Coordination Division is responsible for the corporate survey on behalf of the various bureaux who are the common services business process owners.

The Planning, Reporting and Coordination Division is currently evaluating how the surveys can be improved and streamlined to minimize the tasking of mission personnel. An integrated strategy would reduce the duplication of effort between the branch and the bureaux surveys, which could improve monitoring, reporting and communication of the services delivery standards in missions. 

2.4.3 The performance measurement framework is improving but lacks a data collection mechanism

Performance indicators included in the corporate reports are based on the International Platform Branch's Performance Measurement Framework. The quality of indicators has improved in the 2012-2013 Departmental Performance Report. Aside from the overarching performance indicators, it also included performance measures from services providers - the Bureaux, who ultimately deliver services to the clients. However, the Performance Measurement Framework is lacking a data collection mechanism. In order to permit effective decision-making, it is important that the organization has consistent information readily available to report on the measures. The lack of a data collection mechanism in place on performance presents a risk in measuring results achieved. 

The International Platform Branch's Performance Measurement Framework is an adjunct document to the Departmental Performance Report. It is comprised of two sections:

Section 1 – Planning Commitments for each Bureau and Section 2 – Performance Measurement Framework Indicators. The results of these indicators are reported annually in the Departmental Performance Report. 

The quality of overarching performance indicators has improved since 2011-2012.  Indicators reported in the 2011-2012 Departmental Performance Report were project-based, whereas indicators reported in 2012-2013 are more suitable to measure effectiveness and efficiency of the Branch's ongoing operations as a service provider. In addition, the 2012-2013 Departmental Performance Report provides performance indicators for each bureau which pertain to the services provided specifically by the bureaux. This is good information as each bureau contributes to the common services provided by the International Platform Branch.

A review of the Performance Measurement Framework for fiscal year 2013-2014 indicated that there is no well-designed data collection mechanism in place. Data sources are vague, such as: internal records, annual consultation, and work plan schedules. The framework does not identify personnel responsible for collecting, analyzing and reporting on data for performance indicators.

Recommendation

 5. The International Platform Branch should:

1. Clarify the service delivery standards template to better define service standards including defining the core service standards common to all missions.
2. Review its performance measurement framework to improve the quality of its overarching performance indicators, and introduce a data collection methodology.

3. Conclusion

The audit noted several recommendations that would help the Department build on its solid foundation to improve the management and costing of the common services it delivers to the network abroad.

The Department has a governance structure that includes well established and documented oversight functions with interdepartmental and departmental committees that provide partner departments and DFATD programs with opportunities to participate in decision-making related to common services delivery.  As well, they provide a forum to raise concerns and to share information among stakeholders.  There is risk, however, that the current committee meeting structure may not be sufficiently well organized which may impact productivity and decision making. 

In addition, the Department has an appropriate operational model with clearly defined roles and responsibilities for internal and external stakeholders, as well as oversight and challenge functions.  Internally, accountabilities and expectations regarding the design and management of costing methodologies should be reinforced to avoid confusion regarding ownership and responsibilities. 

The Department has put in place a comprehensive costing methodology framework.  Ensuring common services are delivered in a sustainable and financially responsible manner requires the Department to have a comprehensive and accurate understanding of the underlying costs for charging for these services.  Currently, the costing methodologies and assumptions are not sufficiently documented and validated, not accessible in one place, monitored or reported upon which could make them prone to inconsistencies or misunderstandings in design and application.

Performance measurement supports the gathering of information to inform strategic and operational decision making.  The Department has service delivery standards and a performance measurement framework in place; performance is monitored. This system requires some improvement to:

• enable tracking of critical information;
• respond proactively to client needs;
• minimize duplication of effort; and,
• ensure that information is readily available.  

Overall, it is recognized that the Department's International Platform Branch has put in place a solid foundation for managing service delivery to Canada's network.  Now is the time for the Department to recognize these good practices and make the necessary improvements to its management and administration of these services, design and the application of the costing methodology and its associated monitoring and reporting functions.  These improvements would permit the Department to provide assurance to internal and external stakeholders that the Department delivers cost effective and quality common services across the mission network.

Appendix A: About the audit

Objective

The objective of the audit was to assess the effectiveness of the management control framework for the provision of common services to Canada's network abroad including the:

• Application of the common service cost recovery framework;
• Appropriateness of the costing methodology associated with supporting its clients at missions; and,
• Monitoring and management of service performance.

Scope

The audit scope included the International Platform Branch Common Services key activities, cost recovery approach and its application related to the Department's common services delivery to Canada's network abroad for the fiscal year 2012-2013 and 2013-2014 up to June 30, 2013.

Criteria

The criteria were developed following the completion of the detailed risk assessment and considered the Audit Criteria related to the Management Accountability Framework developed by the Office of Comptroller General of Canada. These criteria are also known as Core Management Controls. The audit criteria were discussed and agreed upon with the auditees. The detailed criteria are presented as follows.

Criteria and Sub-criteria:

• 1.0   Sound governance and accountability framework is in place to support common services delivery
  • 1.1  Effective oversight bodies are established for common services delivery to the network abroad
  • 1.2  Roles and responsibilities related to common services delivery for internal/external stakeholders are clearly defined and communicated
• 2.0   Costs of common services delivery are sufficiently recovered as intended
  • 2.1  Costing methodology,  including rate setting for the provision of common services to clients, is properly designed and accurately applied
  • 2.2  Cost recovery, including the process and key controls in place, is carried out in a manner to achieve financial sustainability
• 3.0   Effective performance measurement, monitoring and reporting mechanisms are in place to ensure achieving intended results
  • 3.1  Service delivery standards are clearly defined and effectively monitored to ensure quality services to clients
  • 3.2  Timely cost estimation and tracking mechanisms are in place to enhance clients' decision making
  • 3.3  Reporting on relevant and transparent performance information is available to support management's decision-making

Approach and Methodology

The Audit of International Platform Service Delivery to Canada's Network Abroad was conducted in accordance with Treasury Board policy, directives and standards on internal audit, and conforms to the International Standards for the Professional Practice of Internal Auditing of the Institute of Internal Auditors. The evidence gathered was sufficient to provide senior management with proof of the conclusions derived from the internal audit.

The audit methodology included, but was not limited to:

• Walkthroughs and review of key controls and processes of the cost recovery framework.
• Analyzing financial and non-financial information.
• Transaction testing (judgmental and random sampling) of:
  • invoices for position creations and deletions
  • costs recovered from partner departments
•   Review of relevant tools and documentation pertaining to costing methodology, service standards and performance reporting.
• Interviews with:
  • The International Platform Branch Director Generals and Directors
  • Finance and Management Advisors and cost experts
  • Management Consular Officers
  • Partner departments and co-locators, and other key personnel.
• Participating at the Costing Policies & Procedures Committee as well as the Interdepartmental Working Group on Common Services Abroad.

Appendix B: Costing Methdology Review Approach

Throughout the audit, two lenses were used to assess the costing methodologies. The first was determining if the methodology for costing common services was reasonable. This involved examining each of the individual components (e.g. staff quarters furniture and fixtures, chancery operations, Information Management/Information Technology) to understand:  if the appropriate costs are considered; if the source of cost data is appropriate; and, if the treatment of costs is appropriate. In conducting this examination the following elements of Treasury Board's Guide to Costing were leveraged as different assessment criteria:

• Cost Object: Cost objects are anything that needs to be costed, such as organizations, programs, outputs, or outcomes. For common services, the cost objects are either products/purchases or services. The audit assessed the extent to which the objects were complete and appropriate.
• Cost Base: the cost base refers to all the costs that are considered relevant to the costing of a cost object, taking into account the purpose of the costing. The source of relevant costs may be the actual or average expenditures, budgets, or standard costs or even multi-year averages of expenditures or budgets. Adjustments may be warranted to remove anomalies, such as the costs associated with one-time events that would otherwise distort the costing results. Depending on the purpose of the costing information and the availability of data, the Deputy Chief Financial Officer organization will recommend the most appropriate approach and data source. The audit assessed the rationale for including certain elements in the costing methodology, as well as the rationale for not including other potentially relevant costs.   
• Cost Classification and Cost Behaviour: Cost behaviour is based on the premise that costs do not all necessarily change correspondingly to variables. The audit examined how each cost was being treated (i.e. fixed vs. variable and direct vs. indirect) and assessed if that treatment was appropriate.
• Cost Assignment: Assessing the extent to which the methodology models factor in variability, including the existence and appropriateness of cost drivers and allocation methods.

The second lens involved determining if the methodology for calculating per-position charges was appropriate.  In some situations costs are fixed or insensitive relative to the creation of a position, while in other situations costs are incurred as a direct result of the creation of a position. Therefore, the methodology should appropriately consider fixed and variable cost, as they relate to the creation of a position, when determining the charge that is to be applied.

Appendix C: Management Action Plan

Audit Recommendation 1

The International Platform Branch should review the Terms of Reference of the Assistant Deputy Ministers Council on Representation Abroad and the Interdepartmental Working Group on Common Services Abroad to include provisions regarding coordination and organization of meetings, attendance, maintenance of records of decision and timely provision of information for decision-making.

Management Action

In consultation with the Chairs of the two committees, amended Terms of Reference will be reviewed for consideration and approval by the committees.

Area Responsible

Client Relations Division (AFR)

Expected Completion Date

Interdepartmental Working Group on Common Services Abroad by December 2014, Assistant Deputy Minister Council by June 2015.

Audit Recommendation 2

Roles and responsibilities for common service delivery should be clarified regarding:

a) The ownership of the overall costing methodology including expectations for management and administration of the underlying costing processes, costing components, validation and challenge processes. 

b) The ownership and expectations for management and administration of the on-going monitoring and reporting on performance against service delivery standards.

Management Action

The International Platform Branch will:

a) Confirm that the Client Relations Division is the owner of the overall costing methodology, its management and administration, while business process owners (stakeholders) contribute to individual costing elements. This will be reflected in the records of the Costing Policy and Procedures Committee (CPPC) for subsequent Assistant Deputy Minister Council approval.

b) IPB will clarify the responsible bureau/division which will monitor and report on performance against service standards, using a combination of existing surveys and new tools currently under development.

Area Responsible

Client Relations and Mission Operations (AFD)

Expected Completion Date

a) June 2015

b) December 2014

Audit Recommendation 3

The International Platform Branch should:
a) Document its costing methodologies and underlying assumptions in a consistent format and make them centrally accessible for review and application purposes.

b) Review its costing methodology framework to examine the appropriateness and consistency of its cost base structure i.e. consistent and appropriate use of historical costs, the underlying assumptions and components for standard costing.

c) Formally document and review its procedures and guidelines for developing and applying charges for position creations and deletions, to ensure they are cost effective for the Department.

Management Action

The International Platform Branch will develop a comprehensive costing methodology template for use by business process owners. This template will clearly document the assumptions, calculation methodology, data sources, procedures, guidelines, and other relevant data for each individual costing element. Cost elements identified as “Least Reasonable” in the audit, and therefore presenting the highest risk, will be prioritized and reviewed by Costing Policy and Procedures Committee in the fall of 2014, with lower risk elements addressed in subsequent cycles. The completed templates will be held by Client Relations Division and used as the basis for the ongoing annual review and update process via Costing Policy and Procedures Committee.

Costing Policy and Procedures Committee Terms of Reference will be updated to reflect the above change.

Area Responsible

Client Relations Division

Expected Completion Date

Finalize template by September 2014

Cost elements identified as Least Reasonable will be reviewed by Costing Policy and Procedures Committee by November 2014

Cost elements identified as Somewhat Reasonable will be reviewed no later than November 2015

Remaining cost elements will be fully documented and reviewed no later than November 2016

Audit Recommendation 4

The International Platform Branch should:

a) Develop and implement a periodic common service delivery charges validation process including mechanisms to track and assess cost recovery to actual costs, and validation of the accuracy and application of cost recovery principles and the cost methodologies; to monitor financial sustainability and correct errors in application on a timely basis where necessary.

b) Continue with developing the cost automation tool.

Management Action

a) International Platform Branch, in collaboration with its Financial Management Advisor, will develop a validation process which will permit a periodic review and assessment of common service delivery charges.

b) Client Relations Division implemented Phase 1 of the Costing Automation tool in October 2013, and all costings in Fiscal Year 2014-15 have been prepared using the tool. Phase 2 of the project will be undertaken fiscal year 2015-16, and will incorporate reporting, funding schedules and co-locator invoicing.

Area Responsible

a) Client Relations and Mission Operations with the Financial Management Advisor (FMA)

b) Client Relations Division/ Mission Operations, Policy and Innovation Division (AFS)

Expected Completion Date

a) Review of 2012 methodology completed by December 2014

Proposed ongoing validation process presented to CPPC for endorsement September 2015

b) March 2016

Audit Recommendation 5

The International Platform Branch should:

a) Clarify the service delivery standards template to better define service standards including defining the core service standards common to all missions.

b) Review its performance measurement framework to improve the quality of its overarching performance indicators, and introduce a data collection methodology.

Management Action

a) A sub-committee of the Interdepartmental Working Group on Common Services Abroad has completed its review of the template, which was endorsed by the Working Group on July 16, 2014. It will be reviewed annually, so further refinements can be incorporated at the next review.

b) Client Relations and Mission Operations are responsible for the development of performance indicators and associated targets, as well as the identification of appropriate data sources. In consultation with Client Relations and Mission Operations, International Platform Branch Corporate Services Division (AAD) reviews International Platform Branch’s Performance Measurement Framework (PMF) on an ongoing, cyclical basis to ensure that performance indicators are clearly defined, measurable, and relevant to the program in question, and that established performance targets are achievable. Required amendments to the Performance Measurement Framework are communicated to the Director General, Corporate Planning, Performance and Risk Management accordingly.

International Platform Branch has already undertaken to coordinate surveys of clients to reduce duplication. Client Relations and Mission Operations Bureau will continue to develop automated tools, including adoption of the Remedy system for service requests, in order to improve data collection and the measurement of performance against established indicators.

Area Responsible

a) Client Relations Division

b) Client Relations and Mission Operations / Corporate Services Division for Performance Measurement Framework, Client Relations and Mission Operations for data collection

Expected Completion Date

a) next review March 2015

b) ongoing