Audit of Management Practices of Missions - Islamabad

Audit report
Office of the Chief Audit Executive
June 2023

Table of Contents

• Executive summary
• Background
• Observations and recommendations
• Conclusion
• Appendix A: about the audit
• Annex B: management response and action plan

Executive summary

In accordance with Global Affairs Canada‘s approved 2022-2024 Risk-Based Audit Plan, the Office of the Chief Audit Executive conducted an audit of Management Practices of Missions – Islamabad. The objective of this audit was to determine whether sound management practices and effective controls were in place to ensure appropriate stewardship of resources at the Islamabad Mission to support the achievement of Global Affairs Canada objectives.

Why it is important

Global Affairs Canada manages Canada’s diplomatic and consular relations, promotes international trade and leads Canada’s international development and humanitarian assistance programs. It also manages Canada’s International Platform - a global network of 178 missions in 110 countries that supports the international work of Global Affairs Canada and 37 partner departments, agencies, and co-locators. According to its 2021-2022 Departmental Results Report, Global Affairs Canada spent $1,063M to operate and support the missions by providing a variety of services. Therefore, proper controls and strong management practices are critical to ensure sound stewardship of resources.

What was examined

The audit examined the management practices of the Management and Consular Services Program and other programs from April 2019 to November 2022. Lines of enquiry include accountability and oversight, local procurement, management of assets, cash and revenue, and human resources.

What was found

The audit concluded that sound management practices and effective internal controls were generally in place at the Islamabad Mission. Specifically, mission management practices and controls with regard to procurement, real property, fleet, and human resources were operating effectively and according to applicable policies and procedures. It was noted that oversight committees had not been functioning as designed during the audit scope period. However, during the audit site visit, mission management was already in the process of implementing improvements to regularize the functioning of these committees.

The audit identified some opportunities for improvement, in particular regarding the clarity of departmental roles and responsibilities for managing the export and disposal of armoured vehicles (AV). In addition, there is an opportunity to improve the reconciliation practices of petty cash funds. Finally, inventory management of attractive goods (equipment, appliances, and electronics) could be enhanced with the implementation of stronger tracking and control practices. 

Statement of Conformance

The audit was conducted in conformance with the Institute of Internal Auditors' International Standards for the Professional Practice of Internal Auditing and with the Treasury Board Policy and Directive on Internal Audit, as supported by the results of the external quality assurance and improvement program.

Background

The departmental 2022-2024 Risk-Based Audit Plan included a series of management practices audits of select missions. The selection of these missions was determined using a risk assessment to identify missions susceptible to higher levels of risk. The High Commission of Canada in Islamabad, Pakistan (the Mission) was one of the selected missions. These audits are intended to provide senior management with assurance regarding the state of management practices in supporting prudent management and good stewardship of resources in select missions. 

The High Commission of Canada in Pakistan- Islamabad

The Mission in Islamabad is a large, full service mission with 145 staff comprising 31 Canada-based staff (CBS) and 114 locally engaged staff (LES). The Mission includes the following programs: Common Services and Consular; Development; Foreign Policy and Diplomacy Service; Trade; and, Security and Emergency Management. In addition, multiple partner departments carryout programming at the Mission, including Immigration Refugees, and Citizenship Canada, Canada Border Services Agency, Royal Canadian Mounted Police, and the Department of National Defence and the Canadian Armed Forces. The Islamabad Mission receives support from the Common Service Delivery Point (CSDP) in New Delhi, which provides financial, contracting and procurement, and human resource administration services. Mission operational expenditures are outlined by program in Table 1 below.

The High Commission is located within a secured diplomatic enclave in Islamabad. The Mission’s crown owned properties are contained on three separate walled compounds, which include the Chancery, Official Residence, staff quarters, and recreational facilities. Mission property and fleet details are outlined in Table 2 below. 

The Mission in Islamabad is a hardship posting due to the local environment and security concerns. This makes mission operations complex and restricts movement within and outside the city. Due to the security concerns and movement protocols, CBS are not permitted to bring their children. This makes it difficult to attract experienced people to the post. The like-minded countries interviewed for this audit reported the same challenges in recruiting staff to post, even in those cases where restrictions around children and travel were more relaxed.

Despite the challenges with recruitment to the mission, the Common Services program has benefited from strong management teams over the last two posting periods, and has hired competent local staff in key positions. Over this period, significant efforts have been undertaken to improve several management practice areas, including procurement, inventory management, and staffing actions. At the time of the on-site work conducted by the audit team in December 2022, the new Head of Mission had recently arrived at post in November 2022.

Table 1: Mission’s Operational Expenditures

Source: Finance and Administration System: Expenditures Report as of FY 2019-2020 to FY 2021-2022
*: Programs include: Head of Mission operations, foreign policy, trade, development, and consular.

Table 2: Real Property and Vehicle Fleet Inventory

Source: Real Property – Mission Property Management Plan FY 2021-2022. Vehicle Fleet – Soft & Armoured Vehicle Fleet Management List as of September 2022

Observations and recommendations

Accountability and Oversight

Audit Criteria:

Adequate governance is in place to support proper stewardship of mission resources.

• Accountabilities, roles and responsibilities of mission management are established, clear, and communicated.
• Effective oversight is in place to support good stewardship of resources.

Observations:

Accountability, Roles and Responsibilities

Overall, roles and responsibilities regarding mission management were established, clear and communicated. Interviews conducted with mission management and key staff indicated that they understood their roles and responsibilities in the respective areas and were able to fulfill their roles. Policies and guidelines were well communicated and accessible to Mission staff via the departmental intranet, and the CSDP and Mission's wiki pages.

It was noted that while performance management assessments were conducted regularly for LES, they were not consistently done for CBS by their managers. The incoming Head of Mission indicated a renewed emphasis on completing these performance assessments.

Mission Committees

A governance structure was in place at the Mission with several established committees including the Committee on Mission Management (CMM), Mission Housing Committee, Security Committee, and Locally Engaged Staff Management Consultation Board.

Due to the pandemic beginning in March 2020 and then the Afghan crisis beginning in summer 2021, the Mission had been operating in crisis mode for a prolonged period, often under an Emergency Response Team structure. The mission management team were playing various support roles as needed, and had recently returned to their regular duties. For this reason, certain mission committees were not operating as designed. For example, the CMM was used for tactical discussions and operational updates, rather than discussing strategic issues and direction of the Mission. When meetings did occur, formal minutes were often not taken and/or retained. In addition, the Security Committee had not met for at least the previous 18 months, and mission security discussions and decisions were made between individual managers and the Head of Mission outside of the committee forum.

Once operations reverted to normal, committee functioning should follow suit so that strategic discussions and priority setting have the appropriate forum and level of attention. If not, the Mission risks remaining in reactive mode and may not adequately engage in strategic planning. The incoming Head of Mission indicated an intention to regularize oversight committee operations so that separate operational discussions would take place weekly, while strategic matters would be discussed monthly at formal CMM meetings. The mission management team was, already implementing the updated committee structure, mandates, and cadence, at the time of the audit. 

Local Procurement

Audit Criteria:

Effective controls are in place to ensure that procurement and payment of goods and services comply with relevant policies and legislative requirements and achieve value for money.

Observations are based on the examination of procurement processes, mechanisms, and tools, from initiation to payment, and included a review of a sample of 84 procurement transactions and contracts, dating from April 2019 to October 2022.

Observations:

Overall, the Mission’s procurement practices were found to be managed effectively and in line with departmental guidelines. Proper methods of procurement were mainly used, and supporting documentation (quotes, invoices, and purchase orders) was retained. Generally, the regular procuring of goods or services were planned and scheduled, and the need for unplanned purchases was clearly evidenced. In addition, controls are in place to confirm the receipt of purchased goods and services prior to the payment of invoices.

While procurement activities were found to be managed well overall, the review of a sample of transactions noted the following instances where procurement policies and procedure were not followed:

• Two instances where pre-approval from the Regional Contract Review Board was not sought prior to engaging in the contracting process, although approval for both was received prior to contract signing.
• Two instances where three supplier bids were not obtained prior to selecting a bidder in a competitive process.
• Two instances where the payment of an invoices for goods was split into two transactions on two different acquisition cards belonging to other mission programs.
• One instance where the value and terms of a contract was not amended prior to additional services being provided, as required.

Despite the instances noted above, the Mission has effective procurement controls in place to support the receipt of quality services, on time, at competitive prices, and from reliable and trusted vendors.

Value Added Tax:

The Mission noted considerable difficulty in receiving reimbursement of Pakistan’s value added tax paid on goods and services, despite an agreement in place with the Pakistani government providing this benefit (a benefit that is reciprocated to the High Commission of Pakistan in Canada). The Mission currently has a recoverable of $28,000 related to this tax reimbursement that will have to be expensed if no reimbursement is forthcoming. Other like-minded countries interviewed while onsite in Islamabad reported the same difficulties. The Mission is working with certain key vendors to establish exemptions in order to eliminate the tax being charged at source, and has had some success with this approach.

Asset Management (non-cash)

Audit Criteria:

Effective controls are in place to ensure that the management of assets (non-cash items) complies with relevant policies and legislative requirements.

Observations are based on an examination of the management of the following assets: property, vehicles, fuel, and inventory.

Observations:

Overall, controls are in place to adequately manage real property, inventories, vehicle fleet, and fuel. There are, however, opportunities to improve certain management processes.

• Real Property: The real property portfolio is actively managed in order to meet evolving needs of the Mission. Annual infrastructure maintenance plans are in place, and staff quarter inspection and fit-up checklists are used to identify required renovations. Ad hoc repairs are managed through the Mission Request Online application. Major capital maintenance and investment requirements are known, such as the need for seismic upgrades, and are communicated to Headquarters for inclusion in the prioritization of regional property projects.
• Inventories: The inventories of goods and consumables are tracked through excel tracking sheets, which are updated whenever an item is added or removed to ensure accuracy. It was noted that the contents of staff quarters (furniture, appliances) are only inventoried upon arrival and departure of a tenant, and not updated on an ongoing basis as items are added or removed. In addition, the Mission does not consistently track life cycle information (assessment of condition, date of purchase), or use a unique identifier (serial number, bar code, asset tag) to track attractive goods, such as electronics and appliances. A departmental inventory management application (Sortley) is currently in use at the Mission, which could be better utilized for this purpose.
• Vehicle Fleet: The vehicle fleet is being managed effectively. There is an up-to-date transportation policy in place to direct official and personal transportation activities, and mechanisms are in place to schedule and track fleet usage. Maintenance and repairs are conducted according to departmental life cycle guidelines.
• Fuel: Vehicle and generator fuel purchases are adequately managed using fuel cards. Fuel purchases and distance travelled are actively tracked for each vehicle. While the Mission receives monthly fuel card transaction statements, fuel usage analysis could be enhanced through the regular request and receipt of fuel purchase data sets from the supplier.
• Asset Disposal: A review of disposal practices for assets that have exceeded their life cycle found that disposals are generally managed according to departmental directives and guidelines. In one instance, a used armoured vehicle was exported outside of Pakistan by the Mission for the purpose of disposal. As per the standard process, Headquarters put a contract in place for the shipping and disposal of the vehicle. However, no files were retained by Headquarters or the Mission to confirm the disposal was completed as required. The departmental Guidelines on the Destruction of Armoured Vehicles does not clearly articulate the roles and responsibilities between Headquarters and missions for managing disposal processes under these circumstances.

While adequate controls are in place to manage the inventory of goods, there is an opportunity to enhance processes through the adoption of stronger practices, including using a unique identifier (asset tag, serial number) to track valuable goods, and tracking life cycle information such as purchase date and condition. Without this information, it is difficult for subsequent management teams to track these crown owned items, and to appropriately plan and budget for their disposal and replacement. In addition, there is an opportunity to clarify departmental roles and responsibilities, and improve the level of due diligence and documentation retention related to the export and disposal of armoured vehicles. Without this clarity, there is a risk that disposals may not be properly managed and that sensitive mission assets may continue to be in existence and used by another entity.

Recommendation 1:

The Head of Mission should strengthen asset management practices to improve the tracking of attractive goods by capturing details (e.g. serial number, location, and condition) to facilitate inventory control and life cycle management.  

Recommendation 2:

The Associate Assistant Deputy Minister of Real Property and Infrastructure Solutions (ACM) should define and communicate the roles and responsibilities between Headquarters and missions for managing the export and disposal of armoured vehicles in the Guidelines on the Destruction of Armoured Vehicles.

Asset Management (cash)

Audit Criteria:

Effective controls are in place to ensure that the management of cash complies with relevant policies and legislative requirements.

Observations are based on an examination of the management of the following cash items: petty cash accounts, standing advances, consular revenue, and the Emergency Cash Parcel.

Observations:

Most controls were in place for the management and safeguarding of petty cash accounts and operating standing advances. However, it was noted that the petty cash accounts were only reconciled at the end of the year, rather than quarterly as required by departmental procedures, and the Mission was not conducting random surprise checks, as required. Without these controls in place, there is a risk that the Mission may not detect any irregular uses of petty cash.

Controls for the management and safeguarding of the Emergency Cash Parcel were found to be in place. Consular revenue is collected via online payment only, and cash is not used.

Recommendation 3:

The Head of Mission should strengthen cash management controls by reconciling petty cash accounts quarterly and conducting random checks, as per departmental procedure.

Human Resources

Audit Criteria:

Human resources processes and practices comply with applicable legislative requirements and policies.

• LES staffing actions are adequately documented to support that fair, open and transparent processes were followed.
• LES salaries and overtime payments (in cash and time) are accurate and complete, and CBS overtime compensation is reasonable.

Observations:

The Islamabad Mission had recently conducted a significant number of staffing actions, with 45 completed over the last two years. In doing so, the Mission had benefited from CSDP Delhi’s advice and coordination support. Based on a sample of three staffing files spanning over the past three years, actions were completed in compliance with policies and legislative requirements. In addition, progressive improvement was noted in the retention of key documents to demonstrate compliance to hiring policies throughout the application and evaluation process.

A review of the overall LES overtime expenditures as well as a sample of overtime transactions, found that LES overtime is effectively managed. The Mission has implemented an electronic human resource application called WebHR, which has streamlined the overtime submission, approval, tracking, and reporting processes. Although formal pre-approval of overtime was not always provided, staff and managers were aware of the type of assigned tasks that generated work outside of standard hours.

Conclusion

The audit concluded that sound management practices and effective internal controls were generally in place at the Islamabad Mission. Specifically, mission management practices and controls with regard to procurement, real property, fleet, and human resources were operating effectively and according to applicable policies and procedures. It was noted that oversight committees had not been functioning as designed during the audit scope period. However, during the audit site visit, mission management was already in the process of implementing improvements to regularize the functioning of these committees.

The audit identified some opportunities for improvement, in particular regarding the clarity of departmental roles and responsibilities for managing the export and disposal of armoured vehicles. In addition, there is an opportunity to improve the reconciliation practices of petty cash funds. Finally, inventory management of attractive goods (equipment, appliances, and electronics) could be enhanced with the implementation of stronger tracking and control practices.

Annex A: About the audit

Audit Objective and Criteria

The objective of the audit was to determine whether sound management practices and effective controls are in place to ensure good stewardship of resources at the Islamabad Mission in support of the achievement of Global Affairs Canada objectives.

The Mission’s management practices were assessed against the following criteria:

Audit Scope

The scope of the audit included those management practices and controls in place to support mission operations. More specifically, the scope included the following:

• Management practices at the Mission including the roles and responsibilities of mission staff involved in managing operational resources across Mission programs;
• Expenditures of the Mission within the common service, property, and other departmental programs’ operational budgets^{Footnote 1} from April 2019 to November 2022;
• Management of assets at the Mission with a focus on real property, vehicles, machinery and  equipment, material inventory, consular revenue and cash; and
• Staffing processes relating to locally engaged staff.

Approach and Methodology

In order to assess the above criteria and conclude on the audit objective, the audit methodology included, but was not limited to the following:

• On-site audit procedures performed at the Mission from December 6 to 16, 2022.
• Documentation review (budgets, business plans in Strategia, property management plans etc.).
• Walkthrough of procurement processes, property and materiel, and consular processes.
• Data analytics of mission expenditures.
• File testing (Mission contracts and expenditures, overtime costs and staffing actions).
• Interviews (Head of Mission, mission management team and key LES staff, and relevant employees at HQ and CSDP).
• Inventory testing, and petty cash and emergency cash parcel counts.
• On-site examination of the Official Residence, Chancery, storage facilities and a sample of staff quarters.
• Visits to selected like-minded Missions.

Summary of Audit Findings

Annex B: management response and action plan