Audit of Procurement of Consulting Services

Audit report
Office of the Chief Audit Executive
November 2023

Table of contents

• Executive summary
• Background
• Sampling methodologies
• Findings and recommendations
  • 1. Compliance with authorities
    • 1.1 Clear and documented rationale for non-competitive contracts
    • 1.2 Fair, open, and transparent competitive contracts
    • 1.3 Compliance with the Financial Administration Act
    • 1.4 Proactive disclosure
  • 2. Integrity of the contracting process
    • 2.1 Contract splitting
    • 2.2 Contract amendments
    • 2.3 Contracts awarded to former public servants
• Conclusion
• Appendix A: About the audit
• Appendix B: Recommendations and Management Response and Action Plan

Executive summary

In accordance with Global Affairs Canada’s approved 2023-2025 Risk-Based Audit Plan, the Office of the Chief Audit Executive conducted an audit of procurement of consulting services.  

The objective of the audit was to determine whether the procurement of consulting services at Global Affairs Canada complies with applicable authorities and is conducted in a manner to maintain the integrity of the process.

The audit included consulting service contracts and any related amendments signed by Global Affairs Canada, both at headquarters and missions, in the last five fiscal years, from April 2018 to June 2023. The audit did not include the contracting activities of the Office of the Chief Audit Executive.

The department generally complies with applicable authorities and maintains the integrity of the process, but improvement is required regarding compliance with the Financial Administration Act.  Significant improvement is required for the information management practices of the procurement process to demonstrate compliance and support fair, open, and transparent procurement.

Recommendations

1. The Assistant Deputy Minister of Corporate Planning, Finance and Information Technology (SCM), in collaboration with the Senior Assistant Deputy Minister of People and International Platform (DMPP), should review processes in place to ensure compliance with the requirements of the Financial Administration Act.
2. The Assistant Deputy Minister of Corporate Planning, Finance and Information Technology (SCM) and the Senior Assistant Deputy Minister of People and International Platform (DMPP) should put processes in place to ensure that information related to contract administration is accessible, preserved and retained throughout the procurement lifecycle to comply with applicable authorities and support fair, open, and transparent procurement.

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 assessment.

Background

Context

Following public concerns about the number of contracts awarded to the same consulting firm, the Government of Canada instructed federal departments to review all contracts awarded to this firm to determine whether they complied with procurement regulations. Global Affairs Canada (the department) had no contracts with this firm, however, due to the recent media attention and subsequent targeted procurement audits in the Government of Canada, this audit was conducted to help ensure that the contracting of consulting services is appropriately carried out in the department.

Consulting services are services of an advisory and intellectual nature provided by consultants using their professional skills to study, design, organize, and manage projects, encompassing multiple activities and disciplines. These contracts support the Government of Canada by providing advice in various areas such as strategy, operations and processes, designing and implementing projects, building and rolling-out systems and solutions, etc. At the department, consulting services also include temporary help services, art restoration services, and several other type of consulting services.

In the last five fiscal years, the department signed more than 8,000 consulting service contracts totaling $567 million to support the delivery of its programs. See Figure 1.

Text version

This graphic illustrates the number and value of consulting service contracts awarded by Global Affairs Canada in the last five fiscal years. The green line represents the number of consulting service contracts awarded by headquarters. It went from a high point of 857 in 2018-2019 to a low point of 656 in 2020-2021 and to 802 in 2022-2023. The yellow line represents the number of consulting service contracts awarded by missions. It went from a high point of 1,247 in 2018-2019 to a low point of 531 in 2022-2023. The blue bars in the graphic represent the value of consulting service contracts awarded by headquarters, which is much higher than the consulting service contracts awarded by missions, represented by the orange bars. At headquarters, the value of consulting service contracts went from $94,627,286 in 2018-2019 to a high point of $132,380,197 in 2020-2021 to $89,262,363 in 2022-2023. At missions, the value of consulting service contracts went from $11,691,636 in 2018-2019 to a high point of $12,839,943 in 2019-2020 to a low point of $8,352,640 in 2022-2023.

Procurement of consulting services is regulated by the Government of Canada’s Contracting Regulations as well as Treasury Board’s Policy on the Planning and Management of Investments and Directive on the Management of Procurement. Treasury Board’s current policy and directive replaced the former Contracting Policy that was into effect until May 2021, but the requirements are very similar. The objective of these instruments is to ensure that procurement, including procurement of consulting services, enhances access, competition and fairness, and results in value for money to the Crown and the Canadian people. The department uses consulting services both at headquarters and at missions and it has therefore developed a procurement policy suite, aligned with the Government of Canada’s regulations and policies, that considers its specific mandate.

Roles and responsibilities

The Corporate Planning, Finance and Information Technology branch (SCM) is responsible for monitoring and enforcing compliance and oversight of domestic contract management in the department. The Contracting and Material Management Policy division (SPP), under Procurement and Asset Management (SPD), monitors and reports on departmental domestic and IM-IT contracting activities and provides functional direction, advice, and guidance in all areas of the procurement and materiel management life cycle domestically.

The People and International Platform branch (DMPP) is responsible for monitoring and enforcing compliance and oversight of international contract management in the department. The International Procurement and International Supply Chain divisions (AAO and AAG), under Platform Corporate Services (AAD), monitor and report on departmental international contracting activities, provide functional direction, advice, and guidance in all areas of the procurement and materiel management life cycle internationally. The two divisions are also responsible for all procurement above set trade agreement limits.

Missions and other branches at headquarters are responsible to procure consulting services based on their needs and budget. Ultimately, the contracting authority on any given contract is accountable for complying with applicable legislations, policies, and directives.

Sampling methodologies

A statistical random sample of 100 contracts was selected from the more than 8,000 consulting service contracts that were signed by the department between April 2018 and June 2023. Results from the contract review can be inferred to the entire population with a 90% level of confidence and a 5% margin of error. In addition, a sample of 74 vendors was selected based on risks and anomalies identified in the financial administration system. With these sampling methodologies, the audit team could determine whether the department complies with applicable authorities and/or if the integrity of the contracting process for consulting services is maintained.

Additional details on the sampling methodologies can be found in Appendix A: About the audit.

Findings and recommendations

This section sets out the key findings. It is divided into two lines of enquiry: compliance with authorities and integrity of the contracting process.

1. Compliance with authorities

1.1 Clear and documented rationale for non-competitive contracts

According to the Government of Canada’s Contracting Regulations, the department may enter into a contract without soliciting bids when:

1. The need is one of pressing emergency in which delay would be injurious to the public interest;
2. The estimated expenditure does not exceed $40,000;
3. The nature of the work to be contracted for is such that it would not be in the public interest to solicit bids; or
4. Only one person is capable of performing the contract.

In addition, Treasury Board’s directive requires the department to document the sole source exception invoked and a clear rationale for using it.

The audit team assessed whether the 52 contracts in the statistical random sample awarded through a non-competitive process had a clear and documented rationale. All contracts were valued under $40,000 and 47 of them (or 90%) had a documented rationale.

1.2 Fair, open, and transparent competitive contracts

According to Treasury Board’s directive, the department must:

• Solicit bids for contracts, except when one of the four exceptions set out in the Government of Canada’s Contracting Regulations is invoked;
• Establish contracts based on sound procurement principles, including fairness, openness, and transparency to obtain best value; and
• Include the following in the procurement file: a description of the requirement, the rationale for the procurement strategy options, the identification of decision-makers involved, a record of individual assessments, consensus evaluation, relevant decisions, approvals, communications, and dates.

The audit team assessed whether the 48 contracts in the statistical random sample awarded through a competitive process had sufficient information on file (e.g., statement of work, evaluation criteria, consensus evaluation) to demonstrate fairness, openness, and transparency. Thirty-five (35) contracts out of 48 fully complied with the applicable requirements. For the remaining 13 contracts (or 27%), there was insufficient documentation to fully assess compliance as they were missing the evaluation criteria and/or the consensus evaluation.

1.3 Compliance with the Financial Administration Act

The Financial Administration Act (FAA) establishes the general financial management framework for government and defines commitment (S.32), transaction (S.41), and certification (S.34) authorities. At the departmental level, these authorities are sub-delegated by the Minister to departmental officials and documented in signature cards. The audit team assessed whether departmental officials who exercised their authority under the FAA in procuring consulting services had the appropriate delegation to do so by comparing their signature card with the information on the contract and the invoice(s).

In the statistical random sample, 72 contracts fully complied with the requirements of the FAA while 19^{Footnote 1} contracts did not. The following issues were noted:

• Individuals exercising transaction and/or certification authority who did not have the required authority to do so, either because the amount of the contract exceeded their limit or because they did not have authority over the fund center used for the transaction (7 instances);
• The same individual exercising both transaction and certification authority (6 instances). According to Treasury Board’s Directive on Delegation of Spending and Financial Authorities, the same individual must not exercise both transaction authority (S.41) and certification authority on the same transaction, except if the transaction has been designated by a department as a low-risk and low-value transaction;
• Contracts being signed after the services were rendered (7 instances); and
• Certification authority being exercised by an individual that benefited from the transaction (1 instance).

For six (6) samples, the signed contract was not provided and, therefore, it was not possible to determine whether they complied with the requirements. Finally, three (3) contracts were recently signed and the certification authority could not be verified as services had not been yet rendered.

1.4 Proactive disclosure

According to the Access to Information Act, contracts valued at $10,000 or above, including any subsequent amendments increasing the value of a contract above $10,000, must be proactively disclosed every quarter. There are limited exceptions, most notably related to national security and legal services. It is the department’s responsibility to ensure the accuracy, completeness, and timely proactive publishing of information on contracts over $10,000. The audit team assessed whether the department disclosed consulting service contracts above $10,000 and when it did not disclose them, if it had an appropriate rationale to do so.

From April 2018 to June 2023, the department signed 1,486 consulting service contracts that were valued over $10,000. The audit concluded that the department complied with proactive disclosure requirements for these contracts.

2. Integrity of the contracting process

2.1 Contract splitting

According to Treasury Board’s directive, the department must ensure that all decisions related to the legitimate division of requirements into multiple smaller requirements are documented and are not intended to avoid financial approval thresholds or policy requirements (contract splitting), such as contract entry limits, regulatory rules, and trade agreement obligations.

Through the review of both the statistical random and risk-based sample, the audit team assessed whether there were instances of contract splitting. In the statistical random sample, there were none. In the risk-based sample, there were three (3) instances that correspond to the definition of contract splitting (see Table 1). In all cases, the value of the two (2) split contracts and the consulting services delivered were exactly the same while the combined value of the contracts exceeded $40,000, the threshold above which the contracting authority must solicit bids if none of the other non-competitive exceptions is invoked.

2.2 Contract amendments

The audit team reviewed contract amendments to assess whether they were justified and substantiated, if they went into effect before the expiry date of the contract and if they were issued before services were received.

In the statistical random sample, of the 26 contracts that were amended, 21 were fully compliant with the applicable requirements. For the remaining five (5) contracts, documentation was either incomplete or unavailable and, therefore, compliance could not be assessed.

In the risk-based sample, there was one instance of a non-competitive contract where the amendment value significantly exceeded the original value of the contract (see Table 2) and consequently increased their total value over $40,000, the threshold above which the contracting authority must solicit bids if none of the other non-competitive exceptions is invoked.

2.3 Contracts awarded to former public servants

According to the Conflict of Interest Act, former public office holders cannot accept an offer of employment with an entity with which he or she had direct and significant official dealings during the period of one year immediately before his or her last day in office. This period extends to two years for former ministers. In addition, Treasury Board’s directive requires contracting authorities to include requirements for former public servants to self-identify in solicitations and in the result contract clauses of service contract documents, and informing suppliers that this information will be proactively published.

The audit team reviewed eight (8) contracts with former public servants and determined that all of them were fully compliant with applicable requirements.

Recommendation 1

The Assistant Deputy Minister of Corporate Planning, Finance and Information Technology (SCM), in collaboration with the Senior Assistant Deputy Minister of People and International Platform (DMPP), should review processes in place to ensure compliance with the requirements of the Financial Administration Act.

Recommendation 2

The Assistant Deputy Minister of Corporate Planning, Finance and Information Technology (SCM) and the Senior Assistant Deputy Minister of People and International Platform (DMPP) should put processes in place to ensure that information related to contract administration is accessible, preserved and retained throughout the procurement lifecycle to comply with applicable authorities and support fair, open, and transparent procurement.

Conclusion

The department generally complies with applicable authorities and maintains the integrity of the process, but improvement is required regarding compliance with the Financial Administration Act. The department had difficulty providing the documents in a timely manner, the vast majority being located abroad, and a portion of them were never provided. Significant improvement is required for the information management practices of the procurement process to demonstrate compliance and support fair, open, and transparent procurement.

Appendix A: About the audit

Objective

The objective of the audit was to determine whether the procurement of consulting services at Global Affairs Canada complies with applicable authorities and is conducted in a manner to maintain the integrity of the process.

Scope

The audit included consulting service contracts and any related amendments signed by the department, both at headquarters and missions, in the last five fiscal years, from April 2018 to June 2023. The audit did not include the contracting activities of the Office of the Chief Audit Executive.

Criteria

The audit criteria were discussed and agreed upon with the auditees as follows.

Approach and methodology details

The audit was conducted in conformity 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. These standards require that the audit be planned and performed in such a way as to obtain reasonable assurance that the audit objective is achieved.

The audit methodology included the following:

• Identifying and reviewing relevant policies, directives, and guidelines from Treasury Board, Public Services and Procurement Canada, and Global Affairs Canada.
• Conducting interviews with employees involved in the contracting process.
• Performing data analysis of contracting financial and non-financial information obtained from departmental systems. The focus was on data integrity and trends.
• Conducting detailed testing on the population of contracts and selected samples, both the statistical random and risk-based sample. The focus was on key components of the department’s contracting activities, such as compliance with authorities and adherence to the Values and Ethics Code for the Public Sector.

Sampling methodologies

Based on the departmental financial administration system, from April 1, 2018, to June 13, 2023, the department signed 8,350 consulting service contracts for a total value of $567 million. The audit team considered 8,310 contracts for review and excluded:

• 34 contracts awarded by the Office of the Chief Audit Executive to avoid any conflict of interest; and
• 6 contracts that were miscoded and did not constitute consulting service contracts.

A statistically representative random sample of 100 contracts was selected for review. Consequently, results from the contract review can be inferred to the entire population with a 90% level of confidence and a 5% margin of error.

In addition, a sample of 74 vendors was selected for further review based on risks and anomalies identified in the financial administration system, such as:

• Repeated contracts awarded to the same former public servants;
• Contracts awarded to registered lobbyists;
• Procurement patterns where vendors were awarded several non-competitive contracts;
• Unusual amendments where amendment is much higher than original contract value;
• Vendors with unusual or incomplete names;
• Vendors with multiple vendor names and numbers; and
• Top vendors receiving multiple high value contracts.

With these sampling methodologies, the audit team could determine whether the department complies with applicable contracting authorities and/or if the integrity of the contracting process for consulting services is maintained.

Appendix B: Recommendations and Management Response and Action Plan