Audit of Exceptional Contracting Limits Authority

Audit Approach

The audit was conducted in accordance with the requirements of the Treasury Board Policy on Internal Audit and followed the International Standards for the Professional Practice of Internal Auditing. The audit examined relevant evidence and obtained sufficient information to provide a reasonable level of assurance in support of the audit conclusion.

The audit was performed from October 2022 to June 2023 and consisted of three phases: planning, conduct and reporting. Based on information gathered during the planning phase, a risk assessment was completed to determine the most significant risks related to the management of ECLA contracts and to develop audit criteria. Annex A lists the audit criteria developed for this audit, which were informed by relevant policies, standards, and guidance.

The audit work was conducted as follows:

• Conducted multiple interviews with key stakeholders involved in the ECLA process across the three component groups;
• Performed walkthroughs with the component groups to gain an understanding of the ECLA contract and financial management processes;
• Documented and validated three process flowcharts to depict the ECLA processes across the component groups; LMOD, NAO, TAG, SACCB;
• Performed detailed examination and testing of 67 contracts, including 156 contract amendments, across the three component groups for compliance with the ECLA requirements; and
• Conducted documentation review of the performance monitoring processes and related documents.

Overview of Sampling Methodology

For the audit, contracts were segregated by control operator for testing purposes, and as such, three contract populations were established, in alignment with the four groups (TAG, NAO, LMOD, and SACCB).

Overall, 67 contracts were selected, including 22 contracts facilitated by TAG and NAO, 27 contracts facilitated by LMOD, and 18 contracts facilitated by SACCB. Samples were targeted by contract value. Within the 67 sampled contracts there was a total of 156 contract amendments which were also tested for compliance with the ECLA requirements.

Additional context on the sample selection is provided in table 2 below:

3.1.1 Contract Documentation Requirements

Treasury Board (TB) sets the rules for contract documentation in procurement, including for the ECLA. According to the TB Directive on the Management of Procurement (Section 12), the ECLA Decision Note / Contracting package needs several things: a justification for selecting the contractor, key outputs and timelines, the budget / cost estimate, an indemnification clause, and Former Public Servant documentation. For the processes and files selected for review, the audit expected to find evidence of compliance with the documentation requirements related to the decision note/contracting packages.

The Department follows a standard contracting process for entering into and amending service contracts for the services of CFNs, EWs, and CDs. As identified through interviews and documentation, a range of supporting documents (see Annex B for the type and flow of documentation in the process) must be submitted in order for the contracting process to commence.

The audit found that all 67 contracts reviewed included the necessary supporting documentation. It was also found that the documentation was complete and sufficient to demonstrate that the requirements for CFNs, EWs, and CDs were clearly articulated and defined. The evidence reviewed confirmed compliance with the Contracting Policy set by Treasury Board.

Also, the indemnification clause, which aims to manage risk and clarifies the liabilities of the appointee and the Government of Canada, was found to be incorporated in the CFN contracts reviewed. The audit also examined compliance with security clearance requirements and the evidence of security clears and found no issues for the contracts reviewed.

3.1.2 Selection Process and Approvals for Contracts

The Financial Administration Act (FAA) establishes the general financial management framework for the Government of Canada. Within the FAA, Sections 41 and 32 prescribe the approvals required to be in place before an ECLA contract is entered into. Section 41 consists of receiving approval from the applicable Minister per respective component group prior to entering the contract. Section 32 approvals consist of designated individuals from the leads on the contracts that approve of the funds being used to pay for the contractor's services, before the expenses are incurred.

The audit expected to find evidence of Section 32 and 41 approvals for every contract and amendment tested, including validation that the approver had delegated authority at the time of the approval.

During the course of the audit, the audit team gathered evidence to demonstrate that the CFN/CD/EW selection processes complied with TB requirements, departmental policies, and guidelines for all contracts reviewed. The audit found that appropriate delegated expenditure initiation authority (Section 32 of the FAA) was obtained prior to the commencement of the work for all contracts and contract amendments reviewed.

The audit also found that for all contracts and amendments tested, FAA Section 41 approval was performed prior to the contract date. It should be noted that this is an improvement in the Department's level of compliance in the management of the contracting authority as the previous audit of the ECLA conducted in 2020 found instances of non-compliance with the timing of Section 41 approvals.

File testing demonstrated that all selected ECLA contracts and amendments were approved by an individual holding authority delegation at the time of the approval and signed by the contractor in a timely manner, with no exceptions.

3.1.3 Contract Compliance with ECLA limits

Individual ECLA contracts are established within the ECLA threshold limits prescribed by Treasury Board. The audit tested each selected contract against the ECLA Threshold Limits to validate that the contracts did not exceed the ECLA Threshold limits and that contract payments had not exceeded these limits. Further, the audit reviewed and tested the individual contract limits, validating that payments made against individual contracts had not exceeded the contracted amount.

The audit expected to find evidence of compliance with contracts to comply with their respective ECLA thresholds across all three component groups.

The audit team tested the sample of exceptional contract and contract amendment files to ensure that exceptional contracting authority limits were respected for the overarching ECLA thresholds set by Treasury Board as well as the individual contracted amounts.

The audit found that all the agreements were managed within the authorized thresholds and contract limits. All contracts reviewed were managed in compliance with the authority.

3.2.1 Performance Management of Contracts

Performance management in the context of procurement is the process of assessing, monitoring and managing the performance of a contract to ensure that both parties meet their obligations in achieving the agreed upon objectives. Effective contract performance management helps limit performance issues, manage risks, and maximize the benefits of the contract.

While not an ECLA requirement, the audit looked at the extent to which the department developed and implemented processes to track and monitor contract results, with risks to the achievement of results identified and actively mitigated.

Across the three component groups administering the ECLA, each had slightly different processes to conduct performance management, and as such, observations were noted separately.

TAG developed and implemented annual Performance Evaluation Forms to monitor CFN contract results. CFN contractors are evaluated on their performance each fiscal year. For each contract, both a self-assessment performance report and a departmental performance report are required. The annual Performance Evaluation Forms, included in Ministerial packages, are used to assess each contractor and determine if there are performance issues and/or if the contract is required going forward. For TAG-led files, each CFN's performance is also discussed at the Senior Management and Ministerial level during the Annual Review of Negotiations and Related Processes exercise (Table Review) meetings. One of the discussion items at these meetings is to determine if specific ECLA contracts and their contractors should be renewed.

Testing found that all 22 contracts sampled under TAG and NAO included evidence of the Performance Evaluation Form. These evaluations evidenced that performance was suitable and aligned with contract requirements. None of the evaluations documented poor performance.

While LMOD and SACCB also participated in an annual negotiation meeting, they had not developed or implemented a tool to conduct a documented evaluation of their respective contractors.

All three component groups had implemented varying levels of performance management as it relates to the ECLA contracts and the groups can continue to refine the operational aspects of their processes and implement best practices outside of the baseline ECLA requirements. Although the audit team is not making recommendations in this area, sectors utilizing the ECLA may want to consider enhancing formal performance review processes for Crown Deponent and Expert Witness appointments that track and document the performance of contractors throughout the lifecycle of the contracts.

3.2.2 Pool of Potential Contractors

ECLA contracts generally require candidates with specialized qualifications, and as such, the development of a candidate pool would help ensure that the needed capacity and capability exists to address upcoming contracts. More specifically, a pool would provide CIRNAC with (1) access to a more diversified skill set and expertise that comes with the variety of contractors maintained in a pool, (2) fulfillment of capacity requirements should the need grow in one particular area, (3) improved diversity and competition in the procurement process, and (4) quicker access to qualified candidates, thereby potentially reducing delays in various proceedings.

With this context in mind, the audit looked at whether the department had a practice of developing a diverse pool of potential candidates for future ECLA contracts purposes, which is maintained and updated, being utilized to refine an improve the overall process by helping to expand and diversify the pool of candidates.

The audit found that TAG maintains a document containing a pool of potential contractors. This pool is updated on an ad-hoc basis to maintain a relevant listing of potential contractors. TAG confirmed that the pool is an informal document used to facilitate efficiency in the ECLA process by providing case managers access to potential contractors in a timely manner. LMOD has begun developing a pool, however at the time of the audit, it was not finalized. SACCB did not have a contractor pool listing developed.

Having a pool of candidates is not an ECLA requirement but doing so may enhance the efficiency and quality of the procurement process. Developing and using candidate pools for these appointments may also contribute to enhanced diversity and quality of candidates and may facilitate a more efficient procurement process. As this is a consideration for management and not a formal recommendation, a management action plan is not required.