Internal Audit Report - Contracting Services

September 2005

Executive Summary

As part of the Internal Audit Plan for 2005 - 2006, the Internal Audit branch conducted an internal audit of the current Contracting for Services practices.

In carrying-out the audit, multiple sources of information were used to support the findings and conclusions. These included a thorough review of the relevant policies, interviews and consultations with relevant staff.

The audit was conducted in accordance with the Institute of Internal Auditors’ International Standards for the Professional Practice of Internal Auditing, the Treasury Board’s Policy on Internal Audit and the CIHR’s Internal Audit Policy.

Key Observations

There is a Contracting management control framework in CIHR that currently consists of a combination of mechanisms. It includes the existence of a Contracting Policy, a centralized Procurement function, well defined roles and responsibilities and adequate financial controls.
The audit revealed that improvements are required to ensure compliance with established policies and to ensure completeness and standardized contracting information. For example:

CIHR does not have a consolidated database of contracts integrated with the accounting system for reporting information;
A practical training on Contracting processes is not offered on an ongoing basis to staff involved in the contracting process;
The monitoring process does not allow for the ongoing identification of contracting issues and does not give the organization the opportunity to build on its learned lessons.

Key Recommendations

R-1 Accurate, reliable and timely information on the extent and nature of service contracting is essential and needed to mitigate the risks associated with service contracting and to ensure that policies and regulations are being respected. CIHR should establish an integrated system to assist in the monitoring of all its contracting activity for compliance and performance. The current regular reporting to senior management would be improved with a better management information system that would ensure that risks related to contracts are identified and mitigated.

R-2 Training should be ongoing and mandatory for all staff engaged in the contracting process. The training course should address all administrative controls required to comply with policies and regulations.

R-3 To identify critical contracting data with regards to potential non-compliance issues with Treasury Board policy (for example, final deliverables not received in central file) and develop a report that will be used to inform Vice Presidents on a quarterly basis.

Executive Summary

Key Observations

Key Recommendations

1.0 Objectives, Scope, Approach And Criteria

2.0 Background

3.0 Key Risk Factors

4.0 Audit Findings

4.1 Contracting Information

4.2 Policy And Procedures

4.3 Compliance With Contracting Policy And Regulations

4.3.1. Contract Amendments

4.3.2. After-the-fact Contracting

4.3.3. Acquisition of Temporary Help Services

4.3.4. Employer/ Employee Relationship

4.3.5. Contracting for Legal Services

4.4 Management Control Framework

4.4.1. Absence of Contractual Agreement

4.4.2. Contract Monitoring

4.4.3. Reporting Contracting Income

4.4.4. Training Activities

4.4.5. Contract Payments

4.4.6. File Maintenance

4.4.7. Contract Disclosure

5.0 Recommendations

Appendix 1 – Definitions

Appendix 2 – Criteria For Sole-Source Contracting

Appendix 3 – Action Plan

1.0 Objectives, Scope, Approach And Criteria

1.1 Objectives

The objectives of this audit were:

To review the appropriateness of CIHR Contracting Policy and procedures with regards to the Contracting Policy published by the Treasury Board of Canada Secretariat;
To assess the level of compliance of contracting activities with the CIHR Contracting Policy and procedures and/or the Contracting Policy published by the Treasury Board of Canada Secretariat and the Government Contract Regulations; and
To evaluate the adequacy of the control framework over the award and management of contracting services currently in place.

1.2 Scope

The audit focused on the contracting practices currently in place at CIHR as well as the adequacy of the controls adopted for effectively managing service contracts and was conducted using a sample of CIHR’s service contracts for which a payment was issued during the period from October 1, 2003 to March 31, 2005. The audit focused specifically on service contracts entered into with outside individual suppliers and service companies, and excluded contracting for goods.

1.3 Limitations

The Audit team encountered difficulties determining the total value of contracts for the period under review because contracts are numbered and input in the accounting system using the same sequence of purchase orders (PO) as for any other expense, and not a dedicated serial number. Therefore, contractual information cannot be readily identified in FreeBalance - CIHR’s accounting system. This will be further discussed in the Audit Findings Section.

1.4 Audit Approach

The audit sample was based on a combination of judgment and random sample selection method. The number and value of contracts are approximate because the audit team used two reports for the selection of the sample: an ad hoc report prepared by the Financial Reporting and Analysis Officer which lists all expense vouchers paid against a Purchase Order (PO) number for the audit period and the manual list of contracts prepared and maintained by the Senior Procurement and Contracting Officer which was used in the sampling to include contracts which did not have a payment issued against them. Table 1 below provides the audit sample size, and table 2 provides the sample details by type of contract.

Table 1 – Sample Size

Total number of contracts – October 2003 to March 2005 (Approximate)	Total value of contracts (Approximate)	Number of contracts in sample used for audit	Sample value of contracts
563 ⁽¹⁾	$12,940,854	104	$4,356,113
100%	100%	18%	34%

Table 2 – Sample Details

Type of Contract	Number	Percentage
Sole-Source	60	57%
Competitive - Electronic Bidding	10	9%
Call-ups against standing offers	9	8%
PWGSC (contracts managed by Public Works on behalf of CIHR)	9	9%
After-the fact	8	8%
Competitive – Traditional	6	6%
Advance Contract Award Notice-ACAN	2	2%
Total	104	100%

N.B. A list of definitions is available in Appendix 1.

The methodology followed in carrying-out the audit included the following steps:

Determining the auditable universe for the period under review to the extent possible due to the constraints listed in 1.3.
Performing a preliminary review comparing contract files to the manual list, to identify missing files.
Examining information and direction available to guide managers and relevant employees through the contracting process including selected sections of the Treasury Board of Canada Secretariat Contracting Policy and the Government Contract Regulations.
Examination of CIHR’s Contracting Policy and processes.
Interviews and enquiries with the Senior Procurement and Contracting Officer, finance staff and other relevant employees for a better understanding of the contracting process and related operations.
Reviewing a sample of contract files against the audit criteria.

1.5 Audit Criteria

The Contracting Policy issued by CIHR and by the Treasury Board of Canada as well as the Government Contract Regulations served as the source of the following criteria:

There are clear lines of accountability concerning the contracting and approval process;
A competitive process is being followed except for the proper exclusions permitted by the Government Contract Regulations (Appendix 2);
The Statement of Work or the requirements description clearly describes the work to be done and the time frame;
Contract documents are properly completed, authorized, reviewed and maintained, for all contract phases and activities;
Work has not commenced prior to the signing of contracts;
Contracting performance is monitored, reported and acted upon;
Contracts comply with Treasury Board Contracting Policy;
Contract amendments are justified and documented;
Payments are duly supported and appropriately approved;
Training sessions are available to guide and support relevant employees;
Contracting activity is properly reported and contracts are being published on CIHR’s Internet website as part of the proactive disclosure of contracts entered into by the Government of Canada over $10,000.

2.0 Background

Contracting for services has always been an effective way for the Canadian government to meet unexpected fluctuations in workload, acquire special expertise not available in-house and sometimes replace public servants during temporary absences. As stated in the Treasury Board Contracting Policy, the objective of government procurement contracting is to acquire services in a manner that enhances access, competition and fairness and results in best value or, if appropriate, the optimal balance of overall benefits to the Crown and the Canadian people.

In the course of its operation and in the purpose of achieving its mandate, CIHR relies upon external contractors to provide various professional services.

Contract Administration

As per chart below, the Senior Procurement and Contracting officer, reporting to the Manager, Administration has the primary responsibility for contract administration. The duties of his role are to manage the contracting process on behalf of CIHR, to provide advice and guidance to managers to ensure that contracting practices comply with government regulations and CIHR policies, and report contracting information to senior management.

The acquisition of temporary help services is managed by the Procurement and Materials Management Officer.

Figure 1

First level: Director, Finance and Administration; Second level: Manager, Administration; Third level: Senior Procurement and Contracting Officer (Contract Administration); Procurement and Materials Management Officer (Acquisition of Temporary Help Services)

Contracting Framework

CIHR may enter into a contract for services subject to CIHR’s Contracting Policy, Treasury Board of Canada Secretariat’s Contracting Policy, the Financial Administration Act, the Government Contract Regulations and various Trade Agreements if the amount of the contract exceeds the threshold limits as per table below:

Table 3 – Trade Agreements Threshold Limits including GST

North American Free Trade Agreement	$89,000
Internal Trade	$100,000
World Trade Organization	$261,300

Care must be taken when contracting to ensure that the rules of such trade agreements are followed. Any circumstances in which contracting does not follow the rules of these trade agreements could result in a challenge through the Canadian International Trade Tribunal - an administrative tribunal which conducts inquiries into complaints by potential suppliers concerning procurement by the federal government that is covered by the North American Free Trade Agreement, the Agreement on Internal Trade and the World Trade Organization Agreement on Government Procurement.

Contracting Activity

For information purposes, the table below summarizes the number and value of contracts by calendar year as provided by the Senior Procurement and Contracting Officer.

Table 4 – Summary of Contracts

Contracting Activity	January to March 2005- Number	January to March 2005- Value	2004 - Number	2004 - Value	2003 - Number	2003 - Value
Non Competitive below $25,000	42	$369,511	160	$1,472,319	152	$1,782,131
Competitive below $25,000	1	$19,260	7	$80,605	8	$112,364
Competitive over $25,000	8	$2,120,149	9	$1,491,717	18	$4,248,991
PWGSC Contracts	2	$34,171	7	$236,342	5	$218,610
PWGSC Call-ups against a Standing Offer	1	$96,300	4	$339,668	5	$107,285
Total	54	$2,639,391	187	$3,620,651	188	$6,469,381

3.0 Key Risk Factors

There are a number of potential risks involved in the contracting process. Some of these risks include:

Risk of not getting the right value for the money spent because of unclear objectives: managers/ project authorities may fail to adequately clarify what they really want to achieve through a contractual arrangement;
Risk of creating conflict of interest situations because managers may make contracting decisions for their own advantage, or that of friends;
Risk of inconsistent practices and/ or inefficiencies because of the absence of clear and complete policies and procedures; i.e. inadequate examination of available options; setting aside the competitive process without proper justification, and because of insufficient training of both contracting officers as well as project authorities;
Risk of unauthorized actions because of insufficient financial controls over payment and amendments of contracts.
Risk of non-compliance with the elements of the management and accountability framework because of incomplete documentation.

4.0 Audit Findings

4.1 Contracting Information

CIHR does not have a consolidated database of contracts integrated with the accounting system. This situation prevents CIHR to have an accurate picture of active contracts at any given time; contracts are numbered and input in FreeBalance using a commitment number from the same sequence of purchase order and internal requisition numbers used for all other expenses.

While information on service contracts is available from the Senior Procurement and Contracting Officer, this information is manually prepared on a Word document and may not be free of errors or omissions. For the period reviewed, we have found approximately 25 contracts from the FreeBalance report that were not on the manual list. This condition raises concerns about the completeness of financial reporting and could limit management’s ability to monitor and identify situations of non-compliance with contracting regulations.

4.2 Policy And Procedures

CIHR has a Contracting Policy which was put in place in November 1998 and amended in December 2003. It is posted on the corporate Intranet, is readily available to employees and has links to Government Contracting Regulations and to the Treasury Board’s Contracting Policy. The latter is exhaustive and does not constitute a quick reference to Project Authorities. CIHR’s Contracting Policy is complemented by concise procedures which focus on standard processes.

4.3 Compliance With Contracting Policy And Regulations

The audit has identified instances where procurement activities were not in accordance with CIHR Contracting Policy, Treasury Board Contracting Policy and Government Contracting Regulations.

4.3.1. Contract Amendments

It is important to note that there is nothing wrong with contract amendments and both Contracting Policies at CIHR and Treasury Board allow for amendments when these are in the best interest of the government, because they save dollars or time, or because they facilitate the attainment of the primary objective of the contract. However, project authorities should make every effort to avoid inadequate initial funding, resulting in amendments to increase the contract value and inadequate pre-planning, resulting in amendments to change the design and specifications involved. With a more restrictive approach than Treasury Board’s Contracting Policy, CIHR’s Contracting Policy normally limits amendments to 50% of the initial value of a contract not to exceed $50,000 for non-competitive contracts.

Contract amendments were issued for all changes brought to the original terms of the contract regarding time, cost or deliverables and the reason for the amendment was generally documented in the contract file. The audit noted that out of the 104 contracts reviewed, 35 contracts had at least one amendment to the date, value, or scope of work. Specifically, one contract was characterized by a very high number of amendments. This case will be further detailed on page 10.

Of the 35 contracts with amendments, 18 involved sole-source non-competitive contracts. The findings are summarized in tables 5.1 and 5.2:

Table 5.1 – Summary of findings – Amendments to 18 Sole Source Contracts

Observation	Occurrences
Contracts amended to exceed $25,000 without exceeding the amount allowed by the CIHR policy ($25,000 being the maximum allowed for a sole-source contract).	7
Contract amended 2 times or more	5
Amendments value close to $50,000	2
No adequate explanation for justifying the amendment and the additional work required	1
Amendment issued after the contract date had lapsed	1

Table 5.2 – Summary of findings –Amendments to 17 Other Contracts

Observation	Occurrences
No adequate explanation for justifying the amendment and the additional work required	5
Contracts amended 2 times or more	3
Amendment issued after the contract date had lapsed	1

Contract with Repetitive Amendments

One contract has been in place for almost 10 years and was amended many times to increase its duration, amount and/or scope of work, due to the ongoing business requirements at CIHR. There is no record on file that this contract was ever competed. The initial amount of the contract increased from a minimum monthly charge of $13,000 in 1995 to $61,000 in 2005.

Any services exceeding the minimum services specified in the contract are billed to CIHR, however, if in any month during each 12-month period the minimum service is not utilized, the “shortfall” can be used against any excess in service utilization within the same 12-month period. The unused shortfall is not refundable for cash or convertible to any other credit. The unused service amounted to $18,210 in 2003-2004 and $29,626 in 2004-2005. By relying on one service provider, CIHR may not be getting the best value-for-money. This situation also exposes the organization to risks of non-compliance and forgone benefits.

The audit team was informed that a Request for Proposal is currently in progress and will be posted by fiscal year-end for a competitive bidding process.

4.3.2. After-the-fact Contracting

The terms and conditions of any contract issued should be formulated in writing according to the Treasury Board Contracting Policy. CIHR entered into verbal contracts with a formal written contract not being signed by the Contracting authority and the contractor in 8 of the 104 files reviewed. In order to authorize the payment resulting from these agreements, an after-the-fact letter was issued by the Manager, Administration and signed by the project authority and placed on file along with a justification for the verbal agreement. Of the 8 contracts, 2 had no explanation for the reason why a verbal agreement was entered into without initiating a request for contract. Generally, the after-the-fact contracts were for low-dollar value and were less frequent towards the end of the audit period.

After-the-fact contracts are evidence of expenditure being incurred without proper authority. Having services provided during a period where there is no legal agreement in place could lead to difficulties establishing contractor responsibility in the event of a dispute.

4.3.3. Acquisition of Temporary Help Services

Contracting authorities have the option of acquiring temporary help through a standing offer established by Public Works and Government Services Canada, or by dealing directly, by means of a contract with other suppliers. The User Guide for federal departments published by the Professional Services Procurement Directorate of PWGSC states the following under the Supplier Selection: “in making call-ups against standing offers for temporary help, client contracting authorities should select specific firms based on cost-effectiveness considerations”.

In the course of the audit, we came across 2 situations where temporary help was acquired through a service agency without a rationale to support a cost-effective selection. Two individuals were hired for 24 weeks at $45,000 and 29 weeks at $89,000. If hired through CIHR and paid according to CIHR’s salary ranges, the same services performed by these 2 individuals would have been acquired for $25,000 and $41,325 for the same period of time; or for annual salaries of $55,000 and $74,000 respectively.

4.3.4. Employer/ Employee Relationship

According to Treasury Board Contracting Policy, contracting authorities must ensure that an employer-employee relationship will not result when contracting for the services of individuals. Under the Canada Pension Plan, the Canadian Human Rights Act, the Crown Liability Act, the Government Employees Compensation Act, the Income Tax Act, the Official Languages Act and the Employment Insurance Act, CIHR may incur liability for persons having the attributes of employees at common law if an employer-employee relationship is created.

The audit indicated the potential appearance of Employer/ Employee relationships when contracting the services of individuals in 4 circumstances including the 2 mentioned in 4.3.3.

4.3.5. Contracting for Legal Services

According to the Government Contract Regulations and Treasury Board Contracting Policy, no contracting authority may enter into a contract for services with a practising member of the bar without first having obtained the approval of the Department of Justice, or having been advised by the Department of Justice that the contract does not involve legal services, regardless of the type of services requested. The audit sample included four (4) contracts for services entered into with lawyers ranging from $2,006 to $13,642. The 4 files audited had no evidence of approval having been obtained from the Department of Justice. CIHR should take measures to ensure that contracting authorities are aware and comply with the policy requirements for contracting with lawyers.

4.4 Management Control Framework

4.4.1. Absence of Contractual Agreement

CIHR has been dealing with one supplier for the provision of non-staff (Peer Reviewers, Governing Council and committees’ members) travel services since its creation in 2000, under a specified fee schedule; however, no contract is in place with this supplier that can for instance limit the amount paid in fees to a maximum or guarantee a lower service charge. For fiscal year 2004-2005 the fee paid amounted to approximately $86,000.

Contracts offer suppliers a guaranteed market for their services and CIHR a guaranteed source of services. They protect against large or unexpected price fluctuations and other legalities. They also promote a much stronger management foundation for investments supported by procurement and support the government procurement contracting in achieving the objective of acquiring goods and services in a manner that enhances access, competition and fairness and results in best value.

It was indicated during the audit that CIHR is in the process of developing a Request for Proposal for this service.

4.4.2. Contract Monitoring

To ensure compliance with laws, regulations and policies and identify issues timely, an adequate monitoring process is essential. The current monitoring of contracting activities, organization-wide, is performed by the Senior Procurement and Contracting Officer on a monthly basis and includes the following steps:

Production of a monthly Contracting Report and sent to managers and executives⁽²⁾;
Request of the deliverable as well as the contractor performance evaluation; and
If received, placing of copies on file, no further follow-up is performed.

An annual contracting activity report is also provided to Treasury Board.

In the absence of follow-up, the deliverables and contractor evaluations are mainly not being received. Consequently, the current monitoring process does not enable the organization a) to build on formal performance assessments of contractors for its future needs, and b) to identify any corrective actions necessary. In addition, without an advanced monitoring process, there is limited assurance that contracting activities are carried out in accordance with policies; also improvement opportunities may not be identified; this could lead to inefficiencies.

4.4.3. Reporting Contracting Income

Pursuant to the Income Tax Act, payments exceeding $500.00 in a calendar year made by departments and agencies under applicable service contracts, including contracts involving a mix of goods and services, must be reported on a T1204 supplementary slip.

Under the accrual accounting, economic events are recorded to the General Ledger in the period in which they are incurred that is when the services are rendered, regardless of when cash transactions happen.

Due to fiscal year-end procedures, expenses are recorded in the accounting system using an accrual suspense account in the fiscal year they were incurred, and cheques are issued in the following fiscal year clearing therefore the suspense account. For the purpose of issuing T1204s, all expenses related to specific economic events should be extracted from the accounting system. However, these economic events do not include the accrual suspense account.

CIHR, therefore, does not issue T1204s for service contracts for which the expense was accrued at fiscal year-end in anticipation of the payment in the following fiscal year and does not comply with paragraph 221(1) (d) of the Income Tax Act.

4.4.4. Training Activities

Ongoing training is essential to maintain skills, improve awareness of established policies stipulations for Responsibility Centre Managers and ensure the integrity of contracting practices in regard to these policies. The last information session on Contracting was developed and offered to employees engaged in the management of contracts and to Responsibility Centre managers in fall 2003.

4.4.5. Contract Payments

While all invoices examined were paid according to the contract payment schedule and bore evidence of Section 34 approval by a person with delegated signing authority, some invoices could not be located on 4 contract files (ranging from $881 to a combined $24,292 for one contract), did not agree to the terms of the contract (2 occurrences for a total of $4,300 and $5,300), did not have enough detail to be compared to the terms of the contract (2 occurrences for $1,000 and $1,200), or in other cases, payments had exceeded the value of the contract without amendments (2 occurrences for $545 and $4,000). In the absence of supporting invoices, the authenticity of the expenditure concerned could not be verified suggesting unauthorized contracting actions and insufficient financial controls over commitments.

4.4.6. File Maintenance

Proper file maintenance is an essential part of the accountability process. It ensures that contract files are maintained in a way that provides a complete audit trail. The audit revealed that some contract files failed to provide adequate documentation to ensure that the Government Contract Regulations criteria had been satisfied. These gaps in documentation included in the following:

Incomplete documentation in the contract file on which to determine if the deliverables called for in the Statement of Work had been produced; e.g. a report or a written note, signed and dated by the Project Authority to indicate the receipt and acceptance of contract deliverables for 68 contracts;
Inadequate demonstration of bid solicitation to support a contract for a value of $28,000 ($25,000 being the maximum amount allowed for a non-competitive contract);
Unavailable information in terms of date and time of receipt of bids for 7 open competitions; the Senior Procurement and Contracting Officer has started to retain such information as of late 2004;
A call-up against a standing offer is a contract. Most call-ups reviewed were issued for temporary help services. In 5 call-ups out of 7, we found that the actual contract was missing; only a Purchase Order was found on file. The contracts amounts were between $847 and $56,817.
No evidence of contractor performance evaluation being on file for 69 contracts out of 94 requiring an evaluation as per the Treasury Board Contracting Policy; the remainder 10 contracts were still active at the time of the audit.

Inadequate file documentation leads to ineffective information management, making it difficult to obtain necessary background, establish contractor responsibility in the event of a dispute or respond to enquiries or provide the Canadian International Trade Tribunal with the evidence that the procurement process was carried out in accordance with trade agreements.

4.4.7. Contract Disclosure

Federal departments and agencies were required as of April 1, 2004 to publicly disclose contracts entered into by the Government of Canada over $10,000. Out of 23 contracts requiring disclosure, two contracts for the amounts of $20,000 and 149,978 were not reported on CIHR’s Website.

Regular monitoring of the information published on the website for existence, completeness and accuracy would provide a more transparent image of the actual number and value of contracts entered to by CIHR.

5.0 Recommendations

Appendix 1 – Definitions

The terms below are defined using as a source the Treasury Board of Canada Secretariat’s Contracting Policy and publication RC4110 of Canada Revenue Agency.

Competitive Contract	A contract where the process used for the solicitation of bids enhances access, competition and fairness and assures that a reasonable and representative number of suppliers are given an opportunity to bid by giving public notice, using electronic bidding methodology or traditional bidding procedures such as a suppliers’ list.
Contract	An agreement between a contracting authority and a person or firm to provide a good, perform a service, construct a work, or to lease real property for appropriate consideration.
Contract Amendment	An agreed addition to, deletion from, correction or modification of a contract.
Contract Splitting	The practice of unnecessarily dividing an aggregate requirement into a number of smaller contracts, thereby avoiding controls on the duration of assignments or contract approval authorities.
Contracting Authority	A person designated as such in the Contract, or by notice to the Contractor, to act as the representative of the Minister in the management of the Contract.
Contractor	A person or entity whose name appears on the signature page of the written agreement and who is to supply goods or services to Canada under the Contract;
Electronic Bidding	A method of procurement that promotes suppliers’ access to, and transparency in, the procurement process and facilitates the Crown’s receipt of best value, by using public notice by means of an approved electronic information service of procurement opportunities (e.g., MERX)
Employer/ Employee Relationship	A verbal or written agreement in which an employee agrees to work on a full-time or part-time basis for an employer for a specified or indeterminate period of time, in return for salary or wages. The employer has the right to decide where, when, and how the work will be done. In this type of relationship, a contract of services exists.
Project Authority	The employee who initiates contracts for services and is responsible for contract planning, contracting methodology, and contract administration (usually the Responsibility Centre manager).
Public Opinion Research (POR)	Planned gathering, by or for a government institution, of opinions, attitudes, perceptions, judgments, feelings, ideas, reactions or views that are intended to be used for any government purpose, whether that information is collected from persons, businesses, institutions or other entities, through quantitative or qualitative methods, irrespective of size or cost.
Sole Source Contract (Non-competitive)	A contract awarded to a pre-selected contractor in circumstances where the contracting authority has justifiably set aside the requirement to solicit bids under the provision of one or more of the exceptions to competitive solicitation in Section 6 of the Government Contracts Regulations (see Appendix 2).
Standing Offer	An offer from a potential supplier to provide goods and/or services at pre-arranged prices, under set terms and conditions, when and if required. For the most part, Standing Offers have been established through a competitive process to obtain competitive prices from qualified suppliers.
Statement of Work	Specification of the work a contractor is required to do.
Temporary Help Services	Services provided under contract to the government for assignments in which the employees of a firm are engaged to provide services to a department or agency on a temporary basis.

Appendix 2 – Criteria for Sole-Source Contracting

Government Contracting Regulations provide the following four exceptions that permit the use of sole sourcing:

The need is one of pressing emergency in which delay would be injurious to the public interest;
The estimated expenditure does not exceed $25,000;
The nature of the work is such that it would not be in the public interest to solicit bids; and
Only one person or firm is capable of performing the contract.

Appendix 3 – Action Plan

CIHR management’s formal action plan is provided below.

Summary of Recommendations and Management Action Plan

Recommendation	Action Plan	Responsibility	Time Frame
Recommendation #1: Accurate, reliable and timely information on the extent and nature of service contracting is essential and needed to mitigate the risks associated with service contracting and to ensure that policies and regulations are being respected. CIHR should establish an integrated system to assist in the monitoring of all its contracting activity for compliance and performance. The current regular reporting to senior management would be improved with a better management information system that would ensure that risks related to contracts are identified and mitigated.	Interim solution : In order to immediately address this recommendation and provide an accurate picture of active contracts, CIHR will implement an improved expenditure commitment control methodology, which will differentiate between contracts and other payment orders.	VP Services and Operations Modern Management and Administration Branches	November 2005
	Long-term solution: CIHR 's FreeBalance system will soon be upgraded. This version also has an integrated procurement module which could provide us with an integrated purchasing and reporting capability. ITMS are currently reviewing costs associated with the purchase of the procurement module as well as timeframes and processes associated with implementation.	VP Services and Operations ITMS /Administrative Services	Analysis Nov. 2005 Implementation TBD
Recommendation #2: Training should be ongoing and mandatory for all staff engaged in the contracting process. The training course should address all administrative controls required to comply with policies and regulations.	The training will be done on a quarterly basis to accommodate new staff while providing refresher training to other staff who received some training previously.	VP Services and Operations Modern Management and Administration Branches	November 2005
Recommendation #3: To identify critical contracting data with regards to potential non-compliance issues with Treasury Board policy (for example, final deliverables not received in central file) and develop a report that will be used to inform Vice Presidents on a quarterly basis.	A report will be developed to inform the Executive Management Committee on a quarterly basis of critical contracting data with regards to potential non-compliance issues with Treasury Board. Guidelines will also be provided to staff on requirements for compliance with TBS policies.	Administration Branch	February 2006 First quarterly report will cover January to March 2006.

⁽¹⁾ The number of contracts in table 1 is larger than the total number of contract for years 2003, 2004 and the period from January to March 2005 as stated in Table 4, page 6, due to the fact that the report used in the sampling includes payments against contracts which were entered into prior to the audit period with payments against them occurring in the audit period.

⁽²⁾ This report summarizes the contracts awarded in the previous month, the amendments to contracts and the status of Requests for Proposals or Advance Contract Award Notices (ACAN) in progress.

Breadcrumb trail

Internal Audit Report - Contracting Services

September 2005

Table of Contents

1.0 Objectives, Scope, Approach And Criteria

1.1 Objectives

1.2 Scope

1.3 Limitations

1.4 Audit Approach

1.5 Audit Criteria

2.0 Background

3.0 Key Risk Factors

4.0 Audit Findings

4.1 Contracting Information

4.2 Policy And Procedures

4.3 Compliance With Contracting Policy And Regulations

4.4 Management Control Framework

5.0 Recommendations

Appendix 1 – Definitions

Appendix 2 – Criteria for Sole-Source Contracting

Appendix 3 – Action Plan