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8/13/2019 Construction Eng

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N a t i o n a l R e s e a r c h C o u n c i l C a n a d a

u d it o f Co n s t r u c t io n Co n t r a c t s I n t e r n a l A u d i t , N R C

J a n u a r y 2 0 0 9


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Audit of Construction Contracts

January 2009 i

Internal Audit, National Research Council of Canada

TABLE OF CONTENTS

2.1 Background and context ....................................................................... 6

2.2 About the audit ..................................................................................... 9

3.1 Audit Objective One: to provide assurance that NRC complies withthe Government of Canada and NRC construction contractingpolicies and directives ........................................................................ 12

3.2 Objective Two: To assess the degree to which the recommendationsand management action plans identified in the 2002 Internal Auditreport Audit of Construction Contracting have been implemented. .... 24

1.0 Executive Summary ..................................................................... 12.0 Introduction .................................................................................. 6

3.0 Audi t Findings ............................................................................ 12

4.0 Conclusion .................................................................................. 26Appendix A: Audit Criteria and Detailed Findings............. 29

Appendix B: 2002 Audit Recommendations and 2008Follow-up Audit Findings................................... 33

Appendix C: Overall Potential Ratings................................... 37

Appendix D: Management Action Plan................................... 38

Appendix E: Glossary.................................................................... 41


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1.0 Executive Summary

Background

This audit report presents the findings of the National Research Council (NRC) ofCanadas Audit of Construction Contracts which includes a follow-up to therecommendations and management action plans identified in the 2002 Internal Auditreport Audit of Construction Contracting. The decision to conduct this audit wasapproved by the President following the recommendation of the Audit, Evaluation andRisk Management Committee on June 27, 2007, as part of the NRC 2007-2008 to2009-2010 Risk-Based Internal Audit Plan. Under the plan, contracts greater than$25,000 and contracts less than $25,000 are audited in alternate years given that the

procedures are substantially different for these two broad categories. However, due totheir unique nature and relatively lower overall expenditures, construction contractsare excluded from the annual compliance work and continue to be audited over a five-year audit cycle. Expenditures for construction contracts were $17.8 million in 2006-2007 and $20.5 million in 2007-08.

Audi t object ive, scope and methodology

There were two audit objectives. The first objective was to provide assurance thatNRC complies with Government of Canada and NRC construction contracting policies

and directives. As such, detailed audit procedures were performed on constructioncontracts undertaken in 2006-07 and 2007-08 in order to make this determination.This audit objective also allowed us to make observations with respect to the extent towhich NRC contracting directives and policies correspond to the Treasury Boardrequirements as well as the adequacy of the procurement management controlframework established by NRC for construction contracts. The second audit objectivewas to assess the degree to which the recommendations and management actionplans identified in the 2002 Internal Audit report Audit of Construction Contractinghave been implemented.

An NRC-wide approach was used for sampling which allowed for an examination of

construction contracts that are managed by NRCs Administrative Services andProperty Management (ASPM) Branch as well as by the Regional MaterialManagement Offices (RMMOs). It was determined that a sample of 20 constructioncontracts for each fiscal year for a total of 40 contracts selected on the basis of riskwould be sufficiently robust to determine whether there are any systemic issues withrespect to construction contracting. This involved examining practices in seven ofNRCs 32 institutes, branches and programs (IBPs).


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The audit was conducted using a series of detailed audit criterion that addressed theaudit objectives, against which we drew our observations, assessments andconclusions. These audit criteria, presented in Appendix A, are primarily derived from

the Treasury Board Policy Contracting Policy, Policy on Delegation of Authorities,Policy on Investment Planning and Policy on the Management of Projects as well asthe Financial Administration Act (FAA). The recommendations and managementaction plans identified in the 2002 Internal Audit report Audit of ConstructionContracting that we followed-up on their implementation can be found in Appendix B.

Audi t opinion and statement of assurance

Within the limitations of the samples and the audit procedures performed, weconclude that overall the application of Government of Canada and NRC

construction contracting policies and directives is adequate in that most areas ofpractice / process are in compliance for construction contracts but there are someopportunities for improvement. These areas for improvement include: sufficientdocumentation supporting non-competitive contract awards, timing of budgetcommitments and work commencement, management of contract amendmentsand security screenings of contractors who have access to protected informationand assets.

Within the limitations of the audit procedures performed, we found that theprocurement management control framework for construction contracting isadequate but some areas could be strengthened. These areas include

centralizing procurement procedural guidance into a single source document andperforming data analytics of contract patterns and trends as part of more rigorousmonitoring activities.

Finally, we found that NRC management has fully implemented seven of the eightrecommendations made in of the 2002 Internal Audit report Audit of ConstructionContracting. The recommendation pertaining to the expansion of verification ofdelegated authorities (FAASection 33) is in progress and management reports itis on track to be fully operational by March 2009.

In my professional judgment as Chief Audit Executive, sufficient and appropriate

audit procedures have been conducted and evidence gathered to support theaccuracy of the conclusions reached and contained in this report. The conclusionswere based on a comparison of the situations as they existed at the time againstthe audit criteria. The evidence was gathered in accordance with the TreasuryBoard Policy, directives and standards on Internal Audit, and the procedures usedto meet the professional standards of the Institute of Internal Auditors.


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Conclusions and recommendations

Within the limitations of the samples and the audit procedures performed, we

conclude that overall the application of Government of Canada and NRC constructioncontracting policies and directives is adequate in that most areas of practice / processfor construction contracts are in compliance but there are some opportunities forimprovement1. These areas for improvement include: sufficient documentationsupporting non-competitive contract awards, timing of budget commitments and workcommencement, management of contract amendments and security screenings ofcontractors who have access to protected information and assets.

While we observed full compliance in many important areas, we found: severalinstances of construction work was performed prior to contract award; severalinstances where distinct services were repeatedly amended to existing contracts

rather than issuing new contracts; one instance where Treasury Board approval wasnot obtained for a contract with cumulative amendments above the required TreasuryBoard threshold; a complete absence of security screenings for construction workerswho would have had access to protected assets and information prior to NRCs newsecurity directive put in place January 24, 2008 and several instances thereafter.Problems noted in last years audit of contracts less than $25,000 regarding FAASection 32 and 34 approvals in accordance with NRC Financial Signing Authoritiesand in the earlier 2002 Audit of Construction Contracting are being addressed.

Within the limitations of the audit procedures performed, we found that theprocurement management control framework for construction contracts is adequate

but some areas could be strengthened. NRC has established a procurementmanagement control framework, including procurement processes and policies tomitigate procurement risks and to help ensure compliance with Government directivesand policies. Construction contracts are essentially subject to the same managementcontrol framework as non-construction contracts; however, there are specificdirectives and policies that are related only to construction. Five key components ofthe procurement management control framework that were examined included thecontrol environment, control activities, risk assessment, information andcommunication and on-going monitoring. Some areas for improvements wereobserved. There is no single repository of guidance that consolidates all of theprocurement policies and procedures to assist management and Procurement

Officers in contracting. Various manuals on the procurement process are availableeither in hard or electronic formats. Some IBPs informed us that they were not awareof the existence of some manuals. Clarification of the procurement process providedby Administrative Services and Property Management Branch is currently done

1See Appendix C for the list of potential overall ratings.


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through emails and training. Other than NRC Internal Audit compliance auditscurrently undertaken, there is no formal Quality Assurance Program performed by anindependent unit of contracting activities or data analytics to identify high risk

contracts and / or improper construction contracting practices.

Finally, we found that NRC management has fully implemented seven of the eightrecommendations made in of the 2002 Internal Audit report Audit of ConstructionContracting. The recommendation pertaining to the expansion of verification ofdelegated authorities (FAA Section 33) is in progress and management reports it is ontrack to be fully operational by March 2009.

Recommendations

1. Except where patent or copyright requirements or where technical compatibilityissues can be clearly documented and there is no doubt there is only one supplier,Procurement Officers should advertise proposed sole source contract awardsgreater than $25,000 through an Advanced Contract Award Notice (ACAN).

2. Administrative Services and Property Management Branch should seekclarification from Treasury Board regarding what approvals are required when thecumulative value of amendments exceed $200,000 for construction contractsusing electronic bidding that have an original value less than $2 million.

3. Administrative Services and Property Management Branch should consolidate all

procurement policies and procedures into a single source document which wouldbe available on its Material Management web-site. In the interim, referencemanuals that are currently available only in hard copies should be made availableelectronically and posted on the ASPM Material Management web-site.Consideration should be given to enhancing the guide where non-compliance wasfound to be an issue, specifically with respect to sufficient documentationsupporting non-competitive contract awards, timing of contract commitments andcommencement of contract work, security requirements and contractamendments.

4. Administrative Services and Property Management Branch should undertake more

rigorous monitoring activities to include a comprehensive quality assurance reviewof individual construction procurement files on a sampling basis and adopt dataanalytics to monitor contracting patterns and trends that indicate procurementactivities that may not be in accordance with the Government of Canada and NRCpolicies and directives. Data analytics should include, but not limited to, contract


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amendments, contract splitting and non-purchase order transactions as well asleasehold improvements.

The detailed management action plans that address these recommendations can befound in Appendix D.

_________________________________________

Jayne Hinchliff-Milne, CMA, Chief Audit Executive

NRC Audit Team Members2:

Jean Paradis, CA, CIA, Audit Manager

2The NRC audit team was supplemented by a team of experienced auditors that were contracted toconduct the audit work.


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2.0 Introduction

2.1 Background and context

Following the recommendation of the Audit, Evaluation and Risk ManagementCommittee on June 27, 2007, NRCs President approved this audit of ConstructionContracts as part of the NRC 2007-2008 to 2009-2010 Risk-Based Internal AuditPlan. Under the plan, contracts greater than $25,000 and contracts less than $25,000are audited in alternate years given that the procedures are substantially different forthese two broad categories. However, due to their unique nature and relatively loweroverall expenditures, construction contracts are excluded from the annual compliancework and continue to be audited over a five-year audit cycle.

Several Government of Canada regulations and policies govern how NRC mustcontract construction contracts. Government procurement is highly regulated and isbased on a strong policy framework, including but not limited to the Treasury BoardContracting Policy, the Financial Administration Act (FAA), the North American FreeTrade Agreement (NAFTA), theAgreement on Internal Trade(AIT)and the WorldTrade Organization Agreement on Government Procurement (WTA). The TreasuryBoard Policy on Investment Planningand the Policy on the Management of Projectsprovide directives that impact the planning, management and contracting of largeconstruction projects. There are no special contracting provisions resulting fromNRCs status as a departmental corporation.

Like other government departments, NRC has in place construction procurement andcontracting policies that NRC employees must follow. It is within the authority of eachdepartment to establish its own policies and guidelines as long as they continue tocomply with the government established policies and guidelines. In other words,departments can define policies that are more restrictive than government policies butnot the reverse.

NRCs Management Control Framework for Construction Contracts

Being the leading resource for science and technology development andcommercialization, capital projects play an important role in NRCs strategic plan.NRCs Long term Capital Plan 2006-2007 to 2010-2011 includes a RecapitalizationProgram with planned expenditures for existing buildings to address buildingreinvestment requirements. NRC has 188 buildings of which two-thirds were builtmore than 30 years ago. The Plan also includes capital initiatives such as additions


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and alterations to existing buildings and facilities to address new programrequirements and acquisitions and / or construction of new facilities to support NRCscurrent or future research activities. Expenditures for construction contracts were

$17.8 million in 2006-2007 and $20.5 million in 2007-2008 totaling $38.3 million forboth years as shown below in Exhibit 1.

In accordance with government policy and directives, NRC has full contractingauthority for construction projects up to $6 million. ASPM Branch is responsible toprovide functional direction and guidance on contracting architectural and engineeringservices, construction, repairs, renovations and restorations for all of NRC. IBPs thatrequire these services must contact the Construction Contracting Office to discusstheir requirements and best approach to take for achieving them.

Exhibit 1Categories, Value and Number of Construction Contracts

April 1, 2006 to March 31, 20083

Categories of Construc tionContracts

ContractValue

($)

Percentage($)

Number ofContracts

Percentage(#)

AverageValue

($)

Less than $25,000 $2,738,239 7% 375 62% $7,302

Between $25,000 and $60,000 $2,944,883 8% 71 12% $41,477

Between $60,000 and $100,000 $4,821,908 13% 62 10% $77,773

Over $100,000 $27,837,508 72% 96 16% $289,974

Total $38,342,538 100% 604 100% $63,481

As shown in Exhibit 2 below, contracting authority has been delegated to procurementstaff in ASPM Branch and in the RMMOs within specific thresholds. The RMMOs have

contracting authority that is limited to $60,000 for construction contracts but they aswell as ASPM have a requirement to issue a Public Bid Notice when its above$60,000. Both ASPM and RMMO Procurement Officers can contract directly withsome suppliers through call-ups against standing offers. Standing offers are

3There were no major fluctuations or differences between the two fiscal years.


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agreements that have been pre-negotiated by PWGSC or by NRC ProcurementServices for specialized services. The call-up limit varies for each standing offers inaccordance with their terms. The Treasury Board Contracting Policythreshold allows

the competitive process to be set aside for estimated contracting expenditures under$25,000. Construction Contracts valued at $100,000 or greater must use the StandardFederal Government Construction Contract template as per the Treasury BoardContracting Policy as well as electronic bidding for construction contracts as requiredby the Agreement on Internal Trade.

Exhibit 2NRC Construction Contracting Authorities

ASPM RMMO PWGSC

Construction Contracts Less than $25,000

(NCR)

Call-ups against NRC or PWGSC Standing Offers

($ limits vary by standing offer)(NCR)

Construction Contracts less than $60,000

(NCR)

Construct ion Contracts between $60,000 and $100,000

(Requirement to issue a Public Bid Notice)(NCR)

Construction Contracts between $100,000 and $6 million

(Requirement to use Standard Federal GovernmentConstruction Contract Template and Public Bid Notice)

Construction Contracts greater than $6 million(Requirement to issue a Public Bid Notice)


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2.2 About the audit

Objectives

There were two audit objectives. The first objective was to perform detailed auditprocedures on construction contracts undertaken in 2006-07 and 2007-08 in order toconclude whether NRC construction contracts comply with Government of Canadaand NRC contracting policies and directives. This audit objective also allowed us tomake observations with respect to the extent to which NRC contracting directives andpolicies correspond to the Treasury Board requirements as well as the adequacy ofthe procurement management control framework established by NRC for constructioncontracts. The second audit objective was to assess the degree to which therecommendations and management action plans identified in the 2002 Internal Audit

report Audit of Construction Contracting have been implemented.

A risk-based approach was used to determine the audit objectives as well as the auditcriteria. Key issues and risks relating to construction procurement were considered toprioritize specific audit activities and to focus on areas of greatest importance.

Scope

The scope of the first audit objective consisted of NRC construction transactions thatwere undertaken in fiscal years 2006-2007 and 2007-2008. Construction contracts,

as defined by the Treasury Board Contracting Policy are contracts entered into for theconstruction, repair, renovation or restoration of any work except a vessel andincludes: 1) a contract for the supply and creation of a prefabricated structure; 2) acontract for dredging; 3) a contract for demolition; or 4) a contract for the hire ofequipment to be used in or incidentally to the execution of any contract referred to inthis definition. Accordingly, architectural and engineering service contracts whichpertain to the provision of services in respect of the planning, design, preparation orsupervision of the construction, repair, renovation or restoration of a work, are notconsidered construction contracts. Rather, they are service contracts which have anopportunity for audit as part of the annual compliance audits on contracts less than$25,000 and contracts greater than $25,000 which are audited in alternate years.

An NRC-wide approach was used for sampling which allowed for an examination ofconstruction contracts that are managed by NRCs Administrative Services andProperty Management (ASPM) Branch as well as by the Regional MaterialManagement Offices (RMMOs). It was determined that a sample of 20 constructioncontracts for each fiscal year for a total of 40 contracts selected on the basis of riskwould be sufficiently robust to determine whether there are any systemic issues with


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respect to construction contracting. This involved examining practices in seven ofNRCs 32 institutes, branches and programs (IBPs). Those contracts selected foraudit are shown below in Exhibit 3 by category of construction contract and region.

The audit field work was conducted in two stages. The first stage covering thetransactions for fiscal year 2006-2007 took place from February 25 to March 31, 2008.The second phase covering fiscal year 2007-2008 took place from June 2 to July 31,2008.

The scope of the second audit objective consisted of determining the currentimplementation status with respect to eight recommendations identified in the 2002Internal Audit report Audit of Construction Contracting and related action planproposed by management as presented in Appendix B.

Exhibit 3

2006-07 and 2007-08 Transactions Sampled byCategory of Construction Contract and Region

Categories of Construction Contracts Number of Contracts Reviewed

NCR Outs ide NCR

Less than $25,000 0 7Between $25,000 and $60,000 0 4Between $60,000 and $100,000 6 2Over $100,000 17 4Over $6 million 0 0Total 23 17

Approach and Methodology

With respect to confirming construction contracts comply with Government of Canadaand NRC policies and directives, a risk-based approach was used whereby 75percent of the contracts selected were higher dollar value contracts valued over$60,000 and 25 percent from construction contracts administered by the regional IBPs


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valued at less than $60,000. Within each category (over and below $60,000), theindividual contracts selected for audit were identified using a risk-based approachwhereby 60 percent of the sample was selected from construction contracts with a

higher probability of risk (e.g., higher dollar value, more frequent amendments and / ornon competitively awarded) and 40 percent of the sample was selected from contractsthat were considered to have a lower probability of risk. This resulted in seven IBPsbeing selected for audit ranging from 24 contracts administered by AdministrativeServices and Property Management Branch and 26 contracts from six IBPs rangingfrom two to four contracts each.

Interviews were conducted with key personnel in order to examine programprocesses, procedures and practices. These included managers and staff in

Administrative Services and Property Management Branch, Finance Branch and thefive IBPs selected for audit. We reviewed relevant program documentation which

included, but was not limited to, Treasury Board and NRC policies and guidelines vis--vis the detailed transactions recorded in the paper files and electronically inSIGMANRCs integrated management information system (based on SAP) that isused to collect financial, human resources, payroll, asset and real propertyinformation. Data mining techniques were also employed to detect, among otherthings, risks for NRC as a whole as well as evidence of potential contract splitting.

In order to determine the adequacy of the procurement management controlframework, we compared NRCs framework against defined criteria for five keycomponents that can be found in the control models developed by the CanadianInstitute of Chartered Accountants (CoCo Criteria of Control) and by the Committee

of Sponsoring Organizations of the Treadway Commission (COSO) (Internal Control Integrated Framework, Enterprise Risk Management Integrated Framework). Thesecomponents included the control environment, control activities, risk assessment,information and communication, and on-going monitoring. Information used to assessthe adequacy of the procurement management control framework was obtained from,among other things, survey questionnaires completed by ASPM Branchrepresentatives, RMMO Procurement Officers and IBP Budget Managers as well areview of available relevant documents.

The audit was conducted using a series of detailed audit criteria that addressed theaudit objective, against which we drew our observations, assessments and

conclusions. Prior to finalizing the audit criteria, process control flowcharts wereprepared and walkthroughs of several transactions for construction contracts wereconducted to assess the areas of greatest risk. These audit criteria, presented in

Appendix A, are primarily derived from the Treasury Board Contracting Policy, Policyon Delegation of Authorities, Policy on Investment Planning and Policy on theManagement of Projects as well as the Financial Administration Act (FAA).


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With respect to the follow-up to the 2002 audit recommendations, a questionnaire wassent to ASPM and the Finance Branch to obtain their comments on the status of theaction plans in respect to the recommendations noted in the 2002 Internal Audit report

Audit of Construction Contracting. Documents were examined in support of theimplementation of the recommendations and interviews were conducted withmanagers as needed. The recommendations made in the earlier audit are detailed in

Appendix B.

3.0 Audit Findings

3.1 Audit Objective One: to provide assurance that NRC

complies with the Government of Canada and NRCconstruction contracting policies and directives

Overall Conclusion

Within the limitations of the samples and the audit procedures performed, weconclude that overall the application of the Government of Canada and NRCconstruction contracting policies and directives is adequate in that most areas ofpractice / process for construction contracts are in compliance but there are some

opportunities for improvement4. These areas for improvement include:

Sufficient documentation supporting non-competitive contract awards;

Timing of budget commitments and work commencement;

Management of contract amendments;

Security screenings of contractors; and

Centralized procurement guidelines and monitoring.

We also found that the procurement management control framework for constructioncontracting is adequate but some areas could be strengthened. These areas includecentralizing procurement procedural guidance into a single source document and



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performing data analytics of contract patterns and trends as part of more rigorousmonitoring activities.Detailed findings for the entire sample of transactions by audit criterion can be found

in Appendix A.

Findings

The audit team noted a number of significant strengths with respect to compliancewith government and NRC policies and directives for construction contracts. Theseincluded very high compliance rates for the following:

Financial Administration ActSection 32 and 34 approvals were correctlyobtained (39 of 40 contracts (98 percent ) for FAA32; and 38 of 40 contracts

(95 percent) for FAA34);

For competitive contracts, requirements were defined prior to the biddingprocess and sufficient documentation on the competitive process was present(26 of 26 competitive contracts; 100 percent);

There was no evidence of contract splitting (24 of 24; 100 percent) contractamendments and 1 potential case found through data mining of all transactionsfor the seven IBPs examined);

The Standard Federal Government Construction Contract template was usedfor construction contracts greater than $100,000 (14 of 14 contracts; 100percent) and public bid notices were issued for construction contracts over$60,000 (24 of 24 contracts; 100 percent);

Project Completion Certificates and Contract Payment Certificates werecompleted prior to releasing holdbacks (16 of 16 contracts; 100 percent);

There is evidence contracts received appropriate monitoring and evaluation ofperformance (39 of 395contracts; 100 percent); and

There is evidence construction services were provided in accordance with thecontract (39 of 40 contracts; 98 percent).

5At the time of the audit, one construction contract had not yet been completed; hence a completioncertificate would not have been applicable.


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Appropriate FAA Sect ion 32 and 34 approvals

Key government controls for procuring, verifying and paying for purchases rest with

FAA Section 32, 34, and 33 approvals. These three sections require the following:

That funds be available and committed for the purchase (Section 32);

That verification of the purchase of goods or services had been performed,supplied, or rendered, and the price was as stated in the contract and that theperson with delegated financial authority certifies (via signature) that theverification has been completed (Section 34); and

That no payment for a purchase be made unless it has been properlyrequisitioned and certified (Section 33).

In accordance with the Treasury Board Policy on Delegation of Authorities, weexpected to find that NRC has delegated spending authority to responsibility centremanagers in relation to their budgetary responsibilities in order to ensure they haveadequate authority and full responsibility for their decisions. The policy also makesprovisions for the use of central staff to record commitments and confirm price andperformance in conformance with Sections 32 and 34 of the FAA when this is moreeffective and economical or in support of the manager who has budgetaryresponsibility. NRCs delegation document, Financial Signing Authorities, makesuse of these provisions by delegating this authority, among others, to Invoice Clerks.However, in our opinion this does not negate the necessity to have an adequate audit

trail that can be traced back to the responsibility centre manager with budgetaryresponsibilities for these expenditures. We limited our expectations to verifying that inthe absence of responsibility centre managers exercising their authority electronicallyin Sigma to some form of written communications from them such as an email or asigned purchase requisition or invoice.

Last years Internal Audit report Limited Annual Assurance Compliance Audit -Contracts under $25,000 and Acquisition Card Purchases for 2006-2007 transactionsprovided recommendations in regards to FAASections 32 and 34 certificationsindicating that there needs to be a verifiable link to the actual Budget Holder withbudgetary responsibilities. At the time of the current audit, we found evidence that

these issues are being addressed. Internal memos have been provided to personnelby ASPM Branch and Finance Branch stating the importance of FAAcontrols anddetailing specific procedures; as well, financial delegation training was provided to allstaff who have budget responsibilities. We also observed that responsibility centremanagers as of June 2008 are required to provide their approval electronically forFAASection 34 certifications that goods or services have been received and that


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invoices can be approved for payment. Invoices greater than $25,000 have alwaysrequired that responsibility centre managers certify FAASection 34 by their signature.

With respect to FAA Section 32, we observed that purchase requisitions wereapproved by delegated responsibility centre managers in accordance with NRCdirectives. Only one purchase requisition was not verified by the delegatedresponsibility centre manager. With respect to FAA Section 34, we observed that onlytwo of 40 invoices (5 percent) in two of seven IBPs examined were not certified by thedelegated responsibility centre managers both of which were approved solely bycentralized invoice clerks in accordance with NRC directives.

Finance Branch in consultation with ASPM and Treasury Board will continue itsongoing review of processes for verifying internal practices pertaining to FAA Section32 and 34 with due regard for associated risks.

Sufficient Documentation Supporting Non-Competitive Contract Awards

During the course of the audit, 40 construction contracts were reviewed of which 33were competitively awarded either through the MERX electronic bidding system or alimited tendering process (26), by advertising the proposed award through AdvanceContract Award Notices (2) or by using existing PWGSC or NRC Standing Offer

Arrangements (5). The remaining 7 contracts were sole sourced, i.e., not subjected toa competitive process.6The Treasury Board Contracting Policy allows for four exceptions to set aside the

competitive process. They are:

1. The need is one of pressing emergency in which delay would be injurious tothe public interest;

2. the estimated expenditure does not exceed

$25,000,

$40,000 7, where the contract is for the acquisition of architectural,

engineering and other services required in respect of the planning,6In order to address areas of greatest risk, the sample selected was deliberately skewed to ensure ahigher representation of sole sourced construction contracts than normally incurred. The actualdistribution of sole sourced construction contracts for NRC in 2006-2007 and 2007-2008 was only eightpercent.7The Treasury Board Contracting PolicySection 10.2.1.b. second paragraph normally identifies this as$100,000; however, for NRC this amount is $40,000.


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design, preparation or supervision of the construction, repair,renovation or restoration of a work, or

$100,000 where the contract is to be entered into by the member ofthe Queens Privy Council of Canada responsible for the CanadianInternational Development Agency and is for the acquisition ofarchitectural, engineering or other services required in respect of theplanning, design, preparation or supervision of an internationaldevelopment assistance program or project;

3. the nature of the work is such that it would not be in the public interest tosolicit bids; or

4. only one person is capable of performing the contract.

Justification for any use of the four exceptions to the bidding requirement must be fullydocumented. Of the seven contracts sampled that did not use a competitive process,the documentation on file sited that only one person was capable of performing thecontract. The policy and guidelines are clear that setting aside the competitive biddingprocess for this reason should not be used because a proposed contractor is the onlyone known to management. This exception is quite definitive and should only be usedwhere patent or copyright requirements or technical compatibility factors andtechnological expertise suggest only one contractor exists. In these instances, thecontract authority is encouraged whenever possible to advertise the proposed awardthrough an Advance Contract Award Notification (ACAN). If no statement of

capabilities meeting the requirements set out in the ACAN are received within 15calendar days, the proposed contract is deemed to be competitive and may beawarded.

Of those construction contracts that were sole sourced, we found that one of seven(14 percent) contracts in one IBP provided a justification on file that was notsupported by sufficient documentation that only one person is capable of performingthe contract. It was approved by Treasury Board and therefore one can make alogical conclusion that appropriate justification was provided; however, there was nodocumentation on file to support that assumption. These sole sourced contracts hadoriginal values that were under $25,000 (five), Treasury Board approval (one) or had

technology compatibility issues that were only available at the contracted firm (one).


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Recommendation 1:

Except where patent or copyright requirements or where technical compatibility issues

can be clearly documented and there is no doubt there is only one supplier,Procurement Officers should advertise proposed sole source contract awards greaterthan $25,000 through an Advanced Contract Award Notice (ACAN).

NRC Management Response:

Agreed. Construction contracts are rarely sole source as a result of patent orcopyright requirements. Regardless, if a sole source cannot be clearly documentedor where there is doubt that there is only one supplier, a Procurement Officer will postan ACAN. Where there is no doubt, that only one supplier exists, the rationale will be

fully documented and include supporting documentation. If it cannot be fullydocumented, an ACAN will be posted.

Timing of Budget Commitments and Contract Commencement

We observed in three regional of seven IBPs examined where work for three of 40contracts (seven percent) was performed prior to the contract being signed. We wereinformed by ASPM Branch and observed that certain purchase requisitions forconstruction contracts were created at the time or a few days prior to the contractbeing issued; therefore, contracting activities took place prior to the commitments

being recorded.

Section 32 of the Financial Administration Act indicates that no contract should beentered into unless there is a sufficient unencumbered balance available.Furthermore, records of commitments should be maintained. If several commitmentsare unrecorded, management will not have complete information to be able to confirmfunds will be available when invoices for payment are received and that NRC will belegally obligated to pay. Management informed us this practice has rarely, if ever,resulted in the cancellation of a requirement due to insufficient funds. While we werenot able to confirm this assertion, we did not find any instances where this occurred.

Problems with respect to the timing of budget commitments and work commencingbefore contracts are signed can be addressed by more comprehensivecommunications of guidelines as well as more rigorous monitoring regime withinvestigative capacity. Recommendations are made later in this report that pertain toboth.


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amended in less than 35 days of the original contract; four of these were amendedeither the same day or the next day. The risk occurs that these contracts may appearto be deliberately under valued in order to circumvent the $25,000 competitive

threshold for competitive bidding; however, we found that only one of these contractshas not been competitively awarded.

Other concerns pertain to the authority NRC has to amend contracts that exceed$200,000 in total. In accordance with Appendix C of the Treasury Board ContractingPolicy, NRC may enter into a competitive construction contract awarded through theelectronic bidding process if the amount does not exceed $6,000,000 and amendsuch contracts that are over $2,000,000 by up to 10 percent of the contract award.Construction contracts less than $2 million must follow Schedule I of Appendix C ofthe policy which requires Treasury Board approval for amendments exceeding$200,000. However, Schedule 1 of Appendix C of the policy does not provide

contract value or amendment limits for construction contracts using electronic bidding.Many departments have therefore interpreted this as meaning that Treasury Boardapproval should be requested when the cumulative value of amendments exceed$200,000 for contracts that are less than $2 million. This would have required 3 of 11construction contracts (27 percent) to have received Treasury Boards approval priorto making the amendments that cumulated over $200,000. However, its recognizedthat the Treasury Board Contracting Policy is not entirely clear in this matter.

Finally we have concerns for public reporting requirements of contracts greater than$10,000 under the Treasury Board Policy on Proactive Disclosure on Contracts over$10,000. Our analysis as noted above shows that amendments can within a very

short timeframe increase over $10,000 but they have not been publicly reported.Seven of the 11 construction contracts that were amended had an original value lessthan $10,000 with final values ranging from $38,654 to $977,747. At the time of theaudit, the policy only required contracts with an initial value of $10,000 or more to bereported and not those amended above that amount. The Treasury BoardPolicy onProactive Disclosure on Contracts Over $10,000is a recent government measure toensure greater transparency of government contracts an area of public controversyfrom time to time in regard to the manner in which they are awarded among otherthings. The non-disclosure of non-competitive contractual arrangements whichaccumulate significantly above $10,000 may also have adverse reputational risks forNRC as it may give the appearance that IBPs are using amendments to avoid

disclosing contracts. Revisions to the Treasury Board Policy are imminent whichrequire as of September 1, 2008, the disclosure of all contracts including amendmentsabove $10,000.


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Recommendation 2:

Administrative Services and Property Management Branch should seek clarification

from Treasury Board regarding what approvals are required when the cumulativevalue of amendments exceed $200,000 for construction contracts using electronicbidding that have an original value less than $2 million.


Agreed. We will obtain clarification from the Treasury Board Secretariat by January2009.

Ensuring Security Requirements Are Met

The Treasury Board Contracting Policy requires that the provisions of theGovernments Security Policy be applied to procurement contracts which requireindividuals undergo personnel screening processes if their duties or tasks necessitateaccess to classified or protected information and assets. None of the 31contracts (0 percent) reviewed in which security screenings of contractors shouldhave been undertaken met these requirements. For the purposes of this audit,security screenings were considered necessary where construction workers wouldinformation and assets.

On January 24, 2008, a memorandum was sent to all NRC Directors General and IBPFinance Branch Officers providing guidance in regard to security requirements tothose responsible for requisitioning contracts, Project Authorities and ProcurementOfficers. Specific instructions were provided to ensure that security requirements areaddressed and risk mitigation procedures are established. As well, the purchaserequisition form was modified to include a security block which must be completedand signed in all instances as evidence that the security requirements have beenexplicitly considered. Where a security requirement is identified, the SecurityRequirement Check List (SRCL) must be completed and sent with the purchaserequisition to the Contracting Authority. Procurement Officers are required to includethe appropriate security clauses in bid solicitation and contract documentation. All

contracts that contain a security provision must be reviewed by the ProcurementOfficer and the Security Office. Once the contract is awarded, an SRCL with thenames of the individuals are forwarded to the Security Office for security screening.

However, we noted that 4 of the 33 purchase requisitions requiring securityscreenings were dated after January 24, 2008. Despite the fact that construction work


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for these four contracts took place inside NRC premises that have protectedinformation and assets, the security requirements were not completed in accordancewith the new guidelines.

Problems with respect to security screenings can be addressed by morecomprehensive communications of guidelines as well as a more rigorous monitoringregime with investigative capacity. Recommendations are made later in this reportthat pertain to both.

The Need for Centralized Procurement Guidelines and Monitoring

We found certain directives in the Guide to NRC Procurement Process Guide thatwere not applied in a consistent manner. As noted earlier in this report, these

included sufficient documentation supporting non-competitive contract awards, timingof contract commitments and commencement of contract work, security requirementsnot applied, contracts with initial values less than $10,000 but later amendedsignificantly with a day or two well above $10,000 that were not reported underTreasury Board Policy on Proactive Disclosure on Contracts Over $10,000 and othercontract amendment irregularities.

Assignment of contracting responsibility and procedural guidelines for contracting aredetailed in the procurement guide which is available in electronic form on the ASPMBranch Material Management web-site. This document provides a procurementprocess map and includes information on the procurement process, roles and

responsibilities from the creation of a purchase requisition to the payment of invoices.Additional information is available in four other manuals: (1) Financial ManagementManual; (2) Procurement Reporting-User Guide for Data Entry; (3) Public TendersProcedures; and (4) Invited Tenders Procedures. Electronic copies of the first twomanuals are available although some sections of the Financial Management Manualare still in progress. The other two manuals are available in hard copy format only.

Additional procurement information is also available to Procurement Officers onNRCs common drive (e.g., checklists, templates, and security documentation) and onthe ASPM Material Management web-site (e.g., information on contracting, employer-employee relationships, contracting limits, security requirements). Clarificationprovided by ASPM Branch on the procurement process is currently done through

emails and training. There is no single, centralized procedures document for theprocurement process. Our survey questionnaire and interviews indicated that someRMNOs and managers are not aware of the existence of some manuals which couldhelp to explain non-compliance.


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Recommendation 3:

Administrative Services and Property Management Branch should consolidate all

procurement policies and procedures into a single source document which would beavailable on its Material Management web-site. In the interim, reference manuals thatare currently available only in hard copies should be made available electronically andposted on the ASPM Material Management web-site. Consideration should be givento enhancing the guide where non-compliance was found to be an issue, specificallywith respect to sufficient documentation supporting non-competitive contract awards,timing of contract commitments and commencement of contract work, securityrequirements and contract amendments.


Agreed. Our Material Management documentation needs to be updated andmaintained in a central repository. Our Material Management Policy Manual currentlyexists in hard copy, not in electronic format. In order to implement theserecommendations, we will assign resources as required in order to:

Prepare policy documents; Update the Material Management Policy Manual; Implement a quality assurance process; Monitor contracting activities; Coordinate and respond to all audit enquiries and reports; and Coordinate all Material Management reporting, such as the quarterly Contract

Disclosure Reports, and the Annual Procurement Activity Report.

Consistent with generally accepted management control frameworks that reflect bestpractices, we expected to see quality assurance review activities of individualconstruction contract files as well as data analytics techniques being employed tomonitor NRCs overall compliance with Government of Canada and NRC contractingpolicies and directives. These techniques can be used to detect irregularities, amongothers, with respect to contract splitting, identification of non-purchase order contractsand potentially inappropriate contract amendments.

Our interviews and survey questionnaires indicate that ASMP Branch officials monitorand review contracting activities and processes, consult NRC Legal Services asrequired and review the report of contracts over $10,000 to ensure appropriatedisclosure. Briefing notes, meetings and memos are used to communicate findings toProcurement Officers.


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We also confirmed that Finance Branch uses a risk-based approach in its review ofinvoices sent by ASPM Branch Invoice Clerks as part of the payment process.Features are integrated into Sigma to identify high-risk transactions including sensitive

accounts and high-dollar payments which are automatically blocked for furtherprescribed review procedures before being released for payment. For alltransactions, the general ledger codes are reviewed for reasonableness and FAASection 34 approvals including signatures are verified. Discrepancies are followed upby Accounts Payable clerk with ASPM and IBPs as required. In 2007-2008, FinanceBranch began planning the implementation of a Monitoring Unit that once fullyoperational will increase its regular sampling of expenditures.

Despite these strengths, we noted two areas where on-going monitoring could bestrengthened. Other than compliance audits currently undertaken by NRC Internal

Audit, there is no formal, independent quality assurance program of contracting

activities or data analytics to identify high risk contracts and / or improper constructioncontracting practices.

ASPM Branch Monitoring Division work is limited at this time to ensuring sole sourcejustifications are on file for contracts greater than $25,000 for which the competitiveprocess was set aside. Our findings reveal that monitoring activities should beextended to include more rigorous verification of sole source awards, securityscreening requirements, contract award and construction commencement dates andamendments. Also of use would be to undertake data analytics for monitoring contractpatterns and trends to aid in identifying high risk contracts and / or impropercontracting practices such as potential contract splitting, inappropriate amendments or

other irregularities. For example, during the course of our review, we undertook auditdata mining techniques of non-purchase order transactions to identify potentialconstruction contracts. We found that despite NRC directives that all contracts mustbe initiated with a purchase order, we noted that a significant number of leaseholdimprovements were being undertaken that did not have the benefit of ASPM Branchsinput or controls - two leases valued at $968,000 in 2006-07 and 2007-08. Due to thefact they did not use purchase order requisitions as required by NRC directives, theyhave not be disclosed under the Treasury Board Policy on Proactive Disclosure onContracts Over $10,000.

Recommendation 4:

Administrative Services and Property Management Branch should undertake morerigorous monitoring activities to include a comprehensive quality assurance review ofindividual construction procurement files on a sampling basis and adopt data analyticsto monitor contracting patterns and trends that indicate procurement activities that


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may not be in accordance with the Government of Canada and NRC policies anddirectives. Data analytics should include, but not limited to, contract amendments,contract splitting and non-purchase order transactions as well as leasehold

improvements.


Agreed. We will respond to these recommendations with an appropriate level ofmonitoring based on a determination of the best approach, and with consideration tothe risk and available resources. The objective is to download the following activitiesto facilitate the implementation of audit recommendations:

Determine the approach needed; Prepare policy documents; Update the Material Management Policy Manual; Implement a quality assurance process; Monitor contracting activities; Coordinate and respond to all audit enquiries and reports; and Coordinate all Material Management reporting, such as the quarterly Contract

Disclosure Reports, and the Annual Procurement Activity Report.

3.2 Objective Two: To assess the degree to which therecommendations and management action plans identifiedin the 2002 Internal Audit report Audit of ConstructionContracting have been implemented.

Overall Conclusion

We found that of the eight recommendations made in the 2002 Internal Audit reportAudit of Construction Contracting, seven recommendations have been fully

addressed; the remaining recommendation is in the process of being implemented.

Findings

In 2002 an audit was undertaken to examine selected financial and managerialelements of construction contracts undertaken between 1999 and 2001. The audit


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included the examination of 32 construction contracts over $5,000 to determine theextent to which NRC construction projects complied with government contractingpolicies and key requirements. Overall, the audit observed that construction

contracting processes at NRC were well managed, controlled and documented.However eight recommendations were noted including those to strengthen financialmanagement controls. Given the amount of time that has elapsed since the lastaudit8; we expected to find that all eight recommendations would have beenimplemented.

Due to the amount of time that has passed, management assertion in part, had to berelied upon to confirm implementation. Further details of actions and measuresundertaken are presented in Appendix B. Based on our discussions withmanagement and examination of supporting documents, we noted thatrecommendations pertaining to the five recommendations listed below were

immediately addressed and implemented in 2003:

Exceeded Treasury Board contract authorities [recommendations 2.2.9 and2.2.10];

Problems regarding internal delegated authorities and amendments includingtheir ratification [recommendation 2.3.3];

Account verification procedures and controls [recommendation 2.4.17];

NRC seek confirmation from the Treasury Board Secretariat where FinanceBranchs interpretation of FAA Section 34 requirements differs from acceptedfederal government practices in order to ensure its interpretation complies withgovernment policy and requirements [recommendation 2.5.8] and

ASPM Branch and Finance Branch requirements assessments[recommendation 2.6.8].

The audits recommendation that Finance Branch document its interpretation of FAASection 34 responsibilities [recommendation 2.5.7] was addressed in 2007 and thefirst half of 2008.

With regard to the recommendation that Finance Branch expand its verificationprocedures performed under its delegated payment authority (FAA Section 33) suchas to provide greater assurance of the effectiveness of Section 34 account verification

8Beginning with the NRC 2006-07 to 2008-09 Risk-Based Internal Audit Plan, NRC has made a

commitment to follow-up formally on all audit reports approximately two years following their completiondepending upon the level of risk presented.


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controls and procedures [recommendation 2.4.18], much effort has been undertakenrecently to install a Monitoring Unit within the Branch. Once the unit is fully staffed andoperational (expected by March 2009), current sampling procedures vis--vis

associated risks will be revisited.

4.0 Conclusion

Within the limitations of the samples and the audit procedures performed, weconclude that overall the application of Government of Canada and NRC constructioncontracting policies and directives is adequate in that most areas of thepractices / processes in relation to constructioncontracting are in compliance but

there are some opportunities for improvement

9

. These areas for improvement include:sufficient documentation supporting non-competitive contract awards, timing of budgetcommitments and work commencement, management of contract amendments andsecurity screenings of contractors who have access to protected information andassets.

While we observed full compliance in many important areas, we found: severalinstances of construction work was performed prior to contract award; severalinstances where distinct services were repeatedly amended to existing contractsrather than issuing new contracts; one instance where Treasury Board approval wasnot obtained for a contract with cumulative amendments above the required Treasury

Board threshold; a complete absence of security screenings for construction workerswho would have had access to protected assets and information prior to NRCs newsecurity directive put in place January 24, 2008 and several instances thereafter.Problems noted in last years audit of contracts less than $25,000 regarding FAASection 32 and 34 approvals in accordance with NRC Financial Signing Authoritiesand in the earlier 2002 Audit of Construction Contracting are being addressed.

Within the limitations of the audit procedures performed, we found that theprocurement management control framework for construction contracts is adequatebut some areas could be strengthened. NRC has established a procurementmanagement control framework, including procurement processes and policies to

mitigate procurement risks and to help ensure compliance with Government directivesand policies. Construction contracts are essentially subject to the same managementcontrol framework as non-construction contracts; however, there are specific



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directives and policies that are related only to construction. Five key components ofthe procurement management control framework that were examined included thecontrol environment, control activities, risk assessment, information and

communication and on-going monitoring. Some areas for improvements wereobserved. There is no single repository of guidance that consolidates all of theprocurement policies and procedures to assist management and ProcurementOfficers in contracting. Various manuals on the procurement process are availableeither in hard or electronic formats. Some IBPs informed us that they were not awareof the existence of some manuals. Clarification of the procurement process providedby Administrative Services and Property Management Branch is currently donethrough emails and training. Other than NRC Internal Audit compliance auditscurrently undertaken, there is no formal Quality Assurance Program performed by anindependent unit of contracting activities or data analytics to identify high riskcontracts and / or improper construction contracting practices.

Finally, we found that NRC management has fully implemented seven of the eightrecommendations made in of the 2002 Audit of Construction Contracting. Therecommendation pertaining to the expansion of verification of delegated authorities(FAA Section 33) is in progress and management reports it is on track to be fullyoperational by March 2009.

Recommendations

1. Except where patent or copyright requirements or where technical compatibility

issues can be clearly documented and there is no doubt there is only one supplier,Procurement Officers should advertise proposed sole source contract awardsgreater than $25,000 through an Advanced Contract Award Notice (ACAN).

2. Administrative Services and Property Management Branch should seekclarification from Treasury Board regarding what approvals are required when thecumulative value of amendments exceed $200,000 for construction contractsusing electronic bidding that have an original value less than $2 million.

3. Administrative Services and Property Management Branch should consolidate allprocurement policies and procedures into a single source document which would

be available on its Material Management web-site. In the interim, referencemanuals that are currently available only in hard copies should be made availableelectronically and posted on the ASPM Material Management web-site.Consideration should be given to enhancing the guide where non-compliance wasfound to be an issue, specifically with respect to sufficient documentationsupporting non-competitive contract awards, timing of contract commitments and


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commencement of contract work, security requirements and contractamendments.

4. Administrative Services and Property Management Branch should undertake morerigorous monitoring activities to include a comprehensive quality assurance reviewof individual construction procurement files on a sampling basis and adopt dataanalytics to monitor contracting patterns and trends that indicate procurementactivities that may not be in accordance with the Government of Canada and NRCpolicies and directives. Data analytics should include, but not limited to, contractamendments, contract splitting and non-purchase order transactions as well asleasehold improvements.

The detailed management action plans that address these recommendations can befound in Appendix D.


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Appendix A: Audit Criteria and Detailed Fin

No. Audit Criterion

Audi t Objective 1: To provide assurance that NRC complies with the Government of Canada and NRCconstruction contracting policies and directives.

1.Requirements are defined prior to the bidding process on the MERX electronic bidding system or a limitedtendering process.

2. Justifications of non competitive contract awards are appropriately documented and substantiated.

3.The ACAN defines the requirements or expected results of the contract; identifies the proposed contractor;provides the reason the contract should be issued; and includes an estimate of the cost of the proposedcontract (if possible).

4.Call-ups against standing offers are within specified limits.

5. Standard Federal Government Construction Contracts are used for all construction contracts greater than$100,000.

1During the course of the audit 40 construction contracts were reviewed of which: 26 were awarded following the MERlimited tendering process; two were awarded following an Advanced Contract Award Notification (ACAN) by NRC; fiveor PWGSC Standing Offer Arrangements; and seven were sole sourced.


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No. Audit Criterion

6. Public bid notices were issued for construction contracts bids over $60,000.

7.There is no evidence of contract splitting, i.e., contracts are awarded under the thresholds with amendmentsto increase the contracts over $25,000 orAIT, NAFTA and WTA thresholds.

8. Documented evidence is on file that NRC Security verified the security clearance of contractor(s).

9. The contract is signed in accordance with NRC Financial Signing Authoritiesfor Contracting.

10. Construction work commences only after the contract or the purchase order has been signed.

11. FAASection 32 certification is made by the responsibility centre manager with budget responsibilities.


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No. Audit Criterion

12. FAASection 32 certification in accordance with NRCs Financial Signing Authoritiesfor ExpenditureInitiation at the time of the audit.

13.Amendments are justified and in the best interest of the government and are for an actual change in thescope of work.

14.Contract amendments are within the levels identified in Appendix C of the Treasury Board ContractingPolicy.

15. The contract amendment is ratified by the contractor.

16 There is evidence of appropriate monitoring and evaluation of contract performance.

17.Documentation is in the file (e.g., progress report update and statutory declaration) to support thatconstruction services were provided in accordance with the contract terms.

2Only 20 contracts of 24 required rectification by the contractor because amendments to standing offer call-ups do ntheir signature.

3At the time of the audit, no invoices had yet been received for one contract.


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No. Audit Criterion

18. FAASection 34 certification by the responsibility centre manager with budget responsibilities.

19.FAA Section 34 certification is in accordance with NRCs Financial Signing Authoritiesfor PerformanceCertification at the time of the audit.

20.The Project Completion Certificate and Contract Payment Certificate are signed by ASPM Branch prior to

releasing the holdbacks.


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Appendix B: 2002 Audit RecommendationsFollow-up Audit Findings

2002 Audit Recommendations Status ofRecommendations

2008 Follow

Audi t Objective 2: To assess the degree to which the recommendations and management action plans identConstruction Contracting have been implemented.

2.2.9We recommend that the NRC contracting authority theAdministrative Services and Property Management Branch(ASPM) seek ratification from Treasury Board of the abovenoted contracts and contract amendments.

(Note: This recommendation was made with respect to fourcontracts that were found to have exceeded NRCs delegatedauthority).

Yes

Implemented 2003

Following verification wthe four contracts identformal submission.

Treasury Board approv

been received on May

2.2.10We recommend also that the ASPM Branch review itscontracting processes and controls in order to minimize possibleoversights with respect to awarding contracts without the requiredTBS approvals.

Yes

Implemented 2003

Management informed senior Procurement Offexplained and discusseprovided as to when the

2.3.3We recommend that ASPM reviews its current contractingprocedures and practices with respect to the issues noted.

(Note: This recommendation was made with respect tocontractors ratifying amendments, internal delegated authoritiesbeing exceeded and appropriate documentation to supportamendments).

Yes

Implemented 2003

According to managemundertaken:

Training sessions

senior Procuremecontracting proces

Senior Contractinginvoices to ensurepayments and con

An Invoice Paymecontinues to be us


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2008 Follow

Exact dates were not pactions were put in plac

2.4.17We recommend that the Finance Branch, in collaborationwith ASPM Branch, performs a detailed assessment of the currentsystem of account verification procedures and controls. The goalof this assessment would be to help determine where and howexisting procedures and controls should be strengthened.

Yes

Implemented 2003

ASPM

Based upon their assesProcurement Group to duties; it now reports tothat were hired as evideorganizational chart. AsProcurement Process, clerks perform accountincluding: matching andpurchase order or contrprices, quantities and s

verifying all terms and cbeen met; applying appholdbacks; confirming tpaid; and ensuring the appropriate FAASectio

Using a risk-based appinvoices sent by the ASpart of the payment proidentified for further revprocedures. There are which flag requests for further review.

2.4.18We recommend that the Finance Branch expand itsverification procedures performed under its delegated paymentauthority (FAA section 33), such as to provide greater assuranceof the effectiveness of section 34 account verification controls andprocedures.

In-Progress

Full Implementationexpected by March2009

According to managemimplemented in 2002-2construction contracts i32 and 34 at nine institdiscontinued in 2003-20Monitoring Division begwhich will be responsib


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2008 Follow

2.5.8Where Finance Branchs interpretation of section 34

requirements differs from accepted federal government practices;it should seek confirmation from the Treasury Board Secretariat(TBS) that its interpretation complies with government policy andrequirements.

Yes

December 2008

NRC Finance Branch o

Financial Authorities anOffice of the ComptrolleSecretariat through discDecember 2008.

2.6.8We recommend that ASPM and Finance branches performa thorough assessment of policy and procedures requirementswithin their respective areas of responsibility.

Continuousbeginning 2002

Work commenced in 20procedures, e.g., documand Services (addressreceipt and payment ofa flow chart of the procefor Invited Tenders weBoth ASPM Branch andcommitments to continu

reference documents arespective policies are

For example, Desktop finance function have bavailable through the OBranch, as part of its bureview all of its policiesthree years (33% per ycontentious in the first ydocument and communfinancial management a


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Appendix C: Overall PotentialRatings

Management Attention Required significant issues exist that require managementsattention.

Needs Improvement some areas of practices / processes are in compliance withGovernment of Canada and NRC policies and directives pertaining to constructioncontracts but many deficiencies exist.

Adequate most of the areas of pract ices / processes are in compliance wi thGovernment of Canada and NRC policies and directives pertaining toconstruction contractsbut there are opportunities for improvement.

Strong all areas of practices / processes are in compliance with Government ofCanada and NRC policies and directives pertaining to construction contracts. Noareas for improvement were identified.


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Appendix D: Management Action Plan

Audi t Recommendat ions Corrective Management Action Plan Expected Im

1. Except where patent or copyrightrequirements or where technicalcompatibility issues can be clearlydocumented and there is no doubtthere is only one supplier,Procurement Officers should advertiseproposed sole source contract awardsgreater than $25,000 through an

Advanced Contract Award Notice

(ACAN).

Agreed. Construction contracts are rarely solesource as a result of patent or copyrightrequirements. Regardless, if a sole sourcecannot be clearly documented or where thereis doubt that there is only one supplier, aProcurement Officer will post an ACAN.Where there is no doubt, that only onesupplier exists, the rationale will be fullydocumented and include supporting

documentation. If it cannot be fullydocumented, an ACAN will be posted.

December 2

2. Administrative Services and PropertyManagement Branch should seekclarification from Treasury Boardregarding what approvals are requiredwhen the cumulative value ofamendments exceed $200,000 forconstruction contracts using electronicbidding that have an original value lessthan $2 million.

Agreed. We will obtain clarification from theTreasury Board Secretariat. January 200

3. Administrative Services and PropertyManagement Branch shouldconsolidate all procurement policiesand procedures into a single sourcedocument which would be available onits Material Management web-site. Inthe interim, reference manuals that are

Agreed. Our Material Managementdocumentation needs to be updated andmaintained in a central repository. TheMaterial Management Policy Manual currentlyexists in hard copy, not in electronic format. Inorder to implement these recommendations,we will assign resources as required in order

Contingent oof our staffinour Businescommence in April 2009on-board by2009.


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Audi t Recommendat ions Corrective Management Action Plan Expected Im

reporting, such as the quarterly ContractDisclosure Reports, and the AnnualProcurement Activity Report.


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Appendix E: Glossary

List of Abbreviations

ACAN Advance Contract Award Notice

AIT Agreement on Internal trade

ASPMAdministrative Services and Property Management (Branch)

CA Chartered AccountantCIA Certified Internal Auditor

CMA Certified Management Accountant

IBP Institute, Branch or Program

FAA Financial Administration Act

MERX MERX is an Internet-based electronic tendering system that advertises

government contracting opportunities to potential bidders across Canada.

NCR National Capital Region

NRC National Research Council Canada

NAFTA North American Free Trade Agreement

PWGSC Public Works and Government Services Canada

RMMO Regional Material Management Offices

SRCL Security Requirement Check List

WTA World Trade Agreemen


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