2008-724 Audit of Services Received by the Crown from IT Firms Charged by the Competition Bureau for Bid Solicitation Impropriety
- Phase II - Contracting Arrangements with PWGSC
- Phase III - Additional Action by PWGSC (Final Report)

November 18, 2010

Table of Contents

• Main Points
• Introduction
• Focus of the Audit
• Statement of Assurance
• Observations - Phase II - Contracting Arrangements with Public Works and Government Services Canada (PWGSC)
  • Crown Received the Services Information Technology (IT) Requested
    • Statements of work were clearly defined and deliverables appear to have been received
    • Project authority was satisfied that services received were in accordance with services requested
  • No Funds Owing to the Crown Related to Invocing Errors
    • The Crown was charged the established rate for specified resources
    • Ability to assess whether financial consideration paid was commensurate with services received was limited
• Observations - Phase III - Additional Actions by Public Works and Government Services Canada
• Conclusions
• Management Response
• Recommendations and Management Action Plan
• About the Audit

Main Points

What we examined

1. Public Works and Government Services Canada's (PWGSC) Acquisitions Branch (AB) provides federal government departments and agencies with a centre of supply expertise and procurement tools to meet their contracting needs. As the contracting authority, the Acquisitions Branch is responsible for ensuring that Government contracting is conducted in a manner that will stand the test of public scrutiny in matters of prudence and probity, facilitating access, encouraging competition, and reflecting fairness in the spending of public funds.

2. In 2005, the Acquisitions Branch was engaged by the Canada Border Services Agency (CBSA) to solicit proposals for eight streams of informatics professional services and to award task authorization contracts. During the evaluation of the proposals, the Acquisitions Branch became concerned over the similarity of the bids submitted by some firms and contacted the Competition Bureau. Based on this information, the Bureau initiated an investigation into potential bid solicitation impropriety - 'bid-rigging'. In the absence of adequate substantiation of wrongdoing at that time, 24 Task authorization contracts were awarded (3 firms for each of the eight streams).

3. In December 2008, the Competition Bureau informed PWGSC that criminal charges would be laid against several informatics professional services firms and several individuals (firms under investigation). These charges related to a CBSA bid solicitation, as well as two other solicitations, one related to PWGSC and the other to Transport Canada. In response, the Deputy Minister of PWGSC directed that an independent internal audit be undertaken, related to the CBSA contracts, to determine if services requested were received and if any monies were owed to the Crown. While the bid solicitation on behalf of CBSA resulted in the award of contracts, the two additional bid solicitations did not result in the award of any contracts. The results of this internal audit are captured in a report entitled "Audit of Services Received by the Crown from Information Technology Firms Charged by the Competition Bureau for Bid Solicitation Impropriety - Phase I". While this audit was being conducted, CBSA internal auditors conducted their own internal audit of CBSA contract administration practices at the request of their President. CBSA internal auditors have reported the results of their audit to the President of CBSA. The Deputy Minister of PWGSC also directed that an independent internal audit be undertaken to examine a sample of contracts that had been awarded by PWGSC on behalf of PWGSC to the firms under investigation unrelated to the bid-rigging charges. This second internal audit, which is the subject of this report, has the same objectives as the first.

4. In February 2009, the Competition Bureau laid criminal charges for bid-rigging against fourteen individuals and seven firms in three separate proposal processes in respect of CBSA, Transport Canada and PWGSC. Two additional firms were implicated but not charged.

5. In 2005, Acquisitions Branch took a number of actions to mitigate risks related to bid-rigging. Further, once informed of the criminal charges to be laid by the Competition Bureau, PWGSC took a number of additional actions to mitigate risks related to managing contracts with the firms under investigation. These actions were not examined as part of this audit.

Why it is important

6. Bid-rigging (also known as collusive tendering) occurs when firms that would otherwise be expected to compete independently, secretly conspire to raise prices or lower the quality of goods or services for purchasers who wish to acquire products or services through a bidding process. Bid-rigging schemes often include an agreement between the firms to apportion and distribute the additional profits and people (bait and switch).

7. Bid-rigging can be particularly harmful in public procurement as it can take resources from purchasers and taxpayers, diminishes public confidence in the competitive process, and undermines the benefits of a competitive marketplace. Bid-rigging is a criminal offence under Canada's Competition Act and penalties can arise upon conviction under the Act.

8. As of December 2008, there were approximately 100 active contracts, for which PWGSC was the contracting authority, involving the firms under investigation. The firms generally provided informatics professional services to the federal government through a variety of contracting arrangements that PWGSC had put in place such as fixed price and task authorization contracts, standing offers, supply arrangements, and other pre-competed procurement instruments. The total value of these contracts was in excess of $300 million and were awarded by PWGSC on behalf of 14 federal departments and agencies.

What we found

9. The audit was divided into three phases, with a report issued at the end of Phase I, and a second report for Phases II and III. The findings of Phase II and III are the subject of this report. As no contracts resulted from the Transport Canada and PWGSC solicitations, Phase I of the audit did not examine these activities.

10. For the contracts examined in Phase II, PWGSC was both the technical/project authority and the contracting authority. Although none of these contracts resulted from bids investigated by the Competition Bureau, PWGSC chose to examine these because they were awarded to the firms under investigation. We selected 25 contractual arrangements, out of a total population of 114, awarded to the firms under investigation during the period from April 1, 2004 to September 30, 2008.

11. For Phase II, the audit results provide assurance that for the sample of contract arrangements examined, the Crown received the services it requested. Based on an examination of the invoices relating to the sample of contracting arrangements, the audit did not find any invoicing errors that resulted in funds owed to the Crown related to these invoices. The audit results provide only limited assurance that the financial consideration paid was commensurate with services received due to the number of factors that can affect the variability of per diem rates.

12. In Phase III, we considered other actions such as: providing information to Internal Audit groups in 25 other federal departments that had active or closed contracts with the firms under investigation; undertaking of a contract cost audit^{Footnote 1}; and further sampling and examining of contracts with the firms for the period prior to April 2004. This phase and further actions were dependent on the results of the first two phases. For Phase III, we provided Chief Audit Executives of other federal departments with listings of all contracts awarded by PWGSC on their behalf of the firms under investigation. We concluded that Acquisition Branch should consider conducting cost audits, however, their timing should be informed by the legal proceedings. Also, given that it appears for the sample examined, the Crown received the services it requested as determined by Phase I and Phase II, we determined there was limited value in extending the audit to the period prior to April 1, 2004.

Management Response

The Acquisitions Branch agrees with the recommendation and conclusions of the report and has acted on the recommendations by implementing their Management Action Plan detailed as follows.

Recommendations and management action plan

Recommendation 1: The Assistant Deputy Minister, Acquisitions Branch should enhance the monitoring of bid submissions and contract delivery of the firms under investigation until court case is resolved, including (i) increased scrutiny of all bid submissions, (ii) close monitoring of contract delivery in accordance with the terms and conditions of the contract, (iii) initiation of cost audits, as and when appropriate, and (iv) timely action, as appropriate for all violations of the terms and conditions of the contract.

Acquisitions Branch is addressing the risk of bid-rigging by putting in place increased scrutiny of implicated firms

A series of measures were undertaken by Services and Technology Acquisition Management Sector (STAMS) of Acquisitions Branch to ensure strict adherence to contract terms by firms, these include:

Introduction

1. Public Works and Government Services Canada's (PWGSC) Acquisitions Branch provides federal government departments and agencies with a centre of supply expertise and procurement tools to meet their contracting needs. As contracting authority, the Acquisitions Branch is responsible for ensuring that federal government contracting is conducted in a manner that will stand the test of public scrutiny in matters of prudence and probity, facilitating access, encouraging competition, and reflecting fairness in the spending of public funds.

2. In 2005, the Acquisitions Branch was engaged by the Canada Border Services Agency (CBSA) to contract for a series of task authorization contracts for information technology (IT) professional services on an "as and when requested basis". Requests for Proposals for eight different types of services (streams) were posted competitively. Compliant bidders were to be ranked and the best proposals from three firms for each stream were to be awarded task authorization contracts.

3. In September 2005, during the evaluation process, a Procurement Manager within the Acquisitions Branch of PWGSC became suspicious of the similarity in the bids and contacted the Competition Bureau. Based on this information, the Competition Bureau initiated an investigation into potential bid-rigging.

4. Bid-rigging (also known as collusive tendering) occurs when firms that would otherwise be expected to compete independently and honestly, secretly conspire to raise prices or lower the quality of goods or services for purchasers who wish to acquire products or services through a bidding process. Bid-rigging is criminal offence under Canada's Competition Act and penalties can arise upon conviction under the Act.

5. Types of bid-rigging schemes include:

   1. Cover bidding - occurs when firms agree to submit bids that are higher than the bid of the designated winner; too high to be accepted; or include terms that are known to be unacceptable. Cover bidding is designed to give the appearance of genuine competition.
   2. Bid suppression - involves agreements to refrain from bidding or to withdraw a previously submitted bid.
   3. Bid rotation - occurs when firms agree to take turns being the winning firm.
   4. Market allocation - involves agreements not to compete for certain customers or in certain geographical areas.
   5. Sub-contracting - occurs when firms agree not to bid or submit a losing bid in exchange for subcontracts with the winning firm.

6. Warning signs that bids may be rigged include: the bidders present identical irregularities in bids, such as spelling mistakes or miscalculations; the same supplier is frequently supplying the lowest bid; the winning bidder subcontracting work to unsuccessful bidders; a large difference between the price of the winning bid and other bids; and bidders demonstrating knowledge of a competitor's confidential bid.^{Footnote 2}

7. In the absence of adequate substantiation of wrongdoing at that time following the Competition Bureau's investigation, the Acquisitions Branch awarded 24 task authorization contracts (three firms for each of the eight streams). The Acquisitions Branch regularly communicated with the Competition Bureau and apprised regularly of the activities of the task authorization contracts. As of March 31, 2009, these task authorization contracts were all expired.

8. We were informed that as a result, the Acquisitions Branch took proactive steps to minimize the likelihood of a recurrence of such activity by requiring firms to provide a certification they did not participate in bid-rigging activities as part of their proposals. As well, the Branch conducted training and information sessions for procurement staff to supplement the instructions on bid-rigging that were contained in the PWGSC Supply Manual.

9. In October 2008, the Competition Bureau informed PWGSC that their investigation was nearing completion and criminal charges would be laid against several informatics professional services firms and individuals (firms under investigation). The Bureau's investigation included bid-rigging related to three separate Requests for Proposal processes for CBSA, Transport Canada and PWGSC.

10. Once the charges were laid, we were informed that Acquisitions Branch took a number of additional actions related to the firms under investigation. This included providing the firms under investigation with an opportunity to provide additional information to that contained in the affidavits as well as increasing the rigour applied to assessing bid solicitation submissions and managing contracts with the firms under investigation. These additional actions were not subject to audit. Further, the Deputy Minister requested that an internal audit be undertaken.

11. As of December 2008, there were approximately 100 active contracts involving the firms under investigation for which PWGSC was the contracting authority. The firms generally provided informatics professional services to the federal government through a variety of contracting arrangements that PWGSC had put in place such as fixed price and task authorization contracts, standing offers, supply arrangements and other pre-competed procurement instruments. These active contracts were awarded by PWGSC on behalf of 14 federal departments and agencies and the total value was in excess of $300 million.

12. On February 17, 2009, the Competition Bureau laid criminal charges for the bid-rigging of Government of Canada contracts against fourteen individuals and seven firms. Two additional firms were implicated in the bid-rigging but were not charged. Briefly, the three solicitation processes were:

    • CBSA: Eight bid solicitations under investigation relate to the above-mentioned task authorization contracts. The bidding processes for the CBSA contracts were managed by PWGSC. Of the 24 task authorization contracts, 18 were with the firms under investigation. These firms offered services through these task authorization contracts for seven of the eight streams. The contracts from these investigations are worth approximately $62 million.
    • Transport Canada: The Bureau investigated one Request for Proposal with Transport Canada, for which PWGSC was not involved as it was managed within the delegated contracting authority of Transport Canada. This solicitation was cancelled and did not result in a contract.
    • PWGSC: The Bureau also investigated one Request for Proposal in which PWGSC was both the contracting and technical authority. This specific solicitation was cancelled and did not result in a contract.

Focus of the Audit

13. The objectives of this audit were to determine if services requested by the Crown under the IT professional service contracts awarded by PWGSC to firms under investigation were received and to determine whether there are funds owing to the Crown. These objectives applied to all phases of the audit.

14. For Phase II, for a sample of contracting arrangements we compared the services received with the services requested, as defined by the specific work requirements identified in the contracting arrangements. We also verified whether the project authority was satisfied with the services received and demonstrated by certification of invoices under section 34 of the Finance Administration Act. These procedures support conclusions on whether or not the Crown received the services it requested. Funds owing to the Crown were examined by comparing actual billings to the terms and conditions of the contract and assessing whether or not financial consideration paid for the services received was commensurate with the services rendered. These procedures support conclusions on whether invoicing errors had resulted in any amounts owing.

15. This audit did not assess value for money. Therefore, no conclusion can be drawn from the audit that the services received represented best quality and best price based on the results of this audit.

16. The audit was divided into three phases. Phase I of the audit focused on the 18 task authorization contracts issued on behalf of CBSA and awarded to the firms under investigation. We examined a sample of 50 task authorizations out of a total population of 164 for the firms under investigation. The data for the task authorization contracts was provided by CBSA and validated through PWGSC Acquisition Information Service database for the period of April 01, 2004 to September 30, 2008.

17. Phase II of the audit focused on a sample of contracts for which PWGSC was both the technical and contracting authority with the nine firms under investigation. We selected a sample of 25 contracting arrangements out of a population of 114 IT services contracting arrangements during the period of April 1, 2004 to September 30, 2008. The objectives for Phase II were the same as Phase I, however, the procedures were different because Phase I only examined task authorizations contracts while Phase II examined several different types of contracting arrangements, including fixed price and task authorization contracts, standing offers, supply arrangements and other pre-competed procurement instruments.

18. Phase III of the audit considered other actions, such as: providing information to Internal Audit groups in 25 other federal departments and agencies regarding active and closed contracts with the firms, in the last five years; undertaking of contract cost audits^{Footnote 3}; and further sampling and examining contracts with the firms for the periods prior to April 2004.

19. The results of this audit are divided into two distinct reports. Phase I results, related to CBSA, are discussed in the first report titled: "Audit of Services Received by the Crown from Information Technology Firms Charged by the Competition Bureau for Bid Solicitation Impropriety - Phase I". The results of Phases II and III, pertaining to PWGSC, are discussed in this report.

20. More information on the audit objectives, scope, approach and criteria can be found in the section "About the Audit" at the end of the report.

Statement of Assurance

21. This audit was conducted in accordance with the Institute of Internal Auditors' International Standards for the Professional Practice of Internal Auditing.

22. Sufficient and appropriate audit procedures have been conducted and evidence gathered to support the accuracy of the findings and conclusions in this report and to provide an audit level of assurance. The findings and conclusions are based on a comparison of the conditions, as they existed at the time, against pre-established audit criteria that were agreed on with management. The findings and conclusion are only applicable to the entity examined and for the scope and time period covered by the audit.

Observations - Phase II - Contracting Arrangements with Public Works and Government Services Canada

23. PWGSC utilises a variety of contracting arrangements to provide IT professional services and support to PWGSC's systems and processes.

24. For example, the Department uses fixed price service contracts to procure specific IT services. These binding agreements, between PWGSC and the contractor, define the scope of the work, the deliverables and the date of delivery.

25. The Department uses supply arrangements and standing offers to meet its recurring IT needs. Standing offers are offers, from potential suppliers, to provide services at pre-arranged prices, under set terms and conditions, when and if required. A supply arrangement is a non-binding agreement with a pre-qualified supplier to provide goods and services. No contract exists until PWGSC issues an order or "call-up" against the supply arrangement or standing offer, or a contract against the supply arrangement and there is no actual obligation, by PWGSC, to purchase until that time.

26. Lastly, PWGSC uses task authorization contracts. A task authorization contract includes a structured administrative process enabling the technical or project authority to authorize work by a contractor on an "as and when requested" basis in accordance with the terms and conditions of an existing task authorization contract through a task authorization. Task authorization contracts are used in IT service contracting situations in which a definite need for a category of service exists, but the precise nature and timing of the need cannot be established in advance.

27. Upon completion of any requested work, regardless of the contracting arrangement used to procure services, the project authority must assess whether the services received were in accordance with the services requested, as defined by the specific work requirements identified in the contracting arrangement. Prior to payment, the project authority must determine whether the charges in the invoice are in accordance with the terms and conditions of the contract and the requested work. The project authority demonstrates their satisfaction that the services received were as requested and were in accordance with the terms and conditions of the contracting arrangements by certifying their acceptance and agreement under Section 34 of the Financial Administration Act. This procedure ensures the Crown received the services it requested and is charged appropriately.

28. For phase II, we selected a sample of 25 contracting arrangements, with a total value of $7M, which were awarded by PWGSC on behalf of PWGSC to the firms under investigation. Ten of the 25 contracting arrangements had no activity and one contract did not involve a firm under investigation. In other words, in 10 cases a contract was awarded, but no call-ups made against it. As a result, these contracts were excluded from the testing procedures used to assess whether services received were as requested. We examined the remaining 14 contracting arrangements that included seven services contracts, two supply arrangements, one standing offer, and four task authorization contracts. The 14 selected contracting arrangements we examined had a total value of $5.3M.

Crown Received the Services IT Requested

29. To assess whether PWGSC received the services it requested, we examined whether proposed resources were evaluated by PWGSC to complete the task within the required timeframes. We also examined whether services received were in accordance with the services that were requested, as defined by the work requirements identified in the contracting arrangements. Finally, we examined whether the project authority was satisfied that the services received were in accordance with the terms and conditions and specific requirements identified in the contracting arrangements.

Statements of work were clearly defined and deliverables appear to have been received

30. Prior to accepting the services received, the project authority must assess whether the services were in accordance with the services requested, as defined by the statement of work identified in the service contract, task authorization, supply arrangement call-up or standing offer call-up. Further, the project authority must ensure that the identified deliverables are received in accordance with the terms and conditions of the contracting arrangement.

31. A clear statement of work and a list of specific deliverables communicate the Crown's service delivery expectations to the contractors and provide a means to assess the contractor's performance against the original requirements.

32. We expected the sampled contracting arrangements would have clear and defined statements of work and deliverables. We also expected that the project authority would have received the intended deliverables as described in the statement of work. We found that 13 out of 14 sampled contracting arrangements had clear statements of work.

33. We also found that the project authorities named in the contracting arrangements documented receipt of the deliverables when described in the statement of work in 13 of the 14 sampled contracting arrangements. For the remaining contracting arrangement, Information Technology Services Branch (ITSB) was unable to retrieve the deliverables even though deliverables were specified in the statement of work.

Project authority was satisfied that services received were in accordance with services requested

34. The project authority's satisfaction with the services received is evidenced by their signature under Section 34 of the Financial Administration Act. In signing under Section 34, the project authority is signalling their acceptance of the services and that payment can be issued for these services. More specifically, it indicates satisfaction with the work performed, as well as compliance to the terms and conditions of the contract. This helps ensure that the Crown only pays for services it is satisfied it has received.

35. We expected to see proper certification of Section 34 of the Financial Administration Act. We requested all invoices related to the audit sample of contracting arrangements with the nine firms, which represented 273 invoices.

36. We found that Section 34 was signed in 263 of the 273 requested invoices. ITSB was not able to provide the remaining 10 invoices.

37. Based on the invoices we examined, we can conclude that in almost all cases the Crown received the services requested, in that deliverables were received when identified and the project authority was satisfied with the services received.

No Funds Owing to the Crown Related to Invocing Errors

38. To assess whether there were funds owing to the Crown, we examined whether the invoice amounts were in accordance with the terms and conditions of the fixed price service contracts, supply arrangements, standing offers or task authorization contracts (i.e. rate for resource category). We also examined, in cases where task authorization contracts were used, whether the charges were in accordance with the specific work requirement identified in a task authorization (i.e. accepted resource category and level of effort). Finally, we recalculated the charges on invoices to ensure they were accurate.

The Crown was charged the established rate for specified resources

39. Rates for resource categories invoiced by the firms should be the same as established in the terms and conditions of the fixed price service contract, supply arrangement, standing offer or task authorization contract, given that these were awarded based on these rates. In cases where a fixed price was established to deliver a service, the charges should be consistent with the agreed price and be invoiced as per the terms and conditions of the contract. For task authorization contracts, the resource category identified on the invoice and the number of hours to complete the task should be consistent with those accepted in the task authorization.

40. This helps ensure that the Crown is charged for services at established rates for specified categories for the time spent completing the task. Charges that are not consistent with established rates for specified categories or for more/less time than actually spent on the task would result in overpayments or underpayments.

41. We expected that the invoices would be consistent with the established fixed prices for service contracts, with the rates negotiated during supply arrangements and standing offers or the rates, resource categories, and level of effort identified in the task authorizations.

42. We reviewed all 263 available invoices included in the 14 files in our sample drawn from the nine firms under investigation. We found that the rates specified in the invoices were identical to the established rates in the supply arrangement or standing offer. We also found that the per diem rates for the resources categories and per diem rates specified in the invoices and task authorizations were compliant with the task authorization contracts. We found that the prices charged for fixed price service contracts were identical to the established price. There were no invoice miscalculations and all hours charged on the timesheets corresponded to the hours paid on the invoices. In addition, the project authority signature under section 34 of the Financial Administration Act, demonstrates that the project authority was satisfied that the price charged was in accordance with the contract.

43. Based on the findings that charges on the sampled invoices were accurate, in accordance with the terms and conditions of the fixed price service contract, supply arrangement or standing offer and their related call-ups, as well as task authorization contracts and their related task authorizations, we can conclude there were no invoicing errors on the invoices examined that results in funds were owed to the Crown related to these invoices.

Ability to assess whether financial consideration paid was commensurate with services received was limited

44. To assess whether financial consideration paid for services received was commensurate with the services rendered, we analyzed the ranges of rates for specific resource categories among the contracts examined in Phase I and Phase II. This is important since proper funds management includes ensuring the Crown receives services at the best possible rate.

45. We expected some limited variability in the rates between firms for specific resource categories since many factors can affect the per diem rates offered to the market. Rates for resources can vary depending on the supply and demand of the market for IT professional services at a given time. Also, a firm looking to increase its market share may offer specific resources at lower rates than its competition. Some firms offer additional services to the Crown that ultimately increase the per diem price, such as internal project management services, training, pension benefits, and liability insurance.

46. We examined rates for IT professional services proposed in solicitation documents by a variety of firms and for a variety of resource categories. This included the three firms per stream who were awarded a contract, as well as those firms who provided a proposal but were not awarded a contract.

47. For the rates and categories analyzed, we found rates were not significantly disproportionate compared to rates for the same category of resources. However, comparison can be difficult because each contract, stream, and task authorization can include a category of resources that is not defined the same way for each requirement.

48. For example, we found that the proposed per diem rate for the senior web developers was $700 for six of the eight firms that submitted proposals in response to the initial request for proposal. Two of the winning firms offered a rate of $700 per day, which appears reasonable when compared to other proposed rates. However, the third firm provided a significantly lower rate at $525 per day.

49. In the second example, the proposed per diem rate for testers in the eight firms range from $247 up to $625 (average per diem rate of $408). The rates offered by the three winning firms were lower than the rates agreed by firms not under investigation for bid-rigging.

50. The variance between the lowest and highest rates was dependant on the particular resource category. Supply and demand pressures, economies of scale or additional value-added services provided by certain firms, may cause this. But, it may also stem from the fact that certain categories, if compared based on name only, cannot be compared due to disparate qualifications or inherent differences. However, the variance could also be explained by bid-rigging of requests for proposals for example, bid suppression or bid rotation^{Footnote 4}. Due to the facts above, we can only provide limited assurance that the financial consideration paid was commensurate with services received.

Observations - Phase III - Additional Actions by Public Works and Government Services Canada

51. In Phase III, we considered taking other actions such as: providing information to internal audit groups in 25 other federal departments that had active or closed contracts with the nine firms; undertaking of contract cost audits of the firms' records; and further sampling and examining of contracts with the firms for the periods prior to April 2004. This phase and further actions were dependent on the results of the first two phases.

52. We provided Chief Audit Executives in the other federal departments with lists of all active and closed contracts awarded to the nine firms by PWGSC on their behalf.

53. We concluded that Acquisition Branch should consider conducting cost audits, however, their timing should be informed by the legal proceedings.

54. Finally, given the results of the audits, we have concluded that there is limited value in extending the audit to the period prior to April 1, 2004.

Conclusions

55. In respect of our first audit objective to determine if services requested by the Crown under contracts awarded by PWGSC to firms under investigation were received, we concluded that for the files examined:

    • In Phase II for the files examined, given that statements of work were clear, the project authority appeared to have received the intended deliverables when deliverables were identified, and the project authority indicated their satisfaction with the services received, we can provide assurance that the Crown received the services it requested.

56. In respect of our second audit objective to determine whether there were invoicing errors that could have resulted in funds owing to the Crown related to the contracts awarded by PWGSC to firms under investigation, we concluded that for the invoices examined:

    • In Phase II, the prices charged were consistent with the established rates in the supply arrangement and the standing offers. The per diem rates in the task authorization contracts were consistent with the rates used in the awarded task authorizations and the invoices. The established fixed prices in service contracts were consistent with the prices charged. As a result, for the sample of invoices we reviewed there were no invoicing errors that result in funds owing to the Crown related to those invoices.
    • Because per diem rates for a particular resource category can vary for a number of reasons, we can provide only limited assurance that financial consideration paid for services received was commensurate with services rendered. However, the per diem rates were not significantly disproportionate compared to rates for the same category of resources.

57. When concerns related to potential bid-rigging were identified, PWGSC informed the Competition Bureau. Actions were also taken to mitigate risks related to bid-rigging. Once the Competition Bureau confirmed the charges against the firms under investigation, PWGSC took additional action to mitigate risk related to managing contracts with the firms under investigation. These actions were not examined as part of this audit.

58. For Phase III, we provided Chief Audit Executives at the other federal departments with listings of all contracts awarded to the nine firms by PWGSC on their behalf. We concluded that Acquisition Branch should consider conducting cost audits, however, their timing should be informed by the legal proceedings. Also, given the results of this audit, we conclude there was limited value in extending the audit to the period prior to April 1, 2004.

Management Response

The Acquisitions Branch agrees with the recommendation and conclusions of the report and has acted on the recommendations by implementing their Management Action Plan detailed as follows.

Recommendations and Management Action Plan

Recommendation 1: The Assistant Deputy Minister, Acquisitions Branch should enhance the monitoring of bid submissions and contract delivery of the implicated firms until the court case is resolved, including (i) increased scrutiny of all bid submissions, (ii) close monitoring of contract delivery in accordance with the terms and conditions of the contract, (iii) initiation of cost audits, as and when appropriate, and (iv) timely action, as appropriate for all violations of the terms and conditions of the contract.

Acquisitions Branch is addressing the risk of bid-rigging by putting in place increased scrutiny of implicated firms.

A series of measures were undertaken by Services and Technology Acquisition Management Sector (STAMS) of Acquisitions Branch to ensure strict adherence to contract terms by firms, these include:

About the Audit

Authority

This audit was requested by the Deputy Minister, in addition to the PWGSC 2008-2011 Risk-Based Multi-Year Audit and Evaluation Plan approved by the departmental Audit and Evaluation Committee.

This audit report provides reasonable assurance regarding only the areas of highest risk associated with the contracts in question which are whether the Crown received the services it requested and whether funds may be owing as a result of invoicing errors. Additional information may surface subsequent to the tabling of this report which could impact on the findings and conclusions reported herein.

Objectives

The objectives of this audit were:

• To determine if services requested by the Crown under contracts awarded by PWGSCto firms under investigation were received; and
• To determine whether there were invoicing errors that could have resulted in funds owing to the Crown related to the contracts awarded by PWGSC to firms under investigation.

For Phase II, for a sample of contracting arrangements we compared the services received with the services requested as defined by the specific work requirements and identified deliverables. We also verified whether the project authority was satisfied with the services received as demonstrated by certification of invoices under Section 34 of the Financial Administration Act. These procedures support conclusions on whether or not the Crown received the services it requested. Funds owing to the Crown was assessed by comparing actual billings to the terms and conditions of the contract and considering whether financial consideration paid for the services received was commensurate with the services rendered. These procedures support conclusions on whether invoicing errors had resulted in any amounts owing.

This audit did not assess value for money. As such, no conclusion can be drawn as to whether the services received represented best quality and best price based on the results of this audit.

Scope and Approach

The audit was conducted in accordance with the Institute of Internal Auditors' International Standards for the Professional Practice of Internal Auditing.

The fieldwork was conducted from January 2009 to January 2010. The audit was divided into three phases. As no contracts resulted from the Transport Canada and PWGSC solicitations the audit did not further examine these activities. In Phase I, we examined the CBSA task authorization contracts and related task authorizations. In Phase II, we examined those contractual arrangements for which PWGSC was both the technical authority and contracting authority and awarded to the firms under PWGSC administrative review. In Phase III, we considered further actions depending on the results of the first two phases.

In Phase I, although the CBSA solicitation had eight streams and three firms awarded under each stream, we focused on the 18 task authorization contracts that were awarded to the firms under investigation. These contracts were managed by CBSA, as the project authority, and procured through the Acquisitions Branch, as the contracting authority. The population and information on the 164 task authorizations for the seven implicated streams was provided by CBSA and confirmed with the contract data in the Acquisitions Branch's procurement files. The approach for selecting the sample of 50 task authorizations was based on the cumulative contract knowledge and experience of the audit team and a variety of criteria. Criteria included task authorizations that were valued slightly under the CBSA's authority threshold and a percentage of all the task authorizations for each contract. A joint audit team comprised of PWGSC and CBSA auditors undertook the examination. The joint team examined the contract and project files for the sample of 50 task authorizations. PWGSC auditors conducted document reviews and an analysis of potential administrative concerns. Interviews and meetings were conducted with the managers of the Acquisitions Branch, PWGSC. Interviews were to be conducted by CBSA auditors with the Contract's project authority.

In Phase II, we examined services contracting arrangements with the firms under investigation for which PWGSC was both the contracting and technical authority. A population of 114 active and closed contracting arrangements with these firms were extracted from the Acquisition Information Service database from the period of April 01, 2004 to September 30, 2008. The audit examined all types of contracting arrangements with the implicated firms including, service contracts, supply arrangements and standing offers, and their related call-ups, and task authorization contracts and their related task authorizations. We selected a sample of 25 contractual arrangements with the firms under investigation and examined the 14 arrangements under which services had been obtained.

The objectives for Phase II were the same as Phase I, however, the procedures were different in that Phase I only examined task authorizations contracts while Phase II examined several different types of contracting arrangements, including fixed price and task authorization contracts, standing offers, supply arrangements and other pre-competed procurement instruments.

Phase III of this audit considered other actions, such as: providing information to Internal Audit groups in 25 other federal departments and agencies regarding active and closed contracts with the firms, in the last five years; undertaking of contract cost audits; and further sampling and examining contracts with the firms for the periods prior to April 2004.

This audit was coordinated with the Audit of Information Technology Services Branch Task Authorization Contracts. Information was shared on four task authorization contracts managed by Information Technology Services Branch and awarded to three implicated firms.

Relevant processes and documentation were reviewed. Based on an analysis of the information and evidence collected, the audit team prepared findings and conclusions, which were validated with the responsible managers. The two Draft Final Reports (covering Phase I, and Phases II and III) will be tabled with the PWGSC Audit and Evaluation Committee and recommended for the approval of the Deputy Minister.

Criteria

The criteria used to assess the contracting arrangements with firms under investigation were based primarily on the Treasury Board Contracting Policy and the Acquisition Branch's Policy Notification 75 for task authorizations.

The criteria were as follows:

• The Crown received the services that it requested.
• Charges for services rendered were in accordance with the terms and conditions of the contract and the specific work requirements identified in the contracting arrangement.
• Financial consideration paid for services received was commensurate with the services rendered.

It was anticipated that the following criteria would be applied to the cost audit, if required. We expected that:

• The firms' time recording systems and billing records support the invoices submitted to the Crown for services rendered.

Audit Work Completed

Audit fieldwork for this audit was substantially completed on January 31, 2010.

Audit Team

The audit was conducted by members of the Office of Audit and Evaluation, under the overall direction of the Deputy Chief Oversight Officer. The audit was reviewed by the quality assessment function of the Office of Audit and Evaluation.