Review of the Access.ca
Pilot Project – Phase II
April 9, 2001
Summary
Background
The audit of the Access.ca Pilot Project was undertaken as follow up to the Industry Canada Audit and Evaluation Branch (AEB) September 2000 audit report of Selected Programs in the Information Highway Applications Branch (IHAB). The Access.ca pilot project is under the management and control of the IHAB of Industry Canada. On behalf of the AEB, Kroll Lindquist Avey (KLA) was engaged to undertake an audit of the second phase (the demonstration stage) of the Access.ca project.
The objectives of the audit of the pilot project were to determine:
- whether government contracting, transfer payment and other financial management policies have been complied with;
- whether proper financial controls exist for the management of the project; and
- whether management has reasonable assurance that the program is well managed and is being implemented in a timely manner.
Key Findings
Many of the findings of the current audit are similar in nature to the findings of the September 2000 AEB audit, but appear to be more significant. In addition, even though IHAB management has recently undertaken procurement training, we noted an irregularity in the contracting procedures, by a certain IHAB member, contrary to the contracting policy and regulations. Information regarding this irregularity was provided to us by the Audit and Evaluation Branch. A summary of our findings is outlined below.
Procurement Process Issues
a) "Sole Source" Contracting
IHAB was advised, through its original provincial contracting agent (CA), as well as through representatives of other Federal Government departments, that there were concerns about the process and procedures by which IHAB was procuring its suppliers. Notwithstanding that this was the case, IHAB, in conjunction with another Provincial Agency partner, utilized a new provincial CA to facilitate the procurement of third party suppliers on a "sole source" basis without using a competitive process. This allowed IHAB to proceed quickly, without using federal contracting processes.
b) Back Dating of Agreements
As noted above, IHAB and a Provincial Agency partner utilized a new provincial CA to facilitate its "sole source" procurement after the original provincial CA backed away from the arrangement on March 10, 2000. The agreement between Industry Canada and the new provincial CA was entered into in late March or early April 2000, but was "back dated" to January 27, 2000 by all parties to the agreement. We were advised by IHAB that this was done to reflect the effective start date of work under the contract.
c) No Legal Review of Agreements by IC Legal Counsel
Funding agreements and intellectual property agreements were entered into by Industry Canada through IHAB without review by Industry Canada legal counsel. In addition, certain clauses which appear to potentially put Industry Canada at risk, were added to, or eliminated from, the funding agreements by IHAB management.
d) Fees – New Provincial CA
For the fiscal year ending March 31, 2000, Industry Canada paid a fee of at least $50,000 to the new provincial CA for the facilitation of selecting suppliers on a non-competitive basis, and to flow Industry Canada funds to third party suppliers selected by IHAB.
e) Item Subsequent to Procurement Training
IHAB management undertook procurement training subsequent to the September 2000 AEB audit of IHAB. Nevertheless, in the late fall of 2000, contrary to contracting policy and practices, the Director Access.ca requested that an IHAB employee add a name to a consulting firm draft proposal.
Payment Under the Phase II Agreement
Agreements in place for the development of the Access.ca application, set out a total of $2,447,960 to be paid to two companies related to deliverables established by the agreements. In March 2000, IHAB received invoices from the two third party suppliers totaling $1,950,680 for deliverables, apparently provided prior to March 31, 2000. The invoices included as support for a portion of a $2,635,000 invoice received from the new provincial CA were approved and set up as a PAYE for the Fiscal year 1999/2000. Given the timing of this review and the technical/theoretical nature of the deliverables invoiced, we are unable to comment on whether the deliverables invoiced by the two companies were sufficient to meet the requirements of the agreements.
We did note that the majority of IHAB members, responsible for approving invoices from the two companies stated that goods/services had been received, however one IHAB member thought deliverables to be insufficient. This individual agreed to approve the invoice for payment only after being asked to be a "team player" by the Director. We have been advised by IHAB Access.ca management that this was taken out of context by the individual and that the Access.ca Director had intended this as a team building exercise.
In addition, we are unable to determine whether goods and/or services relating to the remaining $684,320 ($2,635,000 – $1,950,680) portion of the March 31, 2000 invoice from the new provincial CA were in fact provided at March 31, 2000. In addition to the facilitation fee (of at least $50,000) the new provincial CA was to utilize these funds for specific provincial projects. We do note that the documentation in support of the invoice suggest that certain goods/services were not to be provided until subsequent to March 31, 2000.
Technical Review
Additional funds to be paid to the companies are dependent on IHAB's acceptance of Internal and External Beta versions of the Access.ca application. IHAB retained third party expertise to review Beta releases of the Access.ca application prior to acceptance of the Beta versions of the application by IHAB. The third party designed test procedures to determine if the Beta versions of Access.ca complied with the requirements of the contract between the new provincial CA and the companies.
IHAB placed scope limitations on the third party reviewer to the point that the third party reviewer stated in their latest report they are unable to comment on the status of the application as a whole. We understand that IHAB intends to use this report as the basis for acceptance of the Internal Beta version of Access.ca, as well as for support to approve payment of 75% of remaining funds available under the agreement of the new provincial CA with the companies. IHAB is apparently doing so without assurance that the Beta version provided meets the requirements of the contract.
While we are not in a position to comment on the appropriateness of scope limitations placed on the third party by IHAB, we believe that in previous reports functionality issues detected by the third party reviewer, combined with the scope limitations directed by IHAB, raise concerns regarding the current status of the Access.ca application.
Conclusion Regarding Objectives
In relation to the objectives of this audit, we conclude:
- The spirit of the Government contracting transfer payment and other management policies has not been followed for the project;
- Proper financial controls did not exist for the project; and
- Given the current status of the project, concern exists whether management has reasonable assurance that the project is being well managed and is being implemented in a timely manner.
Management Action Taken
Industry Canada (IC) accepts the findings, conclusions and recommendations of the audit of the demonstration stage of the Access.ca project and has developed an action plan to deal with the issues raised. Management agrees that there were deficiencies in management practices as well as errors in judgement.
An effective internal audit provides objective examinations of evidence for the purpose of providing independent assessments of risk management, management control frameworks, practices and information used for decision making and reporting. Industry Canada sought to verify that some of its more innovative and partnership-based program were being managed in a manner that would meet the requirements for public accountability. Selected programs managed by the Information Highways Applications Branch (IHAB) were audited in 2000 (see Management and Financial Audit of Selected Programs in the Information Highway Applications Branch (IHAB) published in September 2000). The audit put in place an action plan to address the comptrollership gaps that were identified. One element of this action plan was a further audit of the Access.ca pilot project. Many of the activities examined occurred during the same time period as those examined by the previous IHAB audit (1998-99 and 1999-2000 for the review of grants and contributions and a 5 year review of contracts from 1995 to 2000).
In addition to the measures included in the IHAB audit action plan, specific measures have been undertaken to respond to the recommendations and findings of the Access.ca audit. These are:
- Technical Assessment: a technical assessment of the software has been conducted by officials of Industry Canada's Communications Research Centre, a leading edge telecommunications, learning and research centre. The CRC technical team determined that the internal Beta release is unique and of leading edge design and could be considered for deployment and that value for money has been received.
- Intellectual Property/Revenue Sharing Agreements: As recommended by the auditors, IC legal counsel reviewed IHAB's Intellectual Property/ Revenue Sharing agreements. While the majority are problem-free, some deficiencies were identified and will be corrected in future agreements as IHAB consults IC legal counsel on all agreements.
- Release: It is Industry Canada policy that contracts be awarded in accordance with applicable laws, trade agreements and established procurement policies and practices. The Department will follow established Federal Government contracting practices before any Access.ca release.
- Recovery of Funds: The Department is in the process of determining if full value for money was received for the fees paid to the provincial agency and will take steps to recover funds if required. As part of the process for determining whether deliverables invoiced by the provincial agency were sufficient to meet the requirements of the agreement, IHAB requested cost justification for the facilitation fees from the provincial agency. IHAB has engaged independent auditors to review the claims to determine if full value for money was received. If any overpayments are identified, recovery action will be taken.
- Further Control Measures: In addition to the current review by Legal Services of all IHAB agreements and contracts over $5,000, controls have been further strengthened. All Industry Canada sole source contracts over $25,000, amendments bringing the total to $25,000 or other complex contracts are now subject to review by the Program Services Board, Industry Canada's internal management board to ensure integrity in the O&M contracting function.
- Instructions to Managers/Expectations: All Industry Canada managers were advised on February 5, 2001 of the critical role that they play to ensure appropriate financial management controls are used in the decision-making process and the spending of public money. In addition, they were reminded of their responsibility to act with probity, prudence and concern for value.
All IHAB managers, including Access.ca management, have received specific direction with regards to management accountabilities, responsibilities and standards in the management of IHAB programs.
All IHAB employees were required to update their Conflict of Interest declarations by April 11, 2001, including the submission of a nil report.
- Follow-up Audit: Finally, to ensure public accountability, transparency and quality management in Industry Canada, a follow-up compliance audit of selected IHAB programs, including Access.ca, will be undertaken by Fall 2001.
Review of the Access.ca Pilot Project – Phase II (PDF - 138KB - 25 pages)
Management Response and Action Plan (PDF - 72KB - 10 pages)
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Date Created: 2001-04-18
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