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Foreign Affairs, Trade and Development Canada

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Audit of Real Property - Modernize Real Property Management

July 28, 2011

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Table of Contents

Executive Summary

In accordance with its approved Risk-Based Audit Plan for 2010-2011, the Office of the Chief Audit Executive conducted an internal audit of Real Property Management at the Department of Foreign Affairs and International Trade (DFAIT). DFAIT, specifically the Physical Resources Bureau, is the designated custodian of real property outside Canada that supports diplomatic and consular services. The Department is also the common service organization providing accommodation services abroad to other Canadian partners.

Why is this Important?

Real Property is a critical aspect of DFAIT’s ability to carry out its mandate effectively. DFAIT operates on both the domestic and international fronts with over 170 Missions in 105 foreign countries. DFAIT supports the presence of its own employees as well as Canada-Based Staff from other departments and jurisdictions. The Physical Resources Bureau is the custodian of a complex international real property portfolio valued at roughly $3 billion. This portfolio comprises almost one million square metres of office and residential accommodation used by over 7,500 employees of DFAIT and partner departments. DFAIT supports the Government of Canada’s achievement of its international priorities by providing real property services to 31 federal departments, agencies, crown corporations and provincial governments delivering a vast array of programs. The budget for 2010-2011 was approximately $169M – $21M Operating and $148M Capital.

The Department is accountable for the sound stewardship of the assets entrusted to it – promoting due diligence, ethical behaviour and sound management practices, thereby ensuring long-term sustainability and value for Canadian taxpayers. The global reach of the Department underscores the importance of real property management in DFAIT.

What did we examine?

The objective of the audit was to assess the adequacy of DFAIT’s real property management framework in supporting effective and efficient operations aligned with the Government’s and DFAIT’s priorities. It addressed the fundamental question of “How should DFAIT ensure that Real Property is sustained to support the Government of Canada’s international mandate?”

The audit team examined the following key aspects:

  • Authority, accountability and responsibility as a Special Operating Agency;
  • Life-cycle management of real property;
  • Monitoring and oversight of the Physical Resources Bureau finances;
  • Human Resources;
  • Information for decision-making and reporting;
  • Contracting practices; and,
  • Role as a common service provider.

What did we find?

DFAIT must modernize its Real Property Management to sustain the portfolio relied upon to achieveCanada’s international mandate. More specifically, the audit found that to become more effective and efficient the Department should:

  • Enhance the current governance structure to appropriately direct the Bureau.

Although several oversight committees are in place and operating, the audit team found that weaknesses in strategic direction impaired the Bureau’s ability to ensure that key operational decisions such as lease/buy, purchase/build, retain/dispose or maintain/refurbish were aligned with this direction. The authorities conferred upon the Physical Resources Bureau by Treasury Board and the Department as a Special Operating Agency are no longer exceptional and not always used.

  • Develop better information for decision-making.

The Physical Resources Bureau isISO9001:2008 certified and captures significant data through its systems. Although certain useful indicators and sufficient financial information are in place to draw upon, key performance indicators have not been developed that would provide an overall assessment of the Bureau’s performance. Data capture could be expanded to transform it into more holistic and meaningful information for decision-making and reporting. Additionally, retention of documentation requires standardization and centralization.

  • Capitalize on opportunities to utilize resources more effectively.

Operational planning, particularly workload allocation in the current organizational structure, is not adequate to guide effective resource management resulting in reduced flexibility in applying resources to critical areas of operations.

  • Build upon sound processes to improve compliance.

The Bureau is not meeting its obligations with respect to the Heritage components of the Treasury Board policy.

The auditors noted some positive aspects of real property management including:

  • Interdepartmental and departmental committees with appropriate membership to provide guidance;
  • Standard, formal agreements in place with all tenants and a structured cost-recovery mechanism; and,
  • Forums for tenants to raise concerns, share information and provide input and feedback.

Key Recommendations

1. The Assistant Deputy Minister International Platform should ensure that an appropriate structure exists to provide strategic direction to the real property program. This direction would ensure coherence and cohesion of the Bureau’s key decisions to long-term organizational strategies. Consideration should be given to expanding membership to include international real property expertise.

2. The Director General of the Physical Resources Bureau should review its authorities to:

  • assess whether they are sufficient to fulfill their custodial responsibilities effectively; and,
  • determine whether Special Operating Agency status remains relevant.

3. The Director General of the Physical Resources Bureau should develop, implement, track and report on a suite of performance measures that would provide holistic and more meaningful information for decision making.

Further recommendations and the Management Action Plan to address the recommendations are outlined in Appendix B.

The audit noted improvements required in the real property management framework to ensure that it supports effective and efficient operations aligned with the Government’s and DFAIT’s priorities. These improvements would further ensure the sustainability of its real property in supporting the Government of Canada’s international mandate. These improvements relate to:

  • Governance and strategic direction;
  • Performance Measurement;
  • Efficiency and effectiveness of operations; and
  • Compliance to policies

Conclusion

The audit noted improvements required in the real property management framework to ensure that it supports effective and efficient operations aligned with the Government’s and DFAIT’s priorities. These improvements would further ensure the sustainability of its real property in supporting the Government of Canada’s international mandate. These improvements relate to:

  • Governance and strategic direction;
  • Performance Measurement;
  • Efficiency and effectiveness of operations; and
  • Compliance to policies.

Statement of Assurance

In my professional judgment as Chief Audit Executive, sufficient and appropriate audit procedures have been conducted and evidence gathered to support a high level of assurance on the accuracy of the information in this report. The results are based on a comparison of the conditions, as they existed at the time, against pre-established audit criteria that were agreed upon with management. The results are applicable only to the processes examined. The evidence was gathered in compliance with Treasury Board Policy, Directives, and Standards on Internal Audit for the Government of Canada.

Original signed by:

Yves Vaillancourt, Chief AE, June 10, 2011

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1.0 Background

The Department of Foreign Affairs and International Trade (DFAIT) is the custodian of a complex international real property portfolio of 565 owned properties and 1,684 leased properties, valued at roughly $3 billion, comprised of almost one million square metres of office and residential accommodation used by over 7,500 employees of DFAIT and partner departments in 105 countries. DFAIT supports the Government of Canada’s achievement of its international priorities by providing accommodation services abroad to 31 federal departments, agencies, Crown corporations, and provincial governments delivering a vast array of programs. Managing this portfolio is challenging due to the complexity of dealing with foreign laws, building codes, construction practices and currencies.

The Physical Resources Bureau (the Bureau), a Special Operating Agency since July 1993, is the International Platform Branch’s organizational unit responsible for the real property portfolio. The Bureau remains an integral part of the Department and depends on other divisions to provide corporate support services such as Human Resources, Information Technology and Finance. The Bureau reports to the Assistant Deputy Minister of the International Platform Branch.

Each year the Bureau plans and manages roughly 70 major projects and funds 400 other projects. These include maintenance and repair projects as well as capital projects to extend the life of existing assets, replace real property assets at the end of their useful life or acquire new assets in response to government or departmental priorities. It also divests itself of real property assets which no longer meet the operational requirements of theMissionnetwork or do not contribute to government or departmental priorities.

Missions share responsibility with the Bureau in regards to DFAIT’s real property program. The Missions are accountable for day to day operations, facilities maintenance,Missionproperty management planning, acquisition and disposal of leased staff quarters, and the allocation of staff quarters toCanadabased staff.

The Bureau’s budget for 2010-11 is approximately $169M – $21M for operations and $148M for capital.

The priorities for investments in property in the next five years are strengthening physical security at Missions, program growth and changes related to government and departmental programs as well as code requirements related to health and safety. In addition, ongoing investments in maintenance, repair and betterment to sustain the operation of theMissionnetwork real property assets abroad were also identified.

DFAIT’s property platform comprises an inventory of special use, complex structures required to support Government and departmental priorities and to adequately accommodate Canadian and locally engaged staff in locations that pose additional risk and challenges relative to the Canadian experience. The property infrastructure is subject to public scrutiny as it is often considered symbolic ofCanadaorCanada’s relationship with a host nation as well as the unique and high profile nature of the associated operations. These considerations, in concert with the intrinsic long-term nature of real property, pose additional challenges to the Department’s ability to align the inventory strategically with Government priorities while at the same time, sustaining the international platform of operations abroad. The challenges faced by the property program should be considered within this context.

Taking into consideration the importance of the Missionnetwork and the challenges it represents, the Audit of Real Property was included in the approved Risk Based Audit Plan for 2010-11. The objective of the audit was to assess the adequacy of DFAIT’s real property management framework in supporting effective and efficient operations aligned with the Government’s and DFAIT’s priorities. It addressed the fundamental question of “How should DFAIT ensure that Real Property is sustained to support the Government of Canada’s international mandate?” The fieldwork for this audit was carried out from October 2010 to February 2011. Audit criteria and scope are contained in Appendix A.

The management of real property requires departments to fulfil program objectives while balancing financial and efficiency-related asset considerations with broader public interest considerations. The current real property policy direction is premised on departments managing real property in support of efficient and effective program and service delivery. While supporting programs and services, real property must be managed in a manner that achieves value for money and demonstrates sound stewardship.

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2.0 Observations and Recommendations

Real property is a complex and challenging portfolio. Modernizing the approach to its management would provide the Bureau with increased authority and flexibility enabling more effective and efficient operations. Within this context, observations follow relating to:

  • Governance and strategic direction;
  • Performance measurement;
  • Efficiency and effectiveness of operations; and,
  • Compliance to policies.

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2.1 Enhance the current governance structure to appropriately direct the Bureau

2.1.1 The strategic direction for Real Property should be strengthened to ensure alignment of operational decisions with priorities.

Real Property is a critical enabler of the Department’s strategic outcomes and supports the common services delivered by the International Platform Branch. Strategic direction for DFAIT’s real property portfolio would include establishing a mandate, a long term vision and an approach to achieve global objectives consistent with overarching principles, priorities and performance expectations. Senior management would provide appropriate guidance and oversight to ensure operational decisions such as lease/buy, purchase/build, retain/dispose or maintain/refurbish are aligned with this direction.

While the Real Property Business Plan, established in 2010, outlined priorities and projects for the next five years there was no evidence that strategic direction was provided for the real property portfolio as a whole.

Ideally, strategic direction would be provided collectively by those who have the required knowledge of the specific subject matter and/or government direction. With respect to strategic direction for real property, significant expertise in international real property matters would enhance the current governance structure.

While interdepartmental and departmental committees provide guidance, advice from the Assistant Deputy Minister Real Property Advisory Committee requires focused attention to strategic direction.

DFAIT, partner programs and co-locators are engaged in real property decisions through an extensive departmental and inter-departmental governance structure. This structure provides the opportunity to raise issues at the Bureau committee level and bring issues to the attention of senior departmental management Although, various interdepartmental and departmental committees, as described in Appendix C, contribute to planning and operations of the Department’s real property portfolio, integrated strategic direction to the Physical Resources Bureau is lacking.

The Assistant Deputy Minister Real Property Advisory Committee has the mandate to provide strategic direction on the real property program in general, as well as on large, significant projects, including Major Crown Projects. The committee, however, has focused more on Major Crown Projects (such as Paris,London andMoscow) as well as sensitive policy issues (such asNew York andHaiti).

Given the size and importance of the Department’s real property portfolio abroad, the Assistant Deputy Minister Real Property Advisory Committee should take the lead in providing strategic direction to the real property program. This includes the shaping of a clear and robust vision for the Bureau and the development of principles, priorities and performance expectations. This will guide the Bureau’s decisions on key issues such as lease/buy, purchase/build, retain/dispose or maintain/refurbish.

Recommendation:

1. The Assistant Deputy Minister International Platform should ensure that an appropriate structure exists to provide strategic direction to the real property program. This direction would ensure coherence and cohesion of the Bureau’s key decisions to long-term organizational strategies. Consideration should be given to expanding membership to include international real property expertise.

2.1.2 The Department should clarify and enhance Real Property authorities

The Physical Resources Bureau’s authorities under its existing Special Operating Agency status are no longer exceptional and not always used.

Special Operating Agency status is granted to service delivery units to increase management flexibility through sufficient authorities in return for agreed upon levels of performance and results. This status does not make the unit an independent legal entity; it remains part of the organization and is accountable to the Department for results.

The Physical Resources Bureau was designated a Special Operating Agency in 1993. Seven specific authorities were delegated at that time, by Treasury Board as well as two additional authorities from the Department. These authorities have not been updated since their inception. These authorities are described in detail in Appendix D and are summarized below.

The Treasury Board authorities allowed the Bureau increased flexibility with respect to:

  • Revenue;
    • Retention and reinvestment in the real property portfolio
    • Proceeds from the disposal of property can be spent in future years
    • Setting and adjusting rental rates
  • Contracting authority; and,
  • Streamlined Treasury Board approval processes when the final cost estimate is within 10% of the initial cost estimate.

While these increased authorities were exceptional at the time they were granted, this is no longer the case. These authorities are now available to all custodian departments through policy instruments which, for the most part, exceed the authorities conferred upon the Special Operating Agency.

The additional authorities granted by DFAIT with respect to: (1) budget management and (2) staffing were not exercised by the Bureau.

  • The Bureau was allowed to establish a single operating and capital budget distinct from other departmental budgets. The Bureau has decided not to exercise this authority in order to ensure stability in its funding. Due to the fluctuating nature of its revenues, if required, departmental funds could be reallocated to meet the Bureau’s objectives. As a result, the Bureau remains integrated into DFAIT’s financial reporting structure.
  • The Director General of the Bureau was given the authority to establish new positions and delete existing positions. The Bureau was not aware of this authority; and therefore, did not exercise it. Consequently, it is following the overall DFAIT staffing controls and measures.

In summary, the authorities granted by Treasury Board are no longer exceptional as they exist through other policy instruments. Additionally, the two authorities granted by DFAIT are not being exercised by the Bureau.

Despite Special Operating Agency status, Treasury Board approval for the funding of major capital projects is still required.

In approving the Special Operating Agency designation, Treasury Board indicated that special funding would be required for major capital investment projects that could not normally be absorbed within the Bureau’s regular funding levels. The Bureau has been granted authority to approve capital projects the value of which does not exceed $13M for chanceries, $4M for official residences and $1.3M for staff quarters and miscellaneous projects. However, it needs Treasury Board approval if the project is deemed large, complex and sensitive. In the past five years, Treasury Board allocated funding for such major, multi-year projects as the Missions in Berlin andMoscow. In two cases,London andParis, project approval was not granted. As a result, the Bureau has used its existing funds to take alternative, short-term actions. In the long-term, major capital investments will still be required to ensure continued sustainability of these two Missions.

This requirement to seek approval appears reasonable due to the exceptional nature of these projects and the infrequent need to submit special requests. This control is intended to ensure that major investments are aligned with government priorities. In situations where approval is not granted, however, it is necessary for the Bureau to assess the implications on the sustainability of the real property asset and ensure that contingency plans are developed which include cost analysis.

The Bureau met pressing government priority, exceeding their authorities, by working with central agencies.

In 2009, the government wanted to purchase land in Islamabadand Kabulin order to be able to respond to the urgent need to increase security at these Missions. Due to the unstable environments and security situations in these locations at the time, the availability of suitable sites was diminishing quickly. Normally, the Bureau would have sought project approval from Treasury Board prior to the purchase of land and the establishment of staffing quarters. Due to the pressing circumstances, the Bureau wanted to secure the sites first and then determine the subsequent work requirements and related cost estimates. With Treasury Board direction, the Bureau purchased the two sites even though it did not have formal approval. As a result, the Bureau sought and received retroactive approval from the Treasury Board to ensure that appropriate authorities were in place prior to continuing work on these sites.

The above case demonstrates an appropriate degree of flexibility related to authorities in order to respond to emerging priorities of the government. The Bureau took required action upon consultation and direction from central agencies and the outcome was favourable. As this situation rarely emerges and was managed effectively, it does not indicate that additional authorities are required for the Bureau.

Recommendation:

2. The Director General of the Physical Resources Bureau should review its authorities to:

  • assess whether they are sufficient to fulfill their custodial responsibilities effectively; and,
  • determine whether Special Operating Agency status remains relevant.

The Bureau balances its dual role as custodian of real property and integral member of the Department.

As an integral part of the Department, the Bureau must effectively balance its dual role as a custodian of real property with supporting policy and program objectives of the Department.

The net proceeds of sale from real property are to be reinvested in real property in accordance with the Special Operating Agency charter, a 1995 letter from Treasury Board to the Deputy Minister of DFAIT, and Treasury Board’s Directive on theSaleor Transfer of Surplus Real Property.

In 2010, the Department decided to sell four properties in order to obtain revenues of $10.5 million. The Bureau took these funds from its existing budget and advanced them to Corporate Finance who obtained approval from Treasury Board to transfer these Vote 5 capital funds to Vote 1 operating funds in order to support the Department’s other initiatives. These funds were advanced prior to the sale of these properties which remained unsold at the time of the audit due to poor market conditions. As a result, funds available for reinvestment in the property portfolio going forward were diminished.

In this case, the Bureau fulfilled its responsibility to help meet corporate objectives but at the same time had to forgo its custodial responsibility to re-invest in the real property portfolio. If funds are redirected away from the investment in the real property portfolio frequently, then there is a risk to its long-term sustainability.

Recommendation:

3. Prior to using proceeds from the disposal of real property for other departmental initiatives, the Department should take into consideration the:

  • impact on the sustainability of its real property portfolio; and,
  • alignment to strategic direction.

An approved Departmental Investment Plan is essential to accord the Bureau greater authority.

Departmental investment planning is the function of allocating and reallocating resources to new and existing assets and acquired services that are essential to program delivery. The Bureau is a major contributor to the overall Department Investment Plan with respect to the real property portfolio. Investment planning is a key element in achieving value for money and sound stewardship. Effective investment planning ensures resources are allocated in a manner that clearly supports program outcomes and government priorities.

As per the Policy on Investment Planning – Assets and Acquired Services, departments are required to submit an investment plan to Treasury Board every three years. The original deadline for submission of March 2010 has been extended by Treasury Board; currently, a departmental Investment Plan is being prepared to be submitted to Treasury Board in the fall of 2011. This plan is based on a risk based approach to determine which projects require approval from Treasury Board. Based on the approved risk management score, individual Treasury Board approvals will no longer be necessary for low risk, high dollar value projects over the established transaction limits. This will allow the Bureau to reduce the number of submissions which are labour intensive in terms of their preparation. The approved Departmental Investment Plan will provide the Bureau greater flexibility and authority to carry out its mandate.

Recommendation:

4. The Chief Financial Officer should ensure a Departmental Investment Plan is in place as soon as possible to provide additional authority to the Physical Resources Bureau.

Within DFAIT, real property delegated authorities are clear and aligned with responsibilities.

The Department’s delegation chart clearly separates the three types of real property related authorities as follows: expenditure initiation authority, contracting authority and transactional authority. The limitation for officials in each functional area is clearly stated with footnotes that provide additional explanations as needed. Documentation related to specific processes is readily available to staff through the Bureau’s Intranet site. These tools are periodically reviewed and well communicated to all DFAIT staff.

The audit also found that there is alignment of authorities and accountabilities with real property responsibilities. The Delegation of Authority chart links the three types of real property authorities and the functional authority, accountability and responsibility of officials. Outside of the International Platform Branch, authorities are delegated only to officials with related responsibilities and restrictions are attached. The limits delegated to each position are appropriate for the level/responsibility of the individual.

With the exception of construction initiation authority, Heads of Mission currently hold the same level of real property authorities as the Deputy Minister. These levels of authorities are essential because Heads of Mission are the representatives ofCanadain foreign countries and, as the legal authorities, are required to sign on behalf ofCanada. To mitigate the risk associated with shared accountability, the real property budgeting and planning activities are controlled within the Bureau. Also, Heads of Mission require approval from the Bureau Director General prior to exercising many of their authorities. The residual risk in this area, therefore, is low.

Overall, the audit determined that, within DFAIT, appropriate delegation of authorities was in place. As well, in the specific case noted above, the Department has demonstrated its ability to work with Treasury Board to ensure that a pressing need, which exceeded their authority, could be met Strengthening strategic direction for the real property portfolio and ensuring that the Bureau can take advantage of authorities linked to the approval of the Departmental Investment Plan are important considerations.

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2.2 Develop better information for decision making

Ensuring that relevant, accurate and timely information is available to allow decisions to be founded upon full and complete information is necessary to support governance, risk management, accountability and sound stewardship. A sound performance measurement framework would include:

  • Linkages to strategic objectives;
  • A multi-tiered reporting structure – reporting strategic, tactical and operational measures at the various levels;
  • A balance of response measures and key performance drivers;
  • Clear targets, where possible, as an indicator of success; and,
  • The person/position accountable for the measure.

Given the nature of Real Property management and its inherent complexities, this function would be expected to have data related to its:

  • Assets
  • Projects/Contracts – costs, timeframes, scope and deliverables
  • Client Service
  • Operations – effectiveness and efficiency

This combination of measures would provide significant information to determine whether strategic objectives were being met, identify areas for improvement to achieve greater effectiveness and efficiency and provide the foundation for reporting on the overall management of Real Property.

The Bureau does not have a comprehensive performance measurement framework that includes key and measurable indicators assessed against established targets for each of these areas. Consequently, there is risk that management is unable to assess performance effectively and make sound decisions.

2.2.1 Existing data could be utilized to produce more meaningful information for reporting and decision making

Assets – The Bureau’s processes and systems contain sufficient and appropriate data on property assets for reporting and decision making.

The Bureau is an ISO-9001:2008 certified organization which uses a detailed and rigorous Project Delivery System to define the processes for initiation, approval, implementation and commissioning of real property projects outsideCanada. The implementation of theISO process and subsequent certification has been and remains positive for the Bureau. It ensures proper and sufficient documentation of all its processes are in place to allow a consistent approach throughout the Bureau. Furthermore, in order to remain certified, the Bureau must continuously assess the Bureau’s compliance with the QMS processes and must undergo externalISO audits yearly.

As part of itsISOprocess, the Bureau collects a significant amount of data. The following three systems include important data that are used by the Bureau for reporting and decision-making.

  • PRIME (Physical ResourcesInformation-Mission Environment): This application is designed for Missions to use for their day-to-day management of property and also serves as the Department's official property database. It permits the Bureau’s divisions to create and implement property plans, to feed information into the government's larger Directory of Federal Real Property and to help manage the administration of the properties globally.
  • The ARAFWorkplan is a systems application designed to keep track of costs and status of current projects. It also assists in the planning of maintenance for properties abroad.
  • The Maintenance Management Workplan (MMW) is another systems application. It is designed so that Missions can enter maintenance data online. Information in the MMW feeds into the ARAFWorkplan.

The systems described above, maintained by theInformatics Service staff within the Bureau, contain vital data. Consequently, it is important that they be maintained appropriately to support the reliability of systems to ensure that data is available when needed. Reports and information extracted from these systems assist Bureau management in its decision making. It was noted that there were no documented procedures to guide theInformatics Service staff in its day-to-day activities (i.e. maintenance, user support, back-up procedures etc.) If procedures are not applied consistently, there is a risk related to the integrity and completeness of the information contained within. Without this information, the Bureau may not have the required information for decision-making and may not be capable of producing reliable reports.

Assets – While several relevant measures are in place to assess performance of the asset base, strengthening the financial indicators of these assets is required.

The Bureau uses certain performance measures to address the tangible aspects of real property that ensure a sustainable asset base throughout its life cycle in support of program delivery. These performance measures are indicators of the condition of buildings, space usage and availability, as well as occupancy cost. They provide useful information for decision-making. They include:

  • The Facility Condition Index is the ratio of the cost of repairs to the replacement value. The ratio’s value determines the structure condition code of a building. This code rates the condition of a building to be critical, poor, fair or good. For example, when the facility condition index ranges from 0% to 5%, the structure condition code is rated “good.”
  • The Space Threshold Tool is utilized by the Bureau to provide an indication of space availability in chanceries. It documents available offices or workstations, or spaces that can be converted to an office. Each space in a chancery is rated T1, T2, T3 or T4. For example, a space rated T1 implies that it is a designated office space and needs no further adjustment. A space rated T3 indicates that it is currently used for other purposes but could be converted into an office space at an estimated cost. This information, reported every year inMission’s Property Management Plan, is used internally to allocate office space to personnel in Missions.
  • The Space Utilization Index (SUI) is a new indicator computed to assess the usage of space in terms of availability and efficiency. This index is the ratio between the net square metres per employee to a calculated benchmark based on the Space Allocation Guidelines developed in 2008. One index is computed for each chancery. AnSUIof 1 indicates optimal utilization of the space. AnSUIbelow 0.95 implies crowding; whereas an index above 1.15 indicates excess space. To date, the Bureau has calculated theSUIon most of its properties.
  • The Average Operating Cost per M2 is computed by the Bureau for its crown-owned chancery portfolio which was tracked, by region, for three consecutive years (07-08/08-09/09-10). This allowed the Bureau to do a trend analysis and compare progress among the regions. These results showed that the operating cost per m2 declined in crown owned chanceries located inEuropeandNorth America; whereas the costs of those chanceries located inAsiaremained stable over the same three year period. Again, the results provide very useful information which help guide lease/buy, purchase/build and retain/dispose decisions.

Financial indicators suggested by the Guide to Management of Real Property, such as return on investment, cost/occupant, cost/asset operations, revenue/m2, and replacement value index are not being tracked by the Bureau. This information would allow the Bureau to make effective decisions on individual properties and would provide relevant information to support the planning for real property.

Projects/Contracts – Key performance measures are not in place.

It is vital for an organization such as the Physical Resources Bureau (over $150M expended on capital projects in 2010-2011) to measure performance related to its projects/contracts. In doing so, it would become aware of emerging issues and be able to take corrective action before a major problem arose. We expected to find key performance measures relating to the results of not only individual projects but also aggregated project performance. However, it was noted that key performance indicators to assess the effectiveness of project/contract management (scope, schedule, and cost factors) are not measured on a regular basis. In turn, this makes it difficult for the Bureau to assess past performance, compare the performance of various projects and improve the project management process.

Projects/Contracts– Data for measurement is not readily available as retention of documentation in files is inconsistent and not centralized.

In order to enable effective reporting and decision making, key information should be readily available. Contracting and project files contain a vast amount of information that requires consistent retention and easy access.

It was expected that documentation would exist to support key steps in the contracting process which include bid selection, contract award, approval and payments, amendments and performance. In addition, auditors expected to find key documentation in project files related to project decisions i.e. acquisition/fit-up decisions, close-out procedures, major repair decisions, and monitoring for cost and time overruns. Furthermore, it was expected that documents and files be easily accessible and a formal method for records management be employed across the organization for monitoring and compliance purposes.

The audit team had planned to review a sample of contracting and project files. However, as documentation was not readily accessible and available, it was not possible to carry out the original plan. At the start of the review of files, it was discovered that documentation was kept in several locations. For contracting files, documentation was dispersed among financial officers, contracting officers, project/portfolio managers, and regional maintenance officers. Similarly, parts of documentation for project files were kept by the Quality Management team, regional maintenance officers, project/portfolio managers, architects, engineers and cost planners.

There is no records management strategy or central repository for contracting and project documentation. The Bureau Property Management Manual outlines the key documentation to be retained in contracting files as well as the retention period. It does not address the storage location and medium to be used. Documentation is either stored as hard copies or as electronic files in public folders, in a staff member’s e-mail, their own directory or on a shared drive. As a result, there is a risk that decisions may be taken based on incomplete information. Furthermore, it may be difficult to ensure proper knowledge transfer throughout a contract/project. Importantly, information required for performance measurement and effective oversight is not readily available.

Client Service– The Physical Resources Bureau as well as the Representation Abroad Secretariat have effective processes to receive client feedback on services.

It is important for any service oriented organization to be aware of client satisfaction in order to address their concerns and react accordingly. The Bureau sends feedback questionnaires related to specific projects to Missions. Completed surveys are reviewed by the Quality Manager and significant issues are discussed with the responsible project manager. The results of the surveys completed in 2010 have indicated a general level of satisfaction. The auditors saw no indication of trend analysis which would provide useful information on specific areas that were problematic across the bureau.

The Representation Abroad Secretariat distributed a client satisfaction questionnaire on Service Delivery Standard in early 2009. Since that time, it is the intention of the Representation Abroad Secretariat to have an on-line survey available to Missions in order to continuously measure progress. Currently, there is no designated resource in the Representation Abroad Secretariat who is responsible to monitor service delivery standards through these client satisfaction questionnaires.

Other forums such as the interdepartmental committees to seek feedback on user expectations and satisfaction related to service standards are also in place. This combination of feedback mechanisms provides useful information for decision making.

Operations – Absence of performance measures to assess Bureau management.

In order to manage its operations effectively, it is important for any organization to have key performance measures related to the general operations of its activities. Indicators such as: productivity, planned vs. actual expenditures, expenditures vs. deliverables, staff certifications, competencies and turnover etc. provide meaningful information to assess overall effectiveness and efficiency as well as identify best practices and areas that require improvement. Such measures had not been developed, measured and reported. Some of the data necessary to produce this information could be found in departmental systems – other data is collected by individuals within the Bureau. To produce meaningful information for decision-making, specific data sources would need to be identified and integrated for reporting purposes.

Using some of the available data, we explored potential cost-savings initiatives. These results are included in the section below.

Recommendation:

5. The Director General of the Physical Resources Bureau should develop, implement, track and report on a suite of performance measures that would provide holistic and more meaningful information for decision making. This would include the following:

  • Enhancing information related to assets to include financial performance measures such as return on investment, cost/occupant, cost/asset operations, revenue/metre2, replacement value index.
  • Gathering data related to project/contract scope, cost, timeframe and using this information to track performance and identify trends.
  • Develop and enforce a records management strategy in order to ensure that project/contract file documentation is complete and accessible to allow tracking of results.
  • Indicators of operational effectiveness and efficiency which could include: productivity; planned vs. actual expenditures; expenditures vs. deliverables; staff certifications and competencies, staff turnover and vacancy rates etc.

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2.3 Capitalize on opportunities to utilize resources more effectively

The effective use of resources is one key component to demonstrate sound stewardship. As part of its responsibilities, the Bureau is expected to provide sound management of a number of different types of resources:

  • Human and Financial
  • Real Property Assets
  • Revenues from tenants

Operational planning, including human resource planning, is not sufficient to guide effective resource management resulting in reduced flexibility in applying resources to critical areas of operations.

2.3.1 Strengthening human resource management through better planning, workload allocation and organizational design would lead to more efficient operations.

There is no current human resource plan for the Bureau to address pressing issues such as staffing personnel with the appropriate skill sets, classification, training and succession planning.

Human resource planning involves assessing current and future needs, securing the right people, building a supportive work environment and developing the capacity to ensure an organization's success. A good human resource plan would include an assessment of the current status of: staffing, classification, training and succession planning and provide direction for addressing any identified gaps.

The Bureau does not have an updated/current human resource plan to support its Property Business Plan (2010-11 to 2014-15). A sound human resource plan that remains relevant over time is important to support the Bureau’s operational requirements.

The Bureau’s most recent plan dates back to the fiscal year 2008-09. In this plan, objectives were set to ensure that the Bureau had the continuing capacity to address the Government of Canada’s priorities and provide essential property services abroad in an effective manner. This plan indicated that there was a gap between the Bureau’s current and required staffing levels in order to meet operational and program responsibilities.

When resource gaps have been identified, training takes on greater significance to ensure that the skills sets of employees are maintained and developed. The Bureau identifies the training needs for each employee at the beginning of the year. While new employees are provided with specific training materials and tools, existing employees are encouraged to obtain and maintain professional certifications related to their positions. Although a structure for training is in place, management and employees indicated that certain training requirements are not always fulfilled due to operational demands. It is crucial that employees are able to get sufficient training to enhance their knowledge and skills in order to increase the overall productivity of the Bureau.

Without a current Bureau level human resource plan, there is a risk that the Bureau’s resources may not be utilized effectively. This may impede the Bureau’s capacity to deliver on their mandate.

Identified resource gaps require greater attention to workload distribution to maximize the productivity of resources.

When resource gaps have been identified, assessing the allocation and utilization of resources to determine opportunities for increased efficiencies is paramount. The way the work is organized and distributed to employees is a significant consideration in optimizing the use of available resources.

To identify potential means to optimize the use of current Bureau resources, we examined the current workload allocation and organizational structure. To identify potential cost-savings for the Bureau, we looked specifically at two key factors – underutilization of resources and opportunities for cost-avoidance.

The table below summarizes the productivity elements examined and the potential savings that could be derived from the efficiency measures addressed.

Table 1: Summary of Cost Savings
Sub CriteriaDescriptionSavings Estimate
Under-UtilizationARD has significant variations in productivity across resources within its various business Divisions. Factors, such as project type and size, only explain 44%-66% of this variation.

If resources within the various business units produced similarly to the person in the 75th percentile (better than average productivity but not the highest), there would be significant savings opportunities for ARD.
$2.0-$3.4 million
Cost Avoidance

1. Better travel coordination




2. Streamline and align organization



1. Travel costs as a ratio of total project costs vary significantly across the various projects. In instances in which more than one portfolio manager incurred travel the ratio of travel costs to project costs tended to be much higher.

2. The organizational structure within ARD is not as cost effective as possible. In certain instances there is more management, more management layers and more administrative costs that could be avoided in a portfolio-based organization.



$189K





$302K
Total $2.5-$3.9 million
Recommendation:

6. The Director General of the Physical Resources Bureau should develop a plan to improve the Bureau’s productivity by addressing the following:

  • a comprehensive human resources plan that is aligned with its Property Business Plan;
  • significant variations in productivity in project management; and,
  • Cost-avoidance measures of better travel coordination and a review of the organizational structure.

2.3.2 The Bureau should consider the long-term sustainability of its real property portfolio in its planning and operations

The Bureau does not have a consolidated accommodation plan nor an aggregated asset management plan to guide its decision-making.

Accommodation Plans

As the custodian of real property abroad, it is expected that the Bureau have an accommodation plan based upon current, relevant and accurate supply and demand information. An accommodation plan would allow for a comparison of critical information such as: total space; space utilized, vacant space and maximum occupancy (supply) with current positions and anticipated growth (demand). This information and comparative analysis would permit the Bureau to easily assess its current situation and quickly adapt to changing environmental conditions – in other words, plan effectively for full space utilization and meet the growing demands of tenants.

The current process gathers all relevant information but not all components are kept current; this does not permit the maintenance of an effective Accommodation Plan. The information on the supply side is provided in the Mission Property Management Plan on an annual basis and entered into PRIME by the Missions. It is not updated throughout the year to reflect current information. When an employee leaves and the office space becomes vacant, it is not registered. Conversely when a new employee arrives and occupies office space, it will only be captured in the following year. To strengthen accommodation planning, current information on available space is required.

The information on the demand side is provided by DFAIT’s partners and clients who make proposals on accommodation requirements at Missions about a year in advance to the Committee on Representation Abroad. This information is kept up-to-date by the Representation Abroad Secretariat. It is not, however, amalgamated with the supply side information.

Information holdings developed and retained in separate areas, coupled with the lack of current supply information does not allow DFAIT to easily assess accommodation requirements and quickly respond to client’s needs. A plan that consolidates all of the information related to accommodation abroad will allow the bureau to strengthen its effectiveness as a custodian of real property.

Asset Management Plans

Asset Management Plans would include a description, history, current status, and cost information of all assets. Such a plan would allow Portfolio Managers to easily assess the current condition of properties and plan appropriately for the short, medium and long term.

At present, the Bureau requires a suite of plans and reports for each Mission including: Mission Property Management Plan; the Mission Maintenance Work Plan; and individual Building Condition reports for each property at aMission. Since this information is contained in several documents and not amalgamated in one document, it is difficult to obtain a comprehensive overview of the condition of properties at individual locations.

Amalgamating these Mission plans to the regional, and ultimately the departmental level would provide a solid basis of information to allow a thorough understanding of the overall real property portfolio and enable the establishment of priorities both within aMissionbut also across the Department – common issues could be identified and trends analyzed.

DFAIT collects significant amounts of information which would benefit asset planning; however, this information is not in a standardized format/description that can be used to do predictive modelling to support efficient management.

Developing an amalgamated asset plan and consolidated reports, with the current information structure, would be costly and time-consuming. Although ARD collects useful information in its current building condition reports, the collected information is not standardized (i.e. roof defects could be input with several different descriptions that would not allow for the system to pull and group similar information). This issue reduces the ability to use data to predict the future costs of maintaining an asset or the portfolio. For example if the Bureau knew, based on data from building condition reports, that the most expensive maintenance item on a certain property in a certain region was roof repairs then ARD may take preventive measures to minimize the future costs of maintenance. The Bureau is inputting relevant data into the system that would be beneficial for planning, analysis and reporting. Until system inputs are standardized, the Bureau is not able to derive the greatest value from this information in an efficient manner.

Recommendation:

7. The Director General of the Physical Resources Bureau should prepare a consolidated accommodation plan and an aggregated asset management plan in order to further support its decision-making process to ensure long-term sustainability of the real property portfolio.

Maintenance and repair expenditures, at approximately 0.6% of the total replacement value, are far less than the Treasury Board recommended rate and the industry standard of 2%.

To avoid the deterioration of properties, it is essential to invest sufficient funds in maintenance and repairs. Accordingly, the Treasury Board’s Guide to the Management of Real Property indicates that a minimum of 2% of what it would cost to rebuild an asset is what should be invested annually for its maintenance and repair. If the departmental budget doesn’t allow for the allocation of 2%, (depending on competing departmental and government priorities) assets may deteriorate faster than life cycle forecasts would predict.

The Bureau’s Property Business Plan (2010-11 – 2014-15) indicates that replacement value of DFAIT’s owned real property is $3.074 billion implying that $61 million should be budgeted for department’s annual investment for maintenance and repairs. In 2009-10, the Department spent $19.2 million dollars on such costs thus representing 0.6% of the replacement value of its real property assets. The industry standard is 2% and this figure is supported by the Treasury Board Guide to the Management of Real Property. It was not possible to determine the trend in the ratio over time as properties are not assessed on an annual basis.

Maintenance and repair expenditures have gone down 17% from a 5 year high of 23.2M in 2006-07 to 19.2M in 2009-10. This demonstrates that resources channeled into maintenance are decreasing. This trend could be a leading indicator for increased capital expenditures in future years.

Taking into account the complexity and the importance of the real property portfolio abroad, it is crucial that the Department ensure that sufficient funding is allocated to the maintenance of its buildings. The Department must not forgo maintenance expenditures in order to save funds in the short term since there is a risk that it may jeopardize the sustainability of the real property portfolio and may result in increased costs in the long term.

Recommendation:

8. The Director General of the Physical Resources Bureau should establish a performance target for funds invested in the maintenance and repair of its real property portfolio. This will enhance the sustainability of its buildings as well as realize savings in the long term.

2.3.3 Common services provided to tenants should enable the Government of Canada to fulfill its international mandate

DFAIT has a structured cost recovery mechanism supported by appropriate forums that allow tenants to raise matters and share information.

The cost recovery mechanism is a means used by DFAIT to charge other government departments for common services provided. There is an interdepartmental Memorandum of Understanding that outlines the operational and support services to be provided to tenants. According to this formal agreement which is signed and agreed with all tenants, four types of charges are applied to programs and incremental positions of DFAIT and all partner departments.

  • Direct charges (Mission fit-up, IM/IT and operating costs): These costs reflect incremental headquarters andMissioncosts required to provide the necessary infrastructure and common services in support of Canada-based Staff and Locally Engaged Staff positions abroad.
  • Common Services Abroad Charge: This charge addresses the need to hire administrative staff necessary to support incremental positions abroad.
  • Property Growth Charge: It is intended to cover program growth occurring afterMarch 31, 2004. This cost is charged when positions at aMissionare changed (e.g. created, reclassified, deployed or deleted). It comprises three components: project costs, chancery operating costs and recapitalization costs.
  • Enhanced Common Services Abroad Charge: It started in June 2010 in order to cover support services provided by headquarters to Missions. This charge allows DFAIT headquarters to improve its capacity to support the growth at Missions.

For costing purposes, the Representation Abroad Secretariat uses two system tools:

  • Automated Costing Tool: Costs relating to positions for eachMissionare input into this system.
  • Case Management Tracking System: Position changes at Missions are tracked in this database.

The following three forums support interaction between DFAIT and its tenants:

  • The Interdepartmental Working Groups on Common Services Abroad interacts with the Assistant Deputy Minister Council on Representation Abroad, manages the administrative mechanisms that guide the delivery of common services abroad, and is a formal dispute resolution body concerning the Interdepartmental Memorandum of Understanding.
  • An Annual Interdepartmental and Intergovernmental Consultation meeting is held each January to inform partners of whether their proposed position changes are feasible so that proposals can move on to the next approval stage.
  • The Committee on Representation Abroad was established in November 2000 to allow DFAIT to discuss proposed changes to personnel at Missions abroad. The Committee on Representation Abroad meets monthly to review proposals from DFAIT, partner departments, provinces and co-locators and to make recommendations to the responsible geographic and functional Assistant Deputy Minister.

Overall, there is a well structured cost recovery mechanism established in formal agreements with tenants. Furthermore, there are appropriate forums in place to allow tenants to raise matters and share information with DFAIT. Relationships established with tenants provide important input and feedback to the Department allowing it to align resources with government priorities.

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2.4 Build on sound processes to improve compliance

2.4.1 The Bureau is not meeting its obligations with respect to the heritage component of the Treasury Board Policy on the Management of Real Property.

A review of the data from the Directory of Federal Real Property revealed that DFAIT owns 177 properties which are older than 40 years. While most of the properties are residential properties (154 out of the 177), 22 of the properties are utilized for Legislative, Judicial and Diplomatic purposes and include the Embassy to Italy, France, Spain, Australia, Greece, and the High Commission of Canada to the UK. These buildings, some of which have significant architectural features, are meant to represent Canada’s culture and heritage abroad. The prominence and potential heritage value of these buildings could be quite significant given their high profile and visibility to the general public.

Departments are responsible for managing the real property under their administration in accordance with their mandate and operational objectives, while preserving the heritage character of designated buildings – whether Classified or Recognized – throughout their lifecycle. This means that departments must incorporate heritage considerations into their real property management framework in order to ensure informed decision making. Heritage considerations must also be factored into their accountability frameworks, decision-making structures and the systems used for performance reporting.

More specifically, in order to comply with the policy, departments must have the Federal Heritage Bureau Review Office (FHBRO) evaluate buildings that are 40 years of age or older, and that are under their administration or that they wish to acquire, in order to determine their heritage character. We obtained confirmation from Treasury Board that DFAIT does not hold a policy exemption in that regard and as such the policy requirements would apply to DFAIT`s owned properties abroad. Communication with the FHBRO office indicates that their office has never evaluated any DFAIT owned buildings abroad nor are they in the process of doing so.

Without proper evaluations of its heritage properties, there is a risk that the Department is not ensuring the proper preservation of the heritage character of its buildings throughout their lifecycle as mandated by the Treasury Board Policy on the Management of Real Property.

Recommendation:

9. The Director General of the Physical Resources Bureau should meet with Treasury Board and the Federal Heritage Bureau Review Office to discuss potential strategies to ensure the protection of the heritage character of its buildings.

2.4.2 With respect to environmental considerations, the Bureau is in full compliance. The Bureau is actively performing environmental site investigations on its owned properties and has no class 1 or class 2 contaminated sites.

Real property must be managed in an environmentally responsible manner consistent with the principles of sustainable development. The environmental condition of real property must be ascertained to determine whether it is or can be made environmentally compatible with its current and intended use. All available, relevant environmental information must be disclosed to any potential tenants.

Through the Canadian Environmental Assessment Act (CEAA), the government is committed to supporting sustainable development by assessing the environmental effects of its decisions, operations, projects and activities. CEAA applies to environmental assessments of projects within Canada and beyond its borders. DFAIT’s Guide related to CEAA and the Projects Outside Canada regulations outline the roles and responsibilities and provide support to project officers and managers in their fulfillment of their obligations.

As specified in the Guide, the environmental engineer specialist from the Physical Resources Bureau provides advice and guidance to officers in determining whether an environmental assessment is required. Additionally, a Sustainable Development Specialist is responsible for determining the methods of implementing new technology and practices in relation to the environment.

The Bureau performs three stages of environment screening on projects as follows:

  • A pre-screening process before the project starts;
  • A complete screening using the Environmental Site Investigation for collecting the information during the planning stage of the project; and,
  • Any environmental issues encountered in the course of a project are reported to the project implementation manager for any changes to a property’s environmental characteristic at the completion of a project.

Environmental Site Investigations (ESIs) assess the environmental status of properties. Since the initial phase ofESIwas completed between 2001-2008, the Bureau is now performing ESIs on newly acquired crown-owned properties as well as properties which DFAIT exercises operational control.

DFAIT’s Contaminated Sites Management Plan, effective from 2008 until 2013, ensures that departmental procedures are consistent with environmental components (6.1.11, 6.1.13 and 6.1.15) of the Treasury Board policy requirements on Management of Real Property.

DFAIT has no class 1 or class 2 contaminated sites (Treasury Board National Classification system) indicating that there are no major environment problems. DFAIT’s Strategic Environmental Assessment includes information on how to deal with economic, financial and environmental considerations if such instances were to occur.

Overall, we found that the Department has a clear plan in place regarding environmental testing. Potential environmental liabilities are assessed prior to undertaking a project. The Department had no environmental liabilities. Consistent with the government’s increased focus on sustainable development, proactive environmental measures could be undertaken to further reduce the Department’s environmental footprint in relation to its real property portfolio abroad.

2.4.3 Contracting is not always performed consistently or appropriately across the Bureau.

Contracting is a support function that is integral to the Bureau’s achievement of its objectives. In delivering projects around the world, it is necessary for the Bureau to contract with both Canadian and local service providers for a multitude of services such as legal, environmental, architectural, engineering and construction services.

As mentioned previously, a sample of contracting files was not reviewed as planned due to difficulties in gathering the required documentation. As a result, documentation was gathered for only five files. Given the state of contract documentation, the auditors are only able to provide a limited assessment on contracting practices. This represents a risk to the Department given the substantial value and complexity of real property contracts.

During the limited review, it was noted that in one file, the contract was signed by DFAIT seven days after the contract commencement date. We understand from the departmental contracting officers that it is not unusual for work to commence prior to a signed contract. Although circumstances may dictate that work commence as soon as possible due to the volatile environments that the Bureau operates, it should not become commonplace. Consequently, there is a risk of legal liability to the Department.

Temporary Help Services (THS) are services that are provided by the resources of temporary help firms. According to Public Works and Government Services Canada THS requirements, government organizations can temporarily fill positions when:

  • a public servant is absent for a period of time;
  • there is a requirement for additional staff during a workload increase and there is an insufficient number of public servants available to meet the requirement; or
  • a position is vacant and staffing action is in process.

Through an analysis of a listing of THS transactions, three anomalies were found.

  1. Payments totalling $48,000 were made to three workers at aMissionfor wages and other property maintenance type expenditures. In this case, expenditures were misclassified as a THS contract.
  2. A payment to a hotel for $32,000 was included as a THS expenditure which should only include labour costs.
  3. A total of $290,000 was paid to a consultant to provide organizational design and development services to the Bureau. The nature of the services provided falls outside of the realm of the normal course of business; it is questionable whether the appropriate contract vehicle was used.

The cases described above suggest that greater oversight is required to ensure compliance to Treasury Board contracting policy. There is a risk of legal liability to the Department when contracting practices are inconsistent, inappropriate and not transparent.

Recommendation:

10. The Director General of Corporate Operations under the Chief Financial Officer should provide greater oversight – guidance and monitoring – to the Bureau with respect to its contracting activities.

2.4.4 Disposals of real property are handled in accordance with the process outlined in the Quality Management System.

An integral part of the life-cycle management of real property is the timely disposal of assets taking into consideration the current and future needs. Information for potential disposals comes from Missions, Regional Facility Managers, the PRIME database and Portfolio Managers. Using this information, the Bureau’s Leasing and Disposal Manager initiates the process for identifying potential disposals in coming years. The targeted properties for disposal are then incorporated into the draft fiscal year Revenue Generation Plan, which is approved by the Project Review Committee and should be aligned with government and DFAIT priorities. In cases where aMission would close or relocate to another city, a decision would come from cabinet to the Deputy Minister’s office which would direct the Bureau accordingly.

The auditors reviewed all of the disposals of real property that occurred from April to November 2010. The net proceeds recognized by the Bureau from the thirteen properties was CAD$13,365,020. The review of disposal files showed that all of the transactions were handled in accordance with the process outlined in the Quality Management System.

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3.0 Conclusion

The audit noted improvements required in the real property management framework to ensure that it supports effective and efficient operations aligned with the Government’s and DFAIT’s priorities. These improvements would further ensure the sustainability of its real property in supporting the Government of Canada’s international mandate. These improvements relate to:

  • Governance and strategic direction;
  • Performance Measurement;
  • Efficiency and effectiveness of operations; and
  • Compliance to policies.

Although several oversight committees are in place and operating, the audit team found that weaknesses in strategic direction impaired the Bureau’s ability to ensure that key operational decisions such as lease/buy, purchase/build, retain/dispose or maintain/ refurbish were aligned with this direction. The authorities conferred upon the Physical Resources Bureau by Treasury Board and the Department as a Special Operating Agency are no longer exceptional and not always used. Consequently, they do not provide increased management flexibility as originally intended. However, the approval of the upcoming departmental investment plan will accord additional authority to the Bureau.

The Bureau does not have a comprehensive performance measurement framework that includes key and measurable indicators assessed against established targets. Useful indicators and sufficient financial information are in place to draw upon in order to provide an overall assessment of the Bureau’s performance. As part of its ISO process, the Bureau collects a significant amount of data which could be transformed into meaningful information. Data capture could be expanded to transform it into more holistic and meaningful information for decision-making and reporting.

Using the data available, opportunities for more effective resource utilization could be determined. During the audit we noted significant savings that could be generated by adopting a portfolio approach to real property management and raising productivity.

In order to ensure the proper preservation of the heritage character of its buildings throughout their lifecycle, the Bureau must consider potential strategies to address this matter to ensure compliance with the Treasury Board Heritage Policy. While the current maintenance planning process and execution of the maintenance is thorough, the maintenance and repairs expenditures representing 0.6% of the total replacement value is not enough to meet the Treasury Board recommended rate and industry standard of 2%.

Overall, real property is a complex and challenging portfolio. Modernizing the approach to its management would provide the Bureau with increased flexibility enabling more effective and efficient operations.

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Appendix A – About the Audit

Objective

The objective of the audit was to assess the adequacy of DFAIT’s real property management framework in supporting effective and efficient operations aligned with the Government’s and DFAIT’s priorities.

Criteria

The selected criteria for the examination phase have been derived, with some adjustments, as per the elements of the draft document "Core Management Controls." These controls have been developed by the Office of the Comptroller General (OCG). They relate to the Management Accountability Framework (MAF) and aim to fully respond to the engagement objectives and scope. They address effectiveness, efficiency and economy of real property.

Table 2: Audit Criteria
Audit CriteriaRelated Core Management Controls
1. The Bureau’s authority, accountability and responsibility as a Special Operating Agency should be well-defined, aligned, exercised appropriately and sufficient to carry out their mandate.Accountability: AC-1 & AC-3
2. The Real Property portfolio should be effectively and efficiently managed on a life-cycle basis to maximize its long-term sustainability and the strategic priorities of both the Department and the Government of Canada.Governance and Strategic Direction: G-1, 3, 4

Learning, Innovation and Change Management: LICM-2
3. Monitoring and oversight of the Bureau’s finances should be in place to ensure financial information is accurate and reliable for effective financial management and reporting purposes.Stewardship: ST-3, 4, 6, 10 & 13
4. The Bureau should be able to retain adequate and appropriate staffing levels to deliver on its mandate.People: PPL-1 & 4
5. The Bureau’s information systems should deliver appropriate and timely information to management for decision-making and reporting.Governance and Strategic Direction: G-4

Results and Performance: RP-2
6. Contracting practices within the Bureau should align with the policy and operational requirements of the Government of Canada and DFAIT.TB Contracting Policy
7. The Bureau should be effectively managing the accommodation it provides for its clients ensuring standards and operational requirements of its tenants are met.Citizen-focused Service: CFS-1 & 2

Scope

The planning and examination phases of the audit were conducted from July 2010 to February 2011. This audit examined the principal components of a management framework as identified in the Risk Assessment. All of our audit evidence was obtained from sources available at Headquarters. There was no travel to Missions and we did not have the need for any direct communication with them. A sample of project and contracting files that were active in fiscal years 2009/10 and 2010/11 were reviewed. With respect to real property located in Canada, PWGSC is the custodian; therefore it was not included in our audit.

Methodology

The audit was conducted in accordance with the International Standards for the Profession of Internal Auditing and the Treasury Board Standards for Internal Audit.

The methodology consisted of:

  • Data mining and analysis of information in the Integrated Management System (IMS) and PRIME;
  • Process control mapping and analysis of key processes;
  • Testing controls in areas of high risk (i.e. approval authority/decision to acquire and dispose of real property) which may include the examination of specific transactions;
  • Analyzing financial and non-financial information;
  • Review of a sample of project and contracting files;
  • Document review (policies, procedures, Property Management Manual, directives and relevant audit and inspection reports); and
  • Interviews with management and staff at HQ.

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Appendix B – Management Action Plan

Table 3: Management Action Plan
Audit RecommendationManagement ActionArea ResponsibleExpected Completion Date
1. The Assistant Deputy Minister International Platform should ensure that an appropriate structure exists to provide strategic direction to the real property program. This direction would ensure coherence and cohesion of the Bureau’s key decisions to long-term organizational strategies. Consideration should be given to expanding membership to include international real property expertise.Establish and maintain an ADM-level real property advisory committee in order to strengthen the governance and alignment of the asset base with strategic priorities. Membership to include external subject matter experts with significant international real property expertise.

Provide recommendations for suitable candidates.

Provide secretariat function for the RPAC.
Assistant Deputy Minister, International Platform Branch (ACM)

Physical Resource Bureau (ARD)
Summer 2011
2. The Director General of the Physical Resources Bureau should review its authorities to: assess whether they are sufficient to fulfill their custodial responsibilities effectively; and, determine whether Special Operating Agency status remains relevant.The departmental investment planning process is reviewing the relevancy of the bureau’s Special Operating Agency status.

ARD will assess authority requirements and seek adjustments through a departmental TB Submission to ensure that the SOA is relevant and effective within the context of IPB authorities.
Physical Resources Bureau (ARD) in collaboration with the Chief Financial OfficerOct 2011







March 2013
3. Prior to using proceeds from the disposal of real property for other departmental initiatives, the Department should take into consideration the:
  • impact on the sustainability of its real property portfolio; and,
  • alignment to strategic direction
The DFAIT Investment Plan needs to identify governance and risks associated with using proceeds from the disposal of real property for other departmental initiatives through an impact analysis.Assistant Deputy Minister, International Platform BranchOct 2011
4. The Chief Financial Officer should ensure a Departmental Investment Plan is in place as soon as possible to provide additional authority to the Physical Resources Bureau.TB is scheduled to review the DFAIT Investment Plan in the Fall ’11 and risk-based authorities will be granted.Chief Financial OfficerOct 2011
5. The Director General of the Physical Resources Bureau should develop, implement, track and report on a suite of performance measures that would provide holistic and more meaningful information for decision making. This would include the following:
  • Enhancing information related to assets to include financial performance measures such as return on investment, cost/occupant, cost/asset operations, revenue/metre2, replacement value index.
  • Gathering data related to project/contract scope, cost, timeframe and using this information to track performance and identify trends.
  • Develop and enforce a records management strategy in order to ensure that project/contract file documentation is complete and accessible to allow tracking of results.
  • Indicators of operational effectiveness and efficiency which could include: productivity; planned vs. actual expenditures; expenditures vs. deliverables; staff certifications and competencies, staff turnover and vacancy rates etc.
ARD to develop a Performance Measurement Framework in order to operationalize performance tracking and reporting identified in the Property Business Plan for FY 2010/11-2014/15.Physical Resources Bureau (ARD)Pilot – FY 2011/12

Operationalize the PFM in FY 2012/13
6. The Director General of the Physical Resources Bureau should develop a plan to improve the Bureau’s productivity by addressing the following:
  • a comprehensive human resources plan that is aligned with its Property Business Plan;
  • significant variations in productivity in project management; and,
  • Cost-avoidance measures of better travel coordination and a review of the organizational structure.
ARD is conducting a review of the historical and current resource management practices in order to develop a comprehensive Resource Management Plan.






ARD to revise the travel cost and planning process.
Physical Resources Bureau (ARD)March 2012













Sept 2011
7. The Director General of the Physical Resources Bureau should prepare a consolidated accommodation plan and an aggregated asset management plan in order to further support its decision-making process to ensure long-term sustainability of the real property portfolio.Ensure that the data collected by AFR includes relevant real property demand forecasting.

Improve the accommodation management and asset management planning functions. An appropriate accommodation plan will be completed to support decision making and an asset management plan will be completed for the portfolio.

Decisions with regards to accommodation and asset management planning will be made through the ADM Real Property Committee.
Physical Resources Bureau (ARD) and Client Relations Bureau (AFR)

Physical Resources Bureau (ARD)
To be determined based on resource allocation:
  • HR
  • Budgets
8. The Director General of the Physical Resources Bureau should establish a performance target for funds invested in the maintenance and repair of its real property portfolio. This will enhance the sustainability of its buildings as well as realize savings in the long term.Establish and report on performance targets for funds invested in the maintenance and repairs of the portfolio.Physical Resources Bureau (ARD)Baseline reporting by March 2012
9. The Director General of the Physical Resources Bureau should meet with Treasury Board and the Federal Heritage Bureau Review Office to discuss potential strategies to ensure the protection of the heritage character of its buildings.Re-start the negotiation process on the Memorandum of Understanding between DFAIT and TBS.

Discuss with the Federal Heritage Bureau Review Office (FHBRO) the evaluation of buildings to determine their heritage character.

These negotiations/ discussions will recognize that the Department must comply with local standards abroad.
Physical Resources Bureau (ARD)To begin discussions and negotiations in the current fiscal year with revised processes and guidelines in pace for the Bureau by March 2013
10. The Director General of Corporate Operations under the Chief Financial Officer should provide greater oversight – guidance and monitoring – to the Bureau with respect to its contracting activities.The CFO agrees with the audit recommendation and recognizes the important role that monitoring and reporting plays not only in meeting Central Agency and other reporting requirements, but also to fully assess corporate needs and opportunities to improve economic performance of its contracting processes.

The Terms of Reference for the Contract Review Boards have been revised to create a direct link of responsibility from Branches and Missions to the Departmental Contract Review Board.

ARD will work with the CFO to correct contracting issues identified. The revised Bureau Contracting Review Board (BCRB) Terms of Reference will also allow for greater oversight of the contracting process at the Bureau.

ARD also commits to provide quarterly reports on all contracts approved at the BCRB.

Ensure that ARD staff attends mandatory training related to contracting including FAA section 32, 33 and 34 delegation authority instruments.

Provide international contract training.

Increase the oversight and monitoring responsibilities of the Bureau Contract Review Board (BCRB) including a co-chair with an unvested interest in contracting.
CFO Branch
















CFO Branch










Physical Resources Bureau (ARD)

















April 2011










Completed in April 2011










On-going





Fall 2011

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Appendix C - Governance Committees

Mandate of interdepartmental and departmental decision making bodies:

DM Sub-Committee on Representation Abroad: promotes the coordination of policy, programs and the use of common services among departments abroad;

ADM Council on Representation Abroad: looks at program integration and planning coordination from a whole-of-government perspective, approves cost recovery policies and rates for common services (including real property), and approves the Property Project Priority List;

Interdepartmental Working Group on Common Services Abroad (IWGCSA): recommends cost recovery policy, rates for common services and changes to service standards;

Missions Board: aligns DFAIT’s overseas resources toCanada’s foreign policy priorities and provides strategic direction for the management of theMission network, including approval of the Property Project Priority List;

Missions Operations Committee: makes those operational decisions affecting a specificMission that exceed the mandate of any given Branch; Real Property Bureau Director General is a member;

Committee on Representation Abroad: reviews position proposals for change from all departments and co-locator programs and provides recommendations to the Missions Operations Committee;

ADM Steering Committee on Security Abroad: The Committee’s mandate is to ensure ongoing policy consistency and operational coherence in planning and deployment of security program resources;

Joint Coordinating Committee on Security Abroad: ensures horizontal planning, coordination and resource allocation across security related programs, as well as a coordinated approach to monitoring, performance measurement and reporting through an Integrated Reporting Framework; and,

ADM Real Property Advisory Committee: provides strategic advice and direction on the real property program in general, as well as on large, significant projects, including Major Crown Projects.

Bureau Management Committee: consults with ADM Council on Representation Abroad and seeks approval from Missions Board on the Project Priority List, approves policies for the management of real property abroad, and reviews and resolves financial issues including the alignment of resources to ensure the effective operation of the Bureau;

Program Review Committee: approves the overall direction, program requirements, funding allocations and staffing requirements which make up the annual Bureau Work Plan;

Bureau Project Committee: responsible for formal approval for the initiation, development and implementation of Bureau projects, including the allocation of financial expenditures and associated human resources; and,

Bureau Contracting Review Board: provides strategic direction and approves the Bureau’s proposed contracts to ensure that they consistently achieve the Bureau’s objectives in a manner that respects government contracting regulations, policies and best practices.

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Appendix D - Special Operating Agency Authorities

Table 4: Authorities granted to the Bureau by Treasury Board through the SOA
Authorities granted by TBComments
Authority to retain and re-invest proceeds generated through the disposal of property.Every custodian department has this authority as per the Guide to the Management of Real Property
Authority to spend in future years the revenues generated by the disposal of properties in the current year.
Authority to set and adjust rental rates for the sublet of Crown-owned and/or Crown-leased properties and to retain and re-invest the revenues generated.
Authority to enter into non-competitive or sole source contracts for professional and special services relating to the provision of accommodation abroad where the value of the contract does not exceed $100,000 with 100,000 for amendments; authority to enter into contracts for professional and special services up to $1,000K if a competitive process (i.e., 3 or more bids), with $250K for amendments.Treasury Board Contracting Policy establishes the limits under which the Minister for the Department of Foreign Affairs and International Trade can exercise his/her authority. These limits are the same as those in the SOA Charter except for amendments to sole source contracts which should not exceed $50,000.
Authority for the Secretary of State for External Affairs to approve real property capital projects, the value of which does not exceed: (a) $10M for chanceries;(b) $3M for official residences; ($1M for staff quarters and miscellaneous projects;Policy on the Management of Real Property establishes higher limits under which the Minister for the Department of Foreign Affairs and International Trade can exercise his/her authority (a) $13M for chanceries;(b) $4M for official residences; ($1.3M for staff quarters and miscellaneous projects;
Authority to enter into competitive contracts, resulting from a call for tenders under an approved project, for the design and construction of facilities where the costs of the contract do not exceed 75% of the PPA expenditure authority for $3M, whichever is less, and $1.5M for amendments, or 60% of the EPA total project cost estimate or $10M, and $5M for amendments, whichever is less.This has been superseded as per the Treasury Board Contracting Policy, Appendix C – Treasury Board Contracts Directive, Part II – Departmental Index to Exceptional Contracting Limits. Paragraph 9 as indicated below:
  1. $1M for staff quarters (and $500K for amendments)
  2. $3M for an Official Residence (and $1,5M for amendments)
  3. $10M for a Chancery (and $5M for amendments)
  4. $10M for multiple unit facilities (and $5M for amendments)
PPA and EPA terms are no longer used in the above section of the policy.
Authority to proceed directly to the Effective Project Approval (EPA) phase of a project where the Class A or B estimates of the cost of completing the project do not exceed the Preliminary Project Authority (PPA) by more than 10%; the original scope of the project is unchanged; the original estimate of project scheduling has not been significantly amended; and the Bureau’s assesses the risk involved in proceeding as acceptable (i.e.; the concept of the facto EPA)This has been superseded as per Footnote 1 on Appendix E of the Treasury Board Project Approval Policy which states that Treasury Board authority for EPA is not required if it does not exceed the estimate in the PPA. In addition, the conditions related to scope, scheduling and risk in the SOA Charter are no longer applicable.

Table 5: Authorities granted to the Bureau by DFAIT through the SOA
Authorities granted by DFAITComments
Application of the single Operating Budget initiative to the Bureau as a pilot within the Department, on approval by the Department’s Program Management Board. The establishment within FINEX, of single operating and capital budgets for the Bureau, distinct from other departmental budgets, to promote and support the retention and re-investment by the Bureau of the revenues generated by disposal actions and the sub-let, where appropriate, of Crown properties.Physical Resources Bureau has decided not exercise this authority in order to ensure stability in its funding. In other words, due to the fluctuating nature of the Bureau’s revenues, if required, departmental funds could be reallocated to meet the Bureau’s objectives. As a result, the Bureau remains integrated into DFAIT’s financial reporting structure.
As part of the pilot application of the Single Operating Budget initiative to the Bureau, authority for the Director General to establish new and/or delete existing vacant positions as required according to the needs of the Bureau.Physical Resources Bureau was not aware of this authority; and therefore, did not exercise it. Consequently, it is following the overall DFAIT staffing controls and measures.

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Date Modified:
2013-08-06