Audit of Real Property

Strategic Portfolio Planning and Investment Planning

Final Report
Office of the Chief Audit Executive
November 2021

Table of Contents

  1. About the Audit
  2. Background
  3. Findings and Recommendations
  4. Annexes

1. About the Audit

Audit Objective

The objective was to assess the management control framework in place to support effective real property portfolio planning and investment planning.

Audit Scope

The scope of the audit included current planning processes and practices, as well as including modernization initiatives underway. The scope period covered April 2018 to December 2020, although developments occurring during the audit were taken into account. The audit did not examine project delivery, greening/sustainability or asset mix.  These areas are topics of future audits.

Areas of Enquiry (See Annex A)

Statement of Conformance

The audit was conducted in conformance with the Institute of Internal Auditors' International Standards for the Professional Practice of Internal Auditing and with the Treasury Board Policy and Directive on Internal Audit, as supported by the results of the quality assurance and improvement program.

2. Background

Global Affairs Canada manages and delivers resources, infrastructure and services enabling Canada’s presence abroad.

This global network supports the international work of the department along with 24 partner departments/agencies and 13 co-locators. In order to meet this need, the department has 2,681 Real Property assets abroad in 110 countries, supporting more than 178 missions.

Real Property Assets (August 2020)
Property UseCrown-leasedCrown-ownedPrivate LeaseTotal
Official Residence 235982
Staff Quarters 1,3944142962,104
Staff Quarters-HOM314742
Chancery8063143
Chancery / Annex221436
Compound153045
Office Space471149
Parking (Only)70131497
Other (storage, recreation, etc.)4141183
Total 1,7236393192,681

Real Property Modernization

The Real Property function has invested several million dollars over the last 10 years (through consultants and time and effort internally) to transform, modernize and mature Real Property policies, processes and practices. Efforts are focused in key areas, such as: organizational alignment to a corporate real estate model; implementing strategic portfolio planning practices; improving investment development and delivery; performance management; and improving information and data accuracy and availability.

3. Findings and Recommendations

Governance

Audit Criteria: There are effective governance structures and mechanisms in place to support and manage real property portfolio and investment planning (Treasury Board Policy on the Planning and Management of Investments, Section 4.1.10).

FindingsInitiatives underway
  • Effective branch level governance mechanisms are in place to provide oversight and strategic direction for the real property function, and to review and approve major capital investments (See Annex B).
  • The committees meet regularly, provide up to date information for decision making and record decisions as per accountabilities.
  • Roles and responsibilities are clear amongst committee members and are documented in terms of reference.
  • At the working level, planning roles and responsibilities are generally understood.
  • Mechanisms and working level forums support decision making and coordination between stakeholders.
  • Key real property matters are routinely tabled at the Finance Operations Management Committee and Security Committee
  • Matters related to real property are infrequently tabled for information or decision at Executive Committee
  • A governance process for minor capital investments is under development.

Conclusion: The real property function has established an effective governance structure to oversee project review and approval. The function recognizes the need to implement a governance process for its minor project approvals. At the departmental level, the function should continue to bring key real property matters to the Finance Operations Management Committee and Security Committee, but should also consider providing updates to Executive Committee so that strategic property matters are more effectively leveraged to achieve organizational objectives (see Recommendation #3). 

Recommendation:

  1. The ADM International Platform Branch should finalize the governance process for the minor projects, and table it at the Finance Operations and Management Committee as well as the Security Committee for information purposes.

Property Portfolio Planning: Processes, Practices, and Controls

Audit Criteria: Real property planning processes, practices, and controls are in place to guide decision-making, to support meeting departmental needs and obligations, and to manage risks. (TB Policy on the Planning and Management of Investments, Section: 4.1.2).

FindingsInitiatives underway
  • A departmental real property strategy is not in place.
  • Real Property Management Framework and policy suite are out of date.
  • Strategic, long term plans are not implemented at the mission level:
    • Missions’ long term priorities are not yet developed;
    • Mission property planning is reactionary, and done on a short term basis.
  • A departmental real property strategy is under development.
  • The Real Property Management Framework and policy suite are being updated.
  • The Mission Portfolio Plans are under development, and is to be a 5-year strategic property plan for each mission. A pilot to complete plans for 15 missions by the end of FY 2021 has experienced challenges impacting their full completion,  including staff workload and capacity issues, and gaps in the available data needed for the analysis. Unless addressed, these issues will likely impact the 35 mission plans to be completed in 2022.
  • Master plans are also being developed for missions with significant portfolios, which will act as long term strategic Capital Investment Plans.
  • Efforts to improve planning processes to include better mechanisms to coordinate with property maintenance teams, and others.

Conclusion: New planning processes and practices are currently in development, although workload, capacity, and data availability issues continue to impact the roll-out. Historically, strategic long term property planning has not occurred, rather planning has been reactionary and on a short term basis. A departmental real property strategy based on wider departmental priorities is required, in addition to an up-to-date Real Property Management Framework that sets out the control structure and operationalizes Treasury Board’s policy direction.

Recommendations:

  1. The ADM International Platform Branch should update and finalize the Real Property Management Framework and policy suite.
  2. The ADM International Platform Branch should finalize the departmental Real Property Strategy and table to Executive Committee.
  3. The ADM International Platform Branch should finalize the 35 Mission Portfolio Plans slated for completion March 2022, and table at the Finance Operations Management Committee.
  4. The ADM International Platform Branch should finalize the master plans for significant mission portfolios, and table at the Finance Operations Management Committee. 

Property Portfolio Planning: Investment Decision Making

Audit Criteria: Effective mechanisms are in place to identify and prioritize investments and projects that address portfolio gaps and meet mission needs. (Treasury Board Policy on the Planning and Management of Investments, Sections: 4.1.2, 4.1.3, 4.1.5).

FindingsInitiatives underway
  • The Integrated Work Plan (IWP) has been established to provide a coordinated project work planning process each year. There is a project prioritization mechanism in place, which is being adjusted and rationalized as required.
  • There is a formal governance process in place to identify, and approve major projects. Options are analyzed and an approach is adopted.
  • Governance process for minor projects has not been implemented at the time of audit (see recommendation #1).
  • Investment identification is currently not supported by long term strategic planning processes (see recommendation #4).
  • Mission Portfolio Plans are under development and are expected to drive and inform investments, and support multi-year project work-planning
  • Governance for minor projects (approximate expenditures $30M - $40M) is under development.

Conclusion: The Integrated Work Plan (IWP) allows the function to exercise a coordinated approach to identify, prioritize, and sequence property investments from the various project drivers (client demand, capacity, life cycle, health & safety, security, accommodation, sustainability). The IWP acts as an annual project work plan, and has been in place for three planning cycles. The Mission Portfolio Plans (once completed) are intended to inform this annual investment planning process from a long term and strategic perspective.

Recommendations: See recommendations #1 and #4.

Property Portfolio Planning: Information for Decision Making

Audit Criteria: Real property data and information is tracked, complete, reliable, and feeds into planning activities and decision making. (Treasury Board Policy on the Planning and Management of Investments, Section: 4.1.4.2; Treasury Board Directive on the Management of Real Property, Section 4.1.1.3).

FindingsInitiatives underway
  • Portfolio Managers often do not have sufficient information to make strategic decisions, such as “dashboard” type mission profile information (including historic expenditures and operating costs). Some information is available on building condition and life cycle needs, but work often resides in silos and is difficult to access.
  • Information on client needs is available only for short term requirements (one-year horizon)
  • The reliability and quality of information provided by the missions through business planning processes varies, depending on the mission. Profile data, such as space utilization, often requires confirmation by the mission.
  • Data in systems, such as PRIME and OPERA, is often incomplete, absent, or not reliable and accessible.
  • Efforts are underway to identify data requirements, and to improve data completeness, reliability, and accessibility.
  • The annual call-out process (to engage clients on their property needs) is intended to incorporate a mechanism that will identify needs on a 5-year time horizon.
  • Efforts are underway to improve information regarding owned property condition and replacement values.

Conclusion: A comprehensive and accessible data set detailing the condition, goodness-of-fit and operational readiness of the portfolio is required. Challenges with the availability of good data and information will likely persist until a more comprehensive and integrated property management application/solution is implemented (see recommendation #7). Without accurate replacement cost information for Crown-owned properties, it is difficult to plan maintenance and reinvestment efforts.

Recommendation:

  1. The ADM International Platform Branch should determine the comprehensive replacement cost of the Crown-owned portfolio of property.

Property Portfolio Planning: Performance Management

Audit Criteria: Real property data and performance information is tracked, complete, reliable, and feeds into planning activities and decision making. (Treasury Board Policy on the Planning and Management of Investments, Section: 4.1.4.1; Treasury Board Directive on the Management of Real Property, Section 4.1.1.2).

FindingsInitiatives underway
  • A formal portfolio performance measurement framework is not in use to inform planning:
    • There are a number of real property performance indicators, documented in a variety of sources, and in different stages of application;
    • Portfolio performance targets are not integrated into the real property investment planning;
    • The current departmental portfolio target for reinvestment in properties is 2% of replacement value (TB guidance is 4%). The department has not met the 2% target for a number of years.
  • Performance management framework is under development, to include indicators and targets.

Conclusion: A performance management framework is not in place to support mission property planning. This makes it difficult to assess a property’s performance to identify gaps and to prioritize requirements. The performance framework currently under development is essential to support more robust planning and sound investment decisions.

Recommendation:

  1. The ADM International Platform Branch should finalize the Real Property Performance Management Framework, and align it to the department’s data strategy by identifying data requirements, improving data completeness, reliability, and accessibility.

Property Portfolio Planning: Human Resource Capacity

Audit Criteria: The Real Property function has sufficient human resource capacity and competency to conduct effective planning for the Real Property portfolio. (Treasury Board Policy on the Planning and Management of Investments, Section: 4.1.1; Treasury Board Directive on the Management of Real Property, Section 4.1.3).

FindingsInitiatives underway
  • Portfolio Managers noted that they may not have the required skill set for new strategic planning responsibilities, including strategic analysis, critical thinking, and writing strategically.
  • Based on a review of the Treasury Board Fixed Asset Review and other real property internal audits from other departments, it was noted that challenges in staffing real property professionals, and gaps in strategic portfolio planning capacity, are common across the Government of Canada. This makes developing functional competencies internally, through training mechanisms, essential in establishing and retaining capacity. 
  • In terms of capacity, Portfolio Managers report that due to project workload, they do not have sufficient time to do strategic planning. Therefore, successful and timely implementation of the Project Sponsorship role and organizational change is essential.
  • Management developing training roadmaps for specific disciplines, which leverage both internal and external sources, in order to develop functional competencies.
  • HR tactical plan being developed to design and implement organizational changes related to alignment to the Owner/Investor organizational structure model.
  • Creation of the Project Sponsorship role is intended to address workload issues.

Conclusion: Staff in the property portfolio management function have varied level of experience/expertise, and would benefit from specialized training regime and onboarding tools to strengthen the competencies. This is essential in establishing and maintaining capacity, and retaining skilled staff.

Recommendation: 

  1. The ADM International Platform Branch should implement a comprehensive training curriculum designed to develop functional competencies and skills related to strategic planning.

Modernization Initiatives

Audit Criteria: Mechanisms and controls are in place to support the implementation of the strategic portfolio and investment planning related components of the real property modernization initiative. (Project Management Body of Knowledge – Project Planning, Risk Management and Stakeholder Engagement).

Context
  • Modernization is an umbrella term referring to a group of individual, interdependent, change initiatives within the branch.
    • As part of the modernization agenda, the real property function is undergoing significant organizational changes as they implement the Corporate Real Estate model (See Annex C for details).
FindingsInitiatives underway
  • Initiatives are at varied stages (some are under development while other are being implemented).
  • Progress on initiatives are tabled at the Financial Operations Management Committee and at the Branch Senior Executive Committee. In addition, Treasury Board has required the department to provide bi-annual updates on progress against a real property maturity model.
  • An analysis of the directorate-level Implementation Plan found that it does not fully identify all the interdependencies with other bureaus and directorates. The plan can be strengthened by: 
    • documenting roles, responsibilities, accountabilities, expectations, and interdependencies;
    • including initiatives being led by other bureaus, such as the Data Strategy and client demand improvement;
    • identifying risks that may impact successful implementation should be identified and managed;
    • including a change management strategy that is focussed on supporting and guiding staff through the multi-year organizational transformation;
    • re-sequencing tasks based on interdependencies (e.g. data integrity improvements, portfolio strategy and management framework development, portfolio planning process development, and training regime implementation).
  • A directorate level Implementation Plan and HR tactical plan have been created to implement the Corporate Real Estate model and to sequence the specific tasks.

Conclusion: Successful implementation of modernization initiatives are critical to strengthen the overall portfolio based approach to managing the real property network. A formal Implementation Plan at the Branch level would help support the timely implementation of the multiple and interrelated initiatives.

Recommendation:

  1. The ADM International Platform Branch should revise and expand the Implementation Plan for the real property modernization initiative to include other branch change initiatives to better support business readiness.

Audit Conclusion

The department continues to make an effort to modernize the management of its real property function, however the management control framework to support effective portfolio planning and investment needs to be strengthened.  While the governance for operational decision making is in place, and supports individual project decisions, the function is operating in isolation of an overall portfolio strategy.

Certain areas of improvement were identified to strengthen the portfolio based approach such as finalizing a policy suite, a strategy, mission portfolio plans, master plans for significant mission portfolios, and performance management framework with reliable data. In addition, an overall implementation plan for the real property modernization initiative would help support business readiness.

4. Annexes

Annex A: Audit Criteria

1. GovernanceThere are effective governance structures and mechanisms in place to support and manage real property portfolio and investment planning.
1.1 Effective Governance StructureAn effective governance structure is in place to support decision making related to real property portfolio management, investment planning, strategic direction, and to ensure alignment to departmental objectives. Established committees meet regularly with active members and are provided with sufficient, up to date, and accurate information.
1.2 Accountabilities, Roles and ResponsibilitiesRoles, responsibilities, and accountabilities with respect to real property planning are clearly defined and communicated.
1.3 Effective Coordination with StakeholdersMechanisms and working-level forums are in place to allow effective coordination between stakeholders.
2. Processes, Practises, and ControlsReal property planning processes, practices, and controls are in place to guide decision-making to support meeting departmental needs and obligations, and to manage risks.
2.1 Effective ProcessesEffective processes are in place to assess client needs and requirements, and to assess capacity and condition of property stock to meet those needs.
2.2 Prioritizing InvestmentsEffective mechanisms are in place to identify and prioritize investments and projects that address portfolio gaps and meet mission needs.
2.3 Data and Performance InformationReal property data and performance information is tracked, complete, reliable, and feeds into planning activities and decision making.
2.4 HR CapacityThere is a sufficient HR capacity and competency for effective planning of the real property portfolio.
3. Modernization InitiativeMechanisms and controls are in place to support the implementation of the strategic portfolio and investment planning related components of the real property modernization initiative.
3.1 Formal ObjectivesThe modernization initiative’s objectives, outcomes and components are formalized and supported by adequate resources, clear roles and responsibilities, and achievable timelines to ensure completion.
3.2 Oversight and Progress UpdatesThere is sufficient management oversight and direction, and management receives regular updates on progress.
3.3 Stakeholder ConsultationCoordination, communication and consultation mechanisms have been established with stakeholders who have a role in implementation.
3.4 Implementation PlansImplementation plans include risk management and change management mechanisms.

Annex B: Relevant Governance Committees

Operational Committees
  • Joint Management Meeting (JMM) – information sharing between ARD & AWD
  • Project Review Advisory Board (PRAC) – technical review of projects
  • International Platform Senior Executive Committee (IPSEC)
  • DG Branch Management Committee (DGBMC)
  • Platform Project Oversight Committee (PPOC)
  • Real Property Investment Board
  • Missions Committee (MC)
Corporate Committees
  • Financial Operations Management Committee (FOMC)
  • Security Committee (SecCom)
Interdepartmental Committees
  • Committee on Representation Abroad (CORA)
  • ADM Council on Representation Abroad
  • International Platform Investment Review Board (IPIRB) (dormant)
  • Interdepartmental Working Group on Common Services Abroad (IWGCSA)

Annex C: Organizational Changes

Strategic Planning and Stewardship bureau (ARD)
Breakdown of bureau organizational chart		Filled PositionsVacanciesTo be createdTotal
ARD - Office of DG ARD8008
ARA - Portfolio Strategy, Client Engagement and Investment Advisory4471768
ARE - Security Infrastructure Projects Sponsorship6006
ARI - Security Investments Oversight Office92011
ARU - Duty of Care Projects Sponsorship5207
ARO -  Strategic Policy and Planning2614040
Totals982517140

The Portfolio Strategy, Client Engagement and Investment Advisory Directorate (ARA) is undergoing significant organizational changes as they implement a Corporate Real Estate (CRE) model. An organizational and classification review is underway to implement the new structure and update classifications and job descriptions, which have become outdated and not aligned to duties.

The creation of the Project Sponsorship role is intended to take on the responsibility to oversee investments/projects from identification through to delivery (from the owner/investor perspective). This role currently sits with the Portfolio Managers. Up to 13 project sponsor positions are intended to be created.

Under their current role Portfolio Managers report that due to project initiation workload, they do not have sufficient time to do strategic planning. The implementation of the Project Sponsorship role is intended to address these workload issues, and allow Portfolio Managers to focus on the strategic planning processes (under development and implementation) for their respective portfolios.

ARA has created a HR tactical plan to sequence the implementation of specific tasks related to the organizational changes.

Annex D: Recommendations and Management Response and Action Plan

Audit RecommendationManagement ResponseManagement Action PlanArea ResponsibleExpected Completion Date (Month and Year)
1. The Assistant Deputy Minister of the International Platform Branch should update and finalize the Real Property Management Framework and policy suite.Management agrees to update and finalize the Real Property Framework and policy suite.a) Overarching RP Framework and RP policy suite. (approved)
b) Real Property Management Policy.(approved)
c) Updated Real Property Management Framework consultation draft finalised
d) Final Real Property Management Framework		ADM of ACMa) Completed
b) Completed
c) June 2022
d) June 2023
2. The Assistant Deputy Minister of the International Platform Branch should determine the comprehensive replacement cost of the crown-owned portfolio of property.Management agrees to determine comprehensive replacement cost of the crown-owned portfolio of property.a) A methodology to establish Replacement Cost New (RCN) of crown-owned Chanceries and Official Residences. (completed)
b) Establish RCN for crown-owned Chanceries and Official Residences (90% complete). Completion of the remaining 10% RCN.
c) Methodology for the replacement cost of crown-owned Staff Quarters.		ADM of ACMa) Completed
b) March 2023
c) March 2023
3. The Assistant Deputy Minister of the International Platform Branch should finalize the departmental Real Property Strategy and table to Executive Committee.Management agrees to finalize the Global Real Property Portfolio Strategy.a) Draft Global Real Property Portfolio Strategy consultation draft finalised.
b) Final Global Real Property Portfolio Strategy.		ADM of ACMa) June 2022
b) June 2023
4. The Assistant Deputy Minister of the International Platform Branch should finalize the set of 35 mission portfolio plans slated for completion March 2022, and table at the Finance Operations Management Committee.Management agrees to finalize the set of 35 mission portfolio plans (MPP) slated for completion March 2022.a) Pilot MPPs (15): completed and tabled at ACM governance bodies.
b) 35 MPPs will be shared with ACM governance and other GAC stakeholders.		ADM of ACMa) Completed
b) March 2022
5. The Assistant Deputy Minister of the International Platform Branch should finalize the master plans for significant mission portfolios, and table at the Finance Operations Management Committee.Management agrees to finalize master plans.Master plans for the following missions underway: a) Delhi
b) Beijing		ADM of ACMa) March 2022
b) March 2022
6. The Assistant Deputy Minister of the International Platform Branch should finalize the governance process for the minor projects, and table it at the Finance Operations and Management Committee as well as the Security Committee for information purposes.Management agrees to finalize the governance process for minor project.a) Finalized process and governance structure for the Minor Projects.
b) Formal adoption into broader investment management process.		ADM of ACMa) March 2022
b) June 2022
7. The Assistant Deputy Minister of the International Platform Branch should finalize the Real Property Performance Management Framework, and align it to the department’s data strategy by identifying data requirements, improving data completeness, reliability, and accessibility.Management agrees to finalize the elements of a performance management framework and integrate into Global Real Property Strategy and Real Property Management Framework. This work will align it to pillar 4: Performance & results of the departmental data strategy.a) A review of existing Real Property performance indicators and an update of the Performance Indicator Profile (PIP). (completed)
b) Integration into Global Real Property Strategy.
c) Integration into Real Property Management Framework.		ADM of ACMa) Completed
b) June 2022
c) June 2022
8. The Assistant Deputy Minister of the International Platform Branch should implement a comprehensive training curriculum designed to develop functional competencies and skills related to strategic planning.Management agrees. Management has established a Center of Expertise for real property competencies development.a) Centre of Expertise first priority is the development of a curriculum for strategic planning.ADM of ACMMarch 2023
9. The Assistant Deputy Minister of the International Platform Branch should revise and expand the Implementation Plan for the real property modernization initiative to include other branch change initiatives in order to better support business readiness.Management agrees with the recommendation. The maturity model approach used to track and report to Treasury Board Secretariat integrates all Branch efforts related to all themes, including data management and client relations.a) Integrate Real Property maturity model into ACM Branch Blueprint and implement initiatives through Branch Strategic Business Plan.ADM of ACMMarch 2022
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