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Follow-up of the January 2006 Audit of Outsourcing of Health Claims Administration - December 2008

ACKNOWLEDGEMENT

Audit & Evaluation Division acknowledges the time and effort given by departmental managers and staff to provide information associated with this follow-up audit.

This report was prepared by:
Alex Robert, Audit and Evaluation Director
Michael Spidel, Audit and Evaluation Manager
Elaine Brien, A/Audit and Evaluation Officer

1.0 Introduction

This report is a follow-up to recommendations raised in Veterans Affairs Canada's (VAC) Audit and Evaluation Division's (AED) January 2006 report, the Audit of Outsourcing of Health Claims Administration.

The follow-up report provides background information, and a table (7.0 Annex A) that references the 20 recommendations (including sub-recommendations, there are 62 findings in total) contained in the original audit report. The table provides information for the Departmental Audit Committee to consider regarding the status of corrective actions to address the recommendations.

The information presented outlines the recommendations and sub-recommendations, with summary information for both the current status and remaining actions. While detailed information has not been included for each of the corrective actions resulting from the 20 original recommendations, AED will continue to track actions taken to address the recommendations contained in the report and management's proposed corrective actions.

Some of the issues raised in the audit report are complex. Actions to address the recommendations have required significant effort by program areas and corporate services. In instances where target dates for implementation of the recommendations have not been met, new target dates, and in some cases, revised action plans are needed as progress continues on management action plans committed to in the 2006 audit report.

2.0 Background

The original audit was approved in July 2004. The scope of the audit included contract administration practices respecting the current and previous contracts for the outsourcing of health claims administration. The audit was primarily a contract audit with emphasis placed on reviewing the current Contract (awarded in 2002) with Medavie Inc. The audit was VAC-focussed and did not examine contract areas specific to the partner departments (DND and RCMP). Given that the audit was focussed on the contracts, it did not include an examination of system controls and edits to validate the accuracy of benefit payments in relation to program entitlements.

The Federal Health Claims Processing System (FHCPS) is one of the largest and most complex health claims processing systems in the country. Since 1989, when VAC entered into a contractual arrangement with this Contractor for the nation-wide processing of treatment benefit claims, the scope and magnitude of services provided has grown significantly. The audit findings and recommendations from the original audit report were aimed at helping VAC enhance its control framework and derive better value from the Contract. Table 1 provides a summary of VAC's program and contract expenditures, clients and transaction volumes.

Table 1: Summary of VAC's Program & Contract expenditures, Clients & Transaction Volumes
  Contract Expenditures # Treatment Transactions Processed (Millions) Treatment Expenditures
($ Millions)
#Treatment Clients (thousands) VIP Transactions (Millions) VIP Expenditures
($ Millions)
# VIP Clients (thousands)
2005-06 $29M 7.6M $271M 117k 4.3M $270M 98k
2006-07 $29M 7.9M $266M 115k 4.6M $287M 101k
2006-07 $27M 8.2M $262M 112k 4.8M $303M 102k

Source: VAC's Corporate Information System (CIS) and Finance Division

3.0 Methodology and Criteria

The methodology and criteria that were applied to this audit are common practices contained within the Professional Practices Framework of the Institute of Internal Auditor and the Treasury Board Secretariat's Policy on Internal Audit. Management Action Plans were reviewed as to the relevancy, degree of effort, or that the recommendation was satisfactorily actioned by the client. Interviews were conducted as required with program managers and evidence gathered was reviewed to determine if the management action plan was executed and supports the intention of the recommendation. A rating scale was used (Level 1 - Level 5, plus Obsolete and Superceded) to assess and rate the level of implementation of the recommendation (Annex B). The methodology used allowed the audit team to have reasonable assurance about the ratings assigned.

4.0 Findings

Significant progress has been made by both the program areas and corporate services to address many of the recommendations, fully or in part, from the original audit report. The status of the 62 recommendations or sub-recommendations is outlined below using the scale for rating the level of implementation of the recommendations or sub-recommendations:

Scale for rating the level of implementation of the recommendations or sub-recommendations
Level  
Level 1: No progress or insignificant progress 0
Level 2: Planning stage 0
Level 3: Preparations for implementation 7
Level 4: Substantial implementation 13 (3 recommended for closure)
Level 5: Full implementation 39
Obsolete (no longer applicable) 2
Superceded 1
Total: 62

5.0 Conclusion

Audit and Evaluation Division is recommending closure of 45 of the 62 recommendations and sub-recommendations. Progress continues to be made on many of the outstanding recommendations. Audit and Evaluation Division will continue to track corrective actions taken to address outstanding recommendations contained in the original audit report.

6.0 Distribution

  • Deputy Minister
  • Departmental Audit Committee Members
  • Chief of Staff to the Minister
  • Chair, Veterans Review and Appeal Board
  • Assistant Deputy Minister, Corporate Services Branch
  • Assistant Deputy Minister, Policy, Programs and Partnerships Branch
  • Assistant Deputy Minister, Services Delivery and Commemoration Branch
  • Director General, Finance Division
  • Director General, National Operations Division
  • Director General, Program and Service Policy Division
  • Director General, Communications Division
  • Deputy Coordinator, Access to Information and Privacy
  • Comptrollership Branch (TBS)
  • Office of the Auditor General
  • Program Analyst, Treasury Board of Canada, Secretariat
  • Public Works and Government Services Canada
  • Department of National Defence
  • Royal Canadian Mounted Police

7.0 Annex A - Follow-up Status of Original Recommendations of the Audit of Outsourcing of Health Claims Administration

Follow-up Status of Original Recommendations of the Audit of Outsourcing of Health Claims Administration
Rec.# Recommendation(s) Current Status Remaining Actions Rating
R1 (i) ensure that Requests for Proposals for the outsourcing of programs or services are subject to a broad review in their entirety by key organizational units such as Contracting and Statistics for accuracy and completeness; There has been a broad review of the Statement of Requirements (SOR) and Basis of Payment for the Job Placement, Vocational Rehabilitation Request For Proposal's (RFP's) and for the future FHCPS RFP. This sub-recommendation is being addressed. 5
R1 (ii) clarify VAC's ownership of intellectual property and licensing rights for FHCPS applications; According to the Contracting Authority, of which VAC is in agreement, the FHCPS applications are the intellectual property of the Contractor.

VAC's FHCPS Internal Governance (IG) Committee agreed that VAC does neither have nor want licensing rights for FHCPS applications.
This sub-recommendation is being addressed. 5
R1 (iii) ensure that intellectual property and licensing rights for future outsourcing arrangements are fully defined and stipulated in the contracts; For the next FHCPS contract, the IG Committee has decided that intellectual property rights will rest with the Contractor and thatVAC will not seek licensing rights for FHCPS applications. VAC is currently in the process of preparing to issue a RFP re-tender the FHCPS contract. Intellectual property and licensing rights need to be defined and stipulated in the RFP documents that are to be issued in Fall 2008. 4

Medium Risk
R1 (iv) ensure that future contracts for outsourcing of departmental programs specify key performance measures and reporting requirements; and Contracting and Procurement, along with other areas of the department, has been involved in reviewing and providing feedback on the SOR for the next FHCPS contract.

A dashboard performance report will continue to be a requirement in the next FHCPS contract.
This sub-recommendation is being addressed. 5
R1 v) ensure that future contracts for outsourcing of departmental programs contain definitive descriptions for each basis of payment. Contracting and Procurement has been more involved in the outsourcing of programs and have provided guidance and advice to program areas.

The Basis of Payment for the future FHCPS contract is more definitive, and advice and comments were sought, received and often incorporated into the Basis of Payment.
This sub-recommendation is being addressed. 5
R2 It is recommended that the ADM, Corporate Services, sign off on all estimates contained in contracts for outsourcing of departmental programs. For the future FHCPS contract, transactions in the SOR match the transactions in the OHPS Client and Expenditure Forecast that the ADM, CS signed-off.

The ADM, CS, signs-off on forecasts and/or estimates either directly (as in the OHPS Client and Expenditure Forecast) or indirectly (e.g. signing off on a TB Submission that contains estimates).
This sub-recommendation is being addressed. 5
R3 It is recommended that the Assistant Deputy Ministers, Service Delivery and Commemoration (i to viii) and Policy, Programs and Partnerships (ix):

i) separate the FHCPS Project Authority's roles for project management and for contract administration;
National Operations Division (NOD) has reorganized and now has a separate and distinct unit responsible for all contracted services and programs.

Finance Division personnel are members of the Change Control Committee; however, they often do not attend.

There is more balance between managing the relationship with the contractor and managing the contract and financial stewardship; however, much of both roles still remain with one person.
NOD reorganization completed, but not all positions are staffed.

Finance Division personnel attend Change Control Committee meetings on a regular bases.

Ensure roles and responsibilities for project/program management and contract management are clearly understood and implemented .
4

Medium Risk
R3 ii)track FHCPS contract expenditures by basis of payment; VAC Finance tracks expenditures by Basis of Payment and provides data to Contract Administration unit. Also, expenditure data is received electronically from the Contractor and VAC runs queries against the Contractor's system to verify the transaction volumes charged.

This sub-recommendation is being addressed. 5
R3 iii)provide the Senior Management Committee (formerly the Departmental Executive Board) with regular reports on FHCPS contract expenditures; Beginning in October 2008, a process will be implemented to provide Senior Management Committee with bi-annual reports on FHCPS expenditures and performance. Demonstrate bi-annually that SMC has been provided with FHCPS contract expenditure reports. 3

Low Risk
R3 iv)regularize informal agreements of a material nature that have been entered into by VAC and the Contractor by documenting the changes and amending the Contract accordingly; A contract amendment in 2007 made adjustments to the human resource allocations included in the fixed costs, included the provision of a Treatment Authorization Centre and added the subcontractor position of On-Site Technical Account Manager. Also, VAC has established service contracts with medical professionals. This sub-recommendation is being addressed. 5
R3 v) develop an outsourcing strategy for programs and services administered by Service Delivery and Commemoration Branch to guide decision-making and support the stewardship of financial resources; The FHCPS Internal Governance Committee reviews and makes decisions on outsourcing programs or services that are health care related; however, an overall outsourcing strategy has not been developed. Develop an overall outsourcing strategy for all VAC programs and services with guiding principles, including the processes and evaluation criteria. 4

Low Risk
R3 vi) evaluate the current Contract in order to make an informed decision on whether or not to exercise the Contract's option years; There has been a broad review of the current contract including an assessment by a consultant who recommended exercising the contract's options years. Both sets of options years have approval to be exercised. This sub-recommendation is being addressed 5
R3 vii) develop a plan to ensure continuity in program delivery should the Department choose not to exercise the Contract's option years; Decision to exercise all option years has been approved. Proposed PWGSC timeline has been provided that incorporates the two sets of option years, with contract award in 2010 and implementation in July 2012.   Obsolete
R3 viii) redefine VAC's FHCPS reporting requirements, compare these requirements with regular and ad hoc reports received and negotiate any changes to reporting requirements with the Contractor; and A review of FHCPS reporting requirements has been completed. Ad hoc reports have been minimized and a Dashboard report has been developed (see R8). A listing and details of reports received by VAC was provided. This sub-recommendation is being addressed. 5
R3 ix) institute a systematic process to review benefit code utilization for all Programs of Choice to identify opportunities to reduce transaction costs and improve programs. Benefit code reviews have been completed for Program of Choice 03 (Audio (Hearing) Services) and POC 11 (Prosthetics and Orthotics).

A project will soon be underway to address the top priorities pertaining to the benefit code grids, but this does not include reviewing all benefit codes.

Updating the benefit grids is necessary prior to the re-tendering of the contract in 2010 to ensure the contractor receives accurate, up-to-date information.
Review all remaining benefit codes. The review should be completed prior to the next contract award and should seek opportunities to reduce transaction costs and improve the programs. Also, the review would lower the error rates resulting from post payment verifications. 3

Medium Risk
R4 It is recommended that the Assistant Deputy Minister, Corporate Services, review the employment status of all subcontractors and individuals billed through the As & When Requested Services portion of the contract to ensure that contracting policies are being adhered to, that the work performed falls under the scope of the Contract and that an employer/employee relationship does not exist with VAC. Currently, Contract Administration is receiving employment status reports from the Contractor to ensure the contract policies are being adhered to, and ensures the work performed falls under the scope of the contract.

In some instances, service contracts have been put in place to minimize the risk of an employer/employee relationship and a contract amendment in 2007 included the addition of an On-Site Technical Account Manager position.
This sub-recommendation is being addressed. 5
R5 It is recommended that Director General, Finance track FHCPS contract expenditures by basis of payment. Financial Services Directorate is tracking expenditures by basis of payment. A spreadsheet has been prepared recording all contract expenditures and is updated on a monthly basis and shared with Contract Administration. The Contractor provides Finance with a monthly update of their tracking of costs that is then reconciled to VAC's records. This sub-recommendation is being addressed. 5
R6 It is recommended that the ADM, CS:
i)issue guidance to department managers on the process and criteria for the development and acceptance of business cases for the outsourcing of departmental programs and services;
Guidance is provided on a case by case basis. However, guidance has not been written and distributed to managers, although TBS has issued guidance on developing cost-benefit analyses. Note: For the recent business cases related to the FHCPS, Finance Division had personnel assigned to the development of the business cases. Written guidance to be developed and distributed that includes general processes and criteria that needs to be followed for outsourcing of programs and services. 4

Low Risk
R6 ii)review business cases to ensure they are supported by a sound cost-benefit analysis; and Business cases for the Treatment Authorization Centre, Special Authorization Unit, Veterans Independence Program and Long Term Care have been completed and included a cost-benefit analysis. Also, the business cases were reviewed by the FHCPS Internal Governance (IG) Committee. This sub-recommendation is being addressed for programs and services related to the FHCPS.

Establish a process to ensure business cases undergo a full and complete review.
4

Medium Risk
R6 iii)present business cases to the Senior Management Committee (formerly the Departmental Executive Board) for approval prior to contracting. A record of decision from the IG Committee meeting November 13, 2007 indicated approval for the TAC, SAU, VIP and LTC business cases. IG has ADM's as member which must sign off business cases prior to contracting. This sub-recommendation is being addressed for programs and services related to the FHCPS.

Establish a process to ensure business cases are presented to senior management prior to contracting.
4

Low Risk
R7 It is recommended that the Assistant Deputy Minister, Service Delivery and Commemoration:
i) evaluate the cost-effectiveness of the Treatment Authorization Centre, Special Authorization Unit and Health Related Travel to determine whether these services should continue to be outsourced;
A comprehensive review has been completed.

The SAU and TAC have undergone a cost-benefit analysis and effectiveness review to determine whether or not to continue outsourcing this service to the Contractor. The review concluded that the SAU and the TAC should continue to be outsourced.

The cost-effectiveness of health related travel claims processing was not evaluated: it was included in a qualitative assessment of outsourcing health claims administration that concluded VAC should continue to outsource health claims administration.
Evaluate the cost-effectiveness of health related travel claims processing. Recommend Closure 4

Low Risk
R7 ii) clarify with Treasury Board Secretariat whether or not approval is required for the outsourcing of the Treatment Authorization Centre, Special Authorization Unit and Health Related Travel; and Clarification on whether or not TB approval is needed to outsource the TAC, SAU and health related travel has not been sought; however, approval to include the TAC in the FHCPS contract was part of a 2007 contract amendment. The SAU and health related travel claims processing were approved by Treasury Board to be part of the 2002 FHCPS contract; therefore, clarification was not necessary. This sub-recommendation is being addressed. 5
R7 iii) pending an evaluation of its cost-effectiveness and TB approval, if required, amend the Contract to include the TAC. A Business Case Analysis of the TACs has been completed; subsequently, the contract was amended to include the TAC. This sub-recommendation is being addressed. 5
R8 It is recommended that the Assistant Deputy Minister, Service Delivery and Commemoration:
i) define key performance standards for the FHCPS Contract;
Measures have been defined and are incorporated into an Executive Dashboard Report. This sub-recommendation is being addressed. 5
R8 ii) require the Contractor to provide dashboard-type performance reporting against standards; and The Contractor provides VAC with an Executive Dashboard Report monthly that reports against standards. This sub-recommendation is being addressed. 5
R8 iii) provide the Senior Management Committee (formerly the Departmental Executive Board) with regular reports on FHCPS performance. Beginning in October 2008, a process will be implemented to provide SMC with bi-annual reports on FHCPS expenditures and performance. Demonstrate bi-annually that SMC has been provided with FHCPS performance reports. 3

Low Risk
R9 It is recommended that the Assistant Deputy Minister, Service Delivery and Commemoration, ensure that the Contractor has an effective and reliable disaster recovery plan which is properly tested on a periodic basis. A Disaster Recovery Plan is in place and has been tested. Testing occurs at least annually. Personnel from VAC and the Contractor participate in and sign-off on the testing This sub-recommendation is being addressed. 5
R10 It is recommended that the Assistant Deputy Minister, Service Delivery and Commemoration, monitor and ensure the Contractor's compliance with the security and citizenship requirements of the FHCPS Contract. The Contractor provides VAC with a bi-annual report that includes the names of employees and subcontractors, their citizenship and their security level. This sub-recommendation is being addressed. 5
R11 It is recommended that the Assistant Deputy Minister, Service Delivery and Commemoration, require the Contractor to demonstrate compliance with language requirements of the FHCPS Contract. The Contractor provides VAC with a bi-annual report that includes the names of employees who work in bilingual positions that require bilingualism. This sub-recommendation is being addressed. 5
R12 It is recommended that the Assistant Deputy Minister, Policy, Programs and Partnerships:
i) ensure that high dollar reviews are performed for all Programs of Choice;
High dollar review are being conducted on all POCs. This sub-recommendation is being addressed. 5
R12 ii) require the Contractor to follow up with providers who do not respond to audit inquiries; The return rate for client and provider verification letters has increased to over 80% returned.

The Contractor resends letters stamped with second notice when a response is not received.
This sub-recommendation is being addressed. 5
R12 iii) require the Contractor to report the cumulative cost of each audit and the results of ad hoc profiling; In progress. The Contractor has a three phase plan to make improvements to profiling and to better demonstrate its value. The number of hours spent on each audit are tracked, but cumulative costs for each audit have not been provided. Track and report cumulative costs of each audit and results of ad hoc profiling. 3

Low Risk
R12 iv) ensure that a risk-based audit plan is submitted for VAC approval, which includes estimates of the costs of the audits and potential recoveries; Audit plan is more comprehensive but does not include estimates for the cost of the audits and estimates of potential recoveries. Include estimates for the cost of the audits and potential recoveries in the annual plan. 4

Low Risk
R12 v) on an ongoing basis assess and monitor the operational and cost effectiveness of the audit activities performed by the Contractor. Expenses and recoveries are tracked and reviewed. Ad hoc profiling has been minimized, which has resulted in decreased expenditures.

Expenditures are still significantly greater than recoveries; however, the audit activities also provide value by serving as a deterrent and educating providers on program rules.
Further assessment of the cost-effectiveness of audit activities is necessary.
Recommend Closure
4

Low Risk
R13 It is recommended that the Director General, Finance Division:
i) clarify what constitutes an account receivable pertaining to FHCPS provider overpayments;
Clarification was provided. This sub-recommendation is being addressed. 5
R13 ii) establish policies and procedures consistent with Treasury Board guidelines for the management of accounts receivable; Accounts receivable related to the FHCPS contract are the same as other departmental receivables. The policies and procedures for accounts receivable are outlined in the Financial Policy and Procedures Manual. This sub-recommendation is being addressed. 5
R13 iii) regularly monitor accounts receivable and maximize the collection of outstanding balances; and In progress. Finance is currently identifying accounts receivables from 2003 to present. Once identified, receivables will be recorded as such. Updated target date of December 31, 2008. 3

Low Risk
R13 iv) ensure accounts that cannot be collected are properly dealt with and adhere to the Debt Write-off Regulations. Procedures are in place: overpayments from FHCPS that are un-collectible are treated the same as other write-offs.

Write-offs from provider audits have not occurred since Financial Services assumed responsibility for write-offs as Finance Division has not been able to get all required information from the program area and the Contractor.
Write off accounts that cannot be collected in accordance with Debt Write-off Regulations. 3

Medium Risk
R14 It is recommended that the Director General, Finance:
i) complete the review of entries in the audit recoveries account;
The review of entries is continuing, with the review up to March 2005 complete. Complete review up to April 2007. 4

Low Risk
R14 ii) verify audit recovery refund cheques received from the Contractor; and Quarterly, Finance Division tracks and verifies the audit recovery refund cheques provided by the Contractor. This sub-recommendation is being addressed. 5
R14 iii) take action to ensure that all cheques received are properly controlled and forwarded to the Cashier's office. Cheques are forwarded to the Cashier's office quarterly This sub-recommendation is being addressed. 5
R15 It is recommended that the Assistant Deputy Minister, Service Delivery and Commemoration, in consultation with the Assistant Deputy Minister, Corporate Services:
i) review the appropriateness of delegated authorities for approving invoices from the FHCPS Contractor;
The Project Authority (Director, Contract Administration) still has unlimited financial authority for approval of FHCPS payments. When invoices contain both program expenditures and contract expenditures, two section 34 FAA signatures are often on the invoices; however it is not clear on the invoice what expenditures each person is signing for. Determine and document the section 34 FAA signing responsibilities pertaining to FHCPS invoices and clearly distinguish on the invoices the expenditures each signing officer is responsible for. 4

Medium Risk
R15 ii) require the FHCPS Contractor to provide sufficient transactional information to support invoices; Sufficient details are being provided by the Contractor to support invoices. This sub-recommendation is being addressed. 5
R15 iii)develop specific account verification procedures to be performed by the section 34 authority for invoices from the Contractor; and Invoice reconciliation procedures have been developed and implemented to assist the section 34 officer. This sub-recommendation is being addressed. 5
R15 iv) reassess the proposed delegation limits and establish new limits to initiate expenditures from the As & When Requested Services portion of the Contract. Delegation limits for the As & When Requested Services were updated in April 2006. This sub-recommendation is being addressed. 5
R16 It is recommended that the Director General, Finance Division:
i) re-evaluate the post payment verification process and ensure that there is adequate coverage for each type of payment to the FHCPS Contractor;
All invoices are reviewed before being paid. Pre-audit is performed on all SAU invoices, and post payment is performed on all POCs and Health Related Travel. This sub-recommendation is being addressed. 5
R16 ii) ensure results of post payment verification are reported on a timely basis; and Finance Division has had difficulties in completing the reviews in a timely manner; however, steps have been taken to improve the process to get the reviews complete to the current year. The reviews for 2006-07 have been completed. This recommendation has been superseded by R3 of the Post Payment Verification Assurance Audit, completed August 2008.
Recommend closure.
Superceded
R16 iii) ensure that sections 33 and 34 of the Financial Administration Act are properly exercised for invoices from the FHCPS Contractor. A process is in place to verify accounts under sections 33 and 34 of the FAA and adequate detail supports invoices for payment; however, there are instances where the section 33 FAA officer does not sign invoices.

Post pay error rates are too high, yet invoices get approved.
This recommendation has been superseded by R3 of the Post Payment Verification Assurance Audit, completed August 2008.

Implement corrective actions addressing specific errors, especially if the error is reoccurring.
4

Low Risk
R17 It is recommended that the Director General, Finance:
i) establish procedures to ensure that all stale dated cheques are sorted and recorded by partner department;
Procedures have been developed and cheques are sorted and recorded by partner department. This sub-recommendation is being addressed. 5
R17 ii) require the Contractor to establish a process to ensure that all stale dated cheque funds are received from the Contractor's affiliates; and A process has been established to receive stale dated cheques from the Contractor's affiliates. This sub-recommendation is being addressed. 5
R17 iii) request that the Contractor refund the balance held in its accounts relating to stale dated cheques for VAC and the partner departments. The balance was refunded for VAC and the partner departments. This sub-recommendation is being addressed. 5
R18 It is recommended that the Director General, National Operations Division:
i) include representation from VAC's Information Technology and Telecommunications Division in the change control process;
VAC ITTD is not a member of the Change Control Committee; however, VAC Systems Manager attends an ITTD Joint Operations IT committee that includes Medavie personnel. IT and system issues that impact the FHCPS are discussed. Also, IT has been invited to attend change control meetings. This sub-recommendation is being addressed. 5
R18 ii) require the Change Control Committee to determine which change requests are billable; The Director, Contract Administration and VAC Systems Manager, in consultation with the Contractor, determine if change requests are billable. This sub-recommendation is being addressed. 5
R18 iii) establish a process to track the overall costs associated with each change request and monitor costs against estimates; and Overall costs are tracked for each change request, which are identified as billable or non-billable, and a process is in place to review cost estimates and compare them with the amount billed. This sub-recommendation is being addressed. 5
R18 iv) review the backlog of outstanding change control requests to identify and remove unnecessary requests. Several reviews to reduce the backlog have been performed. However, the change request report still contains over 350 requests with many requests dated three or more years ago. This sub-recommendation is being addressed. 5
R19 It is recommended that the Assistant Deputy Minister, Policy, Program and Partnerships, and the Assistant Deputy Minister Service Delivery and Commemoration, engage the Partnership Accountability Forum to address FHCPS Contract accounting issues pertaining to the partnership and modify the Memoranda of Understanding with the partners accordingly. An accountability framework has been developed for the three partner departments. Quarterly partnership forum meetings have been held.

The Memoranda of Understanding with the partners has not been updated.
Update the MOUs to reflect the changes made to address the accounting issues raised in the audit. 3

High Risk
R20 It is recommended that the Assistant Deputy Minister, Service Delivery and Commemoration:
i) define the operational work and services which are to be covered by the firm all inclusive annual cost;
The work has been further defined through discussions between VAC, the Contracting Authority and the Contractor. Issues that have been resolved have been reflected in contract amendments. When the day to day operation of the work changes, the Contract Administration Division and the Contractor are expected to determine if an issue is covered in the firm all inclusive annual cost or not, and to consult the Contracting Authority, if necessary. Clarification from the Contracting Authority indicated that it is almost impossible to identify every item or scenario. As the day to day work changes, clarify if the work is part of the operational work and amend the contract as necessary. Recommend closure 4

Low Risk
R20 ii) seek clarification from PWGSC regarding the requirements associated with the minimum human resources defined in the SOR. The Contracting Authority, Project Authority and the Contractor discussed the requirements and are addressing them on an ongoing basis. Also, amendment #7 increased the audit services in the operational work portion of the contract.

This sub-recommendation is being addressed. 5
R20 iii) determine if outgoing SAU calls are billable; The Contracting Authority deemed outgoing SAU calls as billable. This sub-recommendation is being addressed. 5
R20 iv) seek the input of PWGSC to determine how third party network charges are to be calculated and treated; Fees pertaining to third party network charges are not to be charged to VAC. VAC recovered the amount that was charged, retroactive to the beginning of the contract. This sub-recommendation is being addressed. 5
R20 v) review the procedures for application of section 34 of the FAA for the National Investigative Unit invoices; and Contract amendment #7 increased the audit services in the operational work portion of the contract.

This arrangement has resulted in all NIU human resource costs being invoiced to VAC. The auditors also identified the following issues pertaining to the monthly NIU invoice: case management time was billed using a formula which does not reflect actual hours worked, affiliate auditors were invoiced at a supervisory rate rather than actual cost, and summer students were invoiced at the full audit analyst hourly rate.
This sub-recommendation is being addressed. Obsolete
R20 vi) consult with PWGSC to clarify how subcontractors' charges are to be invoiced and ensure adequate documentation is provided with invoices for these services. Contract amendment #7 clarified how subcontractors' charges are to be invoiced and adequate supporting documentation is being provided with the invoices. This sub-recommendation is being addressed. 5

8.0 Annex B - Rating scale used to assess the level of implementation of recommendations

VAC's Audit and Evaluation Division's assessments on corrective actions taken for recommendations are presented below. The level of implementation of a recommendation is assessed at ratings ranging from Level 1 to Level 5, plus Obsolete and Superceded.

  • Level 1: No progress or insignificant progress indicates actions such as meetings, new committees, generating ideas, etc.
  • Level 2: Planning stage indicates plans for changes have been approved by senior management with appropriate resources and reasonable time table.
  • Level 3: Preparation for implementation indicates actions such as hiring or training staff, or developing or acquiring necessary resources to implement recommendation.
  • Level 4: Substantial implementation indicates processes are put in place and integrated within at least some parts of the organization, some achieved results are identified and organization has a short-term plan for full implementation.
  • Level 5: Full implementation indicates processes are operating as intended and are fully implemented.
  • Obsolete: Recommendation no longer applicable
  • Superceded: Recommendation raised in subsequent audit or evaluation report and follow-up action will occur in accordance with corrective actions in the most recent report.
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