Audit of Real Property Modernize Real Property Management

Transcription

1 Audit of Real Property Modernize Real Property Management Foreign Affairs and International Trade Canada Office of the Chief Audit Executive July 28, 2011 This document may not be fully accessible. For an accessible version, please visit Audit of Real Property - Modernize Real Property Management

2 TABLE OF CONTENTS EXECUTIVE SUMMARY... i Statement of Assurance... iv 1.0 BACKGROUND OBSERVATIONS AND RECOMMENDATIONS Enhance the current governance structure to appropriately direct the Bureau The strategic direction for Real Property should be strengthened to ensure alignment of operational decisions with priorities The Department should clarify and enhance Real Property authorities Develop better information for decision making Existing data could be utilized to produce more meaningful information for reporting and decision making Capitalize on opportunities to utilize resources more effectively Strengthening human resource management through better planning, workload allocation and organizational design would lead to more efficient operations The Bureau should consider the long-term sustainability of its real property portfolio in its planning and operations Common services provided to tenants should enable the Government of Canada to fulfill its international mandate Build on sound processes to improve compliance The Bureau is not meeting its obligations with respect to the heritage component of the Treasury Board Policy on the Management of Real Property 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 Contracting is not always performed consistently or appropriately across the Bureau Disposals of real property are handled in accordance with the process outlined in the Quality Management System CONCLUSION APPENDIX A - ABOUT THE AUDIT APPENDIX B MANAGEMENT ACTION PLAN APPENDIX C GOVERNANCE COMMITTEES APPENDIX D - SPECIAL OPERATING AGENCY AUTHORITIES This document may not be fully accessible. For an accessible version, please visit Audit of Real Property - Modernize Real Property Management

3 This document may not be fully accessible. For an accessible version, please visit Audit of Real Property - Modernize Real Property Management

4 EXECUTIVE SUMMARY In accordance with its approved Risk-Based Audit Plan for , 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 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, Office of the Chief Audit Executive, DFAIT i

5 Role as a common service provider. What did we find? DFAIT must modernize its Real Property Management to sustain the portfolio relied upon to achieve Canada 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 is ISO 9001:2008 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 costrecovery mechanism; and, Forums for tenants to raise concerns, share information and provide input and feedback. Office of the Chief Audit Executive, DFAIT ii

6 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. Office of the Chief Audit Executive, DFAIT iii

7 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 preestablished 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 Audit Executive June 10, 2011 Office of the Chief Audit Executive, DFAIT iv

8 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 the Mission network 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, Mission property management planning, acquisition and disposal of leased staff quarters, and the allocation of staff quarters to Canada based staff. The Bureau s budget for 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 the Mission network 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 of Canada or Canada 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 Office of the Chief Audit Executive, DFAIT 1

9 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 Mission network and the challenges it represents, the Audit of Real Property was included in the approved Risk Based Audit Plan for 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 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. Office of the Chief Audit Executive, DFAIT 2

10 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. 2.1 Enhance the current governance structure to appropriately direct the Bureau 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. Office of the Chief Audit Executive, DFAIT 3

11 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 and Moscow) as well as sensitive policy issues (such as New York and Haiti). 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 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 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; o Retention and reinvestment in the real property portfolio o Proceeds from the disposal of property can be spent in future years o 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. Office of the Chief Audit Executive, DFAIT 4

12 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 and Moscow. In two cases, London and Paris, 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. Office of the Chief Audit Executive, DFAIT 5

13 The Bureau met pressing government priority, exceeding their authorities, by working with central agencies. In 2009, the government wanted to purchase land in Islamabad and Kabul in 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 the Sale or 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. Office of the Chief Audit Executive, DFAIT 6

14 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 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 Office of the Chief Audit Executive, DFAIT 7

15 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 of Canada in foreign countries and, as the legal authorities, are required to sign on behalf of Canada. 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. 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 Office of the Chief Audit Executive, DFAIT 8

16 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 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 outside Canada. The implementation of the ISO 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 external ISO audits yearly. As part of its ISO process, 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 Resources Information-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 the Informatics 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 the Informatics Service staff in its day-to-day activities (i.e. maintenance, user support, back-up procedures etc.) If procedures are not applied Office of the Chief Audit Executive, DFAIT 9

17 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 in Mission 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 One index is computed for each chancery. An SUI of 1 indicates optimal utilization of the space. An SUI below 0.95 implies crowding; whereas an index above 1.15 indicates excess space. To date, the Bureau has calculated the SUI on 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 in Europe and North America; whereas the costs of those chanceries located in Asia remained 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/m 2, and replacement value index are not being tracked by the Bureau. This information would allow the Office of the Chief Audit Executive, DFAIT 10

18 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 ) 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 , 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 Office of the Chief Audit Executive, DFAIT 11

19 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 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: Office of the Chief Audit Executive, DFAIT 12

20 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. 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 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 ( to ). 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 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 Office of the Chief Audit Executive, DFAIT 13

21 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. Office of the Chief Audit Executive, DFAIT 14

22 Table 1 Summary of Cost Savings Sub Criteria Under-Utilization Cost Avoidance 1. Better travel coordination 2. Streamline and align organization Total Description ARD 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 75 th percentile (better than average productivity but not the highest), there would be significant savings opportunities for ARD. 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 portfoliobased organization. Savings Estimate $2.0-$3.4 million $189K $302K $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 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 Office of the Chief Audit Executive, DFAIT 15