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2003 November Report of the Auditor General of Canada

November 2003 Report—Chapter 4

Case Study 4.2—Management of advertising contracts by the Canadian Tourism Commission

Until December 2000, the Canadian Tourism Commission (CTC) was part of Industry Canada. With advertising contracts averaging more than $40 million a year, it was the largest advertiser in the Government of Canada. When it became a Crown corporation, the CTC continued using the same advertising agencies selected in 1994; until March 2003, for the majority of projects it used terms and conditions similar to those of the old PWGSC contracts.

We expected that before approving payments, the CTC would ensure that the contract requirements had been met. In a sample of contracts and payments between 1 January 2001 and 31 March 2003, we observed a number of problems in contract management similar to those we saw in departments. For example, contrary to terms and conditions of the contracts, estimates were not always approved before invoices were submitted. Payments were made for invoices that showed only lump sum amounts instead of hourly fees, as required by the contracts. In one case we noted a management fee that had not been specified in the contract but was paid on the basis of verbal negotiations. The CTC approved payments for subcontracted work exceeding $25,000, although the contractor had not submitted the required three bids on the work. In addition, we noted that the CTC did not regularly compare its total payments to advertising agencies with the value of each contract to ensure that the total amounts it paid were in accordance with contract terms and conditions.

The CTC earned an estimated $9 million a year in revenues from sales of advertisements in publications and newspaper inserts. We noted that the CTC did not directly control all of these revenues; they were managed by the advertising agencies. However, in the contracts the CTC had not identified its expectations or the agencies' obligations in their management of the revenues. As a result, the CTC did not properly control the activities of the agencies. The CTC now collects the revenues and has stopped relying on the two previous advertising agencies.