2003 November Report of the Auditor General of Canada

In 1998, Canada Mortgage and Housing Corporation (CMHC) needed to obtain the services of an advertising agency. Its Vice-President for Communications, who previously had worked at the Canada Information Office (CIO), suggested that CMHC ask CCSB to obtain the needed services on CMHC's behalf. This was thought to be an efficient way to proceed, as CMHC's own procurement function had been downsized.

Except in one case, CCSB chose the agencies to supply advertising services for CMHC. None of the agencies had been properly pre-selected through CCSB's selection process. From 1998 to 2001, CMHC used Vickers & Benson, Gosselin Communication, Groupaction Gosselin, and Groupe Everest.

In this arrangement, CMHC took the highly unusual step of transferring money to CCSB. In return, CCSB contracted with each advertising agency to deliver goods or services directly to CMHC and to invoice CCSB. In nearly all cases, based on CMHC's initialling that goods had been received, CCSB approved the payment of invoices and was then responsible for forwarding payments to suppliers.

This was an unusual arrangement, with CCSB an intermediary who contracted with the supplier and facilitated payments on behalf of CMHC. Normally a supplier and purchaser sign a contract once the supplier is chosen, and CCSB's involvement ends. However, in this case CCSB contracted with the supplier. The contract contained terms and conditions with which the supplier had to comply. However, the specifics of what was to be delivered were detailed in a statement of work negotiated between CMHC and the supplier.

There were six such contracts between CCSB and four advertising agencies from 1998 to 2001. CMHC paid CCSB about $2.4 million.

We noted two cases where CCSB had the contract and CMHC had the statement of work but neither had both, in effect separating the responsibilities of purchaser and contractor. In the four other cases, CMHC told us it had ensured that goods and services had been received in accordance with the statement of work.

The separation of the purchaser's role from the contractor's role resulted in the following problems:

• CMHC monitored goods and services received according to the statement of work but did not have a copy of CCSB's contract with the agency. CCSB officials approved payments under section 34 of the Financial Administration Act on the basis that CMHC was satisfied with what it had received from the supplier. However, neither CMHC nor CCSB was in a position to certify that goods and services received were consistent with the terms and conditions of the contract.
• When CMHC required additional work or when meeting contract terms and conditions caused fees to exceed the contract value, it forwarded more money to CCSB. However, it did not amend the statement of work and CCSB failed to amend the contract. Therefore, the written contract no longer accurately reflected what was required of the contractor.
• CMHC made the final payment directly to Vickers & Benson although it had no contract with them, having established this arrangement whereby CCSB contracted with its suppliers. Therefore, CMHC had no basis for making the payment.
• We observed that CMHC advanced CCSB $250,000 in September 1999, but CCSB did not pay some Groupe Everest's invoices until May 2001. There was no requirement for CCSB to account for how it spent CMHC's money. CMHC told us it checked goods received against invoices. We are concerned that CCSB was circumventing the appropriation process by collecting money in one year and disbursing it in another year.
• We observed that Groupaction Gosselin Communication (GGC) charged fees based on the number of orders and a 10 percent markup on promotional items that were not specified in the contract with CCSB. However, we saw no evidence that CMHC checked the invoices against the contract terms before giving CCSB approval to pay.
• Contracts were not set up properly to reflect the true value of work. We found that CCSB had three contracts with Groupe Everest from 1999 to 2001, totalling $676,000 (excluding GST). CMHC paid more than $836,000 (excluding GST) above the value of these three contracts with no amendment of the contracts by CCSB.

The selection process in this arrangement was flawed, contractual arrangements were problematic, and accountability and transparency were lacking. CMHC did not explain why it chose to pay CCSB rather than to contract directly with the supplier. CMHC informed us that this arrangement resulted in increased administrative burden and effort. In 2001, it reviewed its approach to advertising contracts and stopped using this type of arrangement. CMHC contracted with its own advertising agency through a competitive process and currently contracts directly with the supplier and pays the supplier directly.