Public Services and Procurement Canada
Audit of the management of engineering assets

Introduction

This engagement was included in the Public Services and Procurement Canada (PSPC) 2018 to 2021 Risk-Based Audit and Evaluation Plan, approved by the Departmental Audit Committee on June 12, 2018.

PSPC's engineering assets portfolio is comprised of 17 engineering assets—9 bridges, 5 dams, 1 wharf, the Esquimalt Graving Dock, and the Alaska Highway. These assets vary in their size, age, usage, and physical condition. The deputy minister at PSPC has delegated the Real Property Services (RPS) with the responsibility of managing Crown-owned engineering assets. The Infrastructure Asset Management (IAM) sector, within RPS, is responsible for the stewardship of the engineering assets portfolio, located across Canada. A list of assets is included at Appendix A: Public Services and Procurement Canada Engineering Assets. The asset condition assessment results are included at Appendix B: 2018 KPMG Asset Condition Assessment of Public Services and Procurement Canada Engineering Assets.

In October 2017, responsibility for the management of all of the department's engineering assets was transferred from the regions to the IAM sector, moving the portfolio from a largely decentralized management approach to one of centralization. The IAM sector now has primary responsibility for the strategic direction of the portfolio, as well as, the financial, operational and human resource management of all assets within the portfolio.

Governance and oversight over the portfolio is provided by Executive Committee, Strategic Operations Committee, departmental and branch Investment Management Boards (IMB), National Operations Committee and the Real Property Governance Committee.

Currently, the engineering asset portfolio has a market value of $5.02B. Funding for the portfolio is provided in 2 streams. The first stream is the operating and utilities budget which provides asset managers with funds to manage the day to day operations of their asset. This includes regular maintenance and repair work. The second stream of funding is for capital projects and is typically provided through federal government program spending. For example the 2016 Federal Budget, Accelerated Federal Infrastructure Investments, provided the engineering asset portfolio with almost $249M, to be spent over 5 years, to improve the physical infrastructure of its engineering assets. More recently, the 2019 Federal Budget expects that the Government of Canada will invest more than $16B per year on physical infrastructure for all capital assets, over the next 9 years.

For the 2018 to 2019 fiscal year, the portfolio was allocated an operating and utilities budget of $46.3M, and $129M for minor and major capital projects. At the time of reporting, the engineering asset portfolio had approximately 127 operational and administrative full-time employees (FTEs).

Since assuming responsibility for the engineering assets portfolio in 2017, the IAM has developed the Engineering Assets Control Framework, which is identified at Exhibit 1: Engineering Asset Management Control Framework.

Conclusion and recommendations

The audit found there is a comprehensive inspection and remediation regime in place that mitigates many of the potential risks related to the structural integrity of the assets. Further, the recent centralization of the engineering asset portfolio has allowed the department to establish a consistent, nation-wide control framework for the management of these assets. Through a single point of accountability, IAM is better positioned to review processes holistically across the portfolio and to seek opportunities for improvement.

However, this framework is early in its implementation and control gaps at both the strategic and operational levels were observed. At the strategic level, we identified gaps related to senior executive oversight, monitoring and reporting, as well as, financial and human resource management. These gaps appeared to stem from a lack of clarity pertaining to the overall strategic direction/vision of the portfolio. At the operational level, issues related to standard operating procedures, training, health and safety and physical security were observed, creating unmitigated risks to both employee and public safety.

Resulting from these observations, 4 audit recommendations were developed for management action. Specifically, the assistant deputy minister of RPS should: 1) ensure the strategic direction for the engineering asset portfolio is clearly defined, communicated, implemented and approved by required executive bodies; 2) develop a process for prioritizing capital project investments and monitoring and reporting on performance; as well as, a human resource strategy; 3) strengthen controls related to managerial oversight and tracking of a) specialized training requirements and operational employee completion, and b) completeness and accuracy of standard operating procedures; and 4) in consultation with interdepartmental stakeholders, such as the regions and the Departmental Oversight Branch, should ensure that roles and responsibilities related to health and safety and physical security are clearly defined, understood and appropriately implemented.

Please see the section, Management Response, for further details regarding the audit recommendations and management action plan.

Focus of the audit

The objective of this audit was to assess whether a management control framework was in place to allow for the appropriate management of the department's engineering assets. The audit scope period was from November 1, 2016 to December 31, 2018. More information on the audit objective, scope, approach and criteria can be found in the section "About the Audit" at the end of the report.

An audit of the management control framework for the department's engineering asset portfolio was considered important due to the very public nature of these assets. Ensuring that appropriate controls are in place for the security, health and safety of the employees working at these assets, and the public using them, should be of the utmost importance to the department. Additionally, assessing controls around sound stewardship was also considered to be important, particularly given the federal government's continued commitment to investing in this infrastructure. This financial commitment is as evidenced by the 2016 Federal Budget, Accelerated Federal Infrastructure Investments, which provided the engineering asset portfolio with almost $249M, to be spent over 5 years, and more recently the 2019 Federal Budget which expects that the Government of Canada will invest more than $16B per year on physical infrastructure for all capital assets, over the next 9 years.

The findings from this audit are important because they suggest that while a management control framework for the department's engineering asset portfolio has been established, it's still evolving, until the implementation of this framework has reached a steady state, strong and consistent senior executive oversight of portfolio is required to mitigate some of the significant risks related to security, health, safety, and stewardship, identified in this report.

Statement of conformance

The audit conforms with the Internal Auditing Standards for the Government of Canada, as supported by the results of the quality assurance and improvement program.

Sufficient and appropriate audit procedures have been conducted and evidence gathered to support the accuracy of the findings and conclusions in this report and to provide an audit level of assurance. The findings and conclusions are based on a comparison of the conditions, as they existed at the time, against pre-established audit criteria that were agreed upon with management. The findings and conclusion are only applicable to the entity examined and for the scope and time period covered by the audit.

Observations

Audit observations are developed through a process of comparing criteria (the correct state) with condition (the current state). The following observations may note satisfactory performance, where the condition meets the criteria, or they may note areas for improvement, where there was a difference between the condition and the criteria.

Overview of the engineering asset portfolio

The department's engineering asset portfolio is comprised of 17 engineering assets located across Canada—9 crossings (such as bridges), 5 dams, 1 wharf, the Esquimalt Graving Dock, and the Alaska Highway. For the 2018 to 2019 fiscal year, the portfolio was allocated an operating and utilities budget of $46.3M, and $129M for minor and major capital projects. At the time of reporting, the engineering asset portfolio had approximately 127 operational and administrative full-time employees (FTEs).

The Engineering Asset Strategy Sector was formed in 2008, and subsequently integrated into IAM in 2017, moving management of the portfolio from a decentralized model to a centralized model. The objective of centralization was to establish and implement a consistent, nation-wide control framework for the management of these assets. The control framework has been established (as noted in Exhibit 1: Engineering Asset Management Control Framework), and implementation continues. A number of critical activities have been undertaken since centralization, including improved national governance, updating the risk portfolio and capital management plans, and supporting the use of the structures during Canada 150. The sector recognizes implementation isn't complete and is engaged in implementation efforts.

In 1985, PSPC (formerly Public Works and Government Services Canada) was given Ministerial direction to divest/dispose of non-core assets as per the Neilson Report. Accordingly, the department received funding to study its engineering assets; address immediate and critical health and safety issues; and to develop divestiture plans for each asset. In 2011, additional funding was secured to address assets that were classified as critical red and red to pursue divestiture of these assets. The additional capital funding was secured to ensure the integrity of the various assets and required that the department return to Parliament in 2016 to report on the progress of divestiture and funding expenditures. The number of assets within the portfolio has decreased from 35 in 1985 to 17 as of 2019, however, divesture has proven to be difficult, due to factors such as the remoteness of various assets and a lack of interest from potential buyers (high costs associated with maintaining and repairing these assets). Due to these challenges, in recent years, the department has moved away from a strategy of divesture to one of maintenance and stewardship of the assets.

Leadership and strategic direction

Strong leadership and clear strategic direction allows an organization to maximize efficiencies and achieve its objectives. Together they provide guidance, and create confidence throughout an organization, as employees can work more efficiently with clear objectives and targets. Clarity of purpose, provided through leadership and direction, also allow for improved communication and coordination of efforts by various stakeholders within, and external to, the organization and supports timely decision making around resource allocation and the use of public funds.

We expected that PSPC would have a clearly established strategic plan in place for the management of its engineering asset portfolio and that resulting investment decisions would be clearly aligned with this strategy.

Governance and oversight

Strong governance and oversight allows management to monitor financial and operational performance on an ongoing basis and the degree to which results are aligned with objectives. To fulfill their role, governance and oversight bodies must be provided with timely and accurate information to inform decision making. In the absence of these controls, excessive risk-taking and insufficient identification of issues is more likely, and increases organizational risk.

In support of strong governance and oversight for the portfolio, we expected monitoring and reporting processes would be in place to provide senior executive committees with the information required for timely, informed and strategic decision-making.

People management

In an environment with well-designed controls, employees have the skills necessary to support the achievement of their organizational objectives. More specifically, the organization should have controls in place to support the training and development of staff, and a suitably comprehensive suite of human resources policies and practices aimed at attraction, recruitment, development and retention.

We expected that a human resource (HR) strategy would be developed and aligned with the current and future staffing needs of the engineering asset portfolio. We also expected that standard operating procedures and training, including those related to health and safety, would be appropriate and adhered to by operational staff.

Management of asset risks

In an environment with well-designed controls, management and staff should have a sound and up-to-date understanding of the internal and external factors that may expose their strategic and operational objectives to risk. Well-managed organizations should have in place and implement practices that allow them to monitor their environment for conditions and/ or changes that may result in risk.

Given the nature of work performed at the assets and their public facing nature, we expected the department would have a fulsome understanding of asset related risks, from the perspective of both employee and public use, and that it would mitigate these risks accordingly.

Management response

RPS agrees with the findings and recommendations and will implement the action plan below to address the issues.

Strategic direction for the portfolio requires direction from government and our plan is to prepare options based on these future strategic directions for the Engineering Asset portfolio as part of the transition planning, with an eye to seek Cabinet direction/confirmation for the assets early in the mandate.

The audit has helped re-emphasize the importance of up-to-date standard operating procedures and associated training.

Recommendations and management action plan

About the audit

The initial objective of this engagement was to assess the lifecycle management of the department's engineering assets. However, a preliminary risk assessment of the portfolio suggested a sound inspection regime in place, for ensuring the structural integrity of the department's engineering assets. Therefore, the objective of the audit shifted, to focus on the control framework in place to allow for the appropriate stewardship and management of the portfolio.

The scope period of this audit engagement was from November 1, 2016 to December 31, 2018. It should be noted that the audit scope covers the period of transition, from regional to centralized management of the engineering asset portfolio by the National Capital Region, which took place in October of 2017.

During the Planning and Survey Phase, the following audit activities were performed: interviews with engineering asset management and operational staff; a review of Government of Canada and departmental policies pertinent to the engineering asset portfolio; a review of engineering asset business and operational plans, as well as, preliminary planning site visits to 3 of the department's engineering assets.

During the Examination Phase, the audit team made site visits to 6 of the department's engineering assets (LaSalle Causeway, Alexandra Bridge, Burlington Lift Bridge, Des Allumettes Bridge, the Esquimalt Graving Dock, and the Timiskaming Dam Complex). Factors considered in the selection of these assets included: materiality; structural integrity and risk of the asset (based on PSPC engineer reports and risk assessments); number of operational staff at the asset; and, the significance of the asset in its respective communities (volume of public use and commerce). During these site visits the audit team conducted in-depth interviews with asset managers and operational staff; performed on-site observations and walk-throughs; as well as, file testing. At the end of the examination phase, the audit team's observations were validated with the audited organization.

During the Reporting Phase, the audit team documented the audit findings, conclusions and recommendations in a Director's draft report. This report was internally cleared through the Office of the Chief Audit Executive's quality assessment function. The audited organization will be provided with the Director's draft report and will be requested to review and comment on the Report. Comments will be assessed and incorporated in the Chief Audit Executive's draft report. This report will be sent to the audited organization for final acceptance. A management response to the Report, and a Management Action Plan in response to the audit recommendations, will be provided. The Draft Final Report, management response, and Management Action Plan will be tabled at the Departmental Audit Committee meeting for final approval.

This audit was conducted in accordance with the Institute of Internal Auditors' International Standards for the Professional Practice of Internal Auditing

Appendix A: Public Services and Procurement Canada's engineering assets

Appendix B: 2018 KPMG Asset Condition Assessment of Public Services and Procurement Canada's engineering assets

Appendix C: Critical Red engineering assets listed in the 2018 KPMG report

Bridges, Dams, Highways, and Marine Infrastructure are collectively referred to as engineered assets. PSPC is responsible for 17 engineered assets located across the country. These assets were either built by or transferred to PSPC under its historical mandate for public infrastructure, many in support of the federal government's objective of stimulating economic development. In accordance with its responsibilities under the Department of Public Works and Government Services Act, PSPC is ‘custodian of last resort' of federal real property for the Government of Canada and is responsible for the sound stewardship of these assets.

In 2018, KPMG was engaged to perform an asset based risk assessment in relation to engineering assets, as well as conduct a third-party assessment of the 10 Year Program of Work to mitigate asset based risks. The titled "PSPC Infrastructure Asset Management Group Asset Condition Risk Assessment 2018 - Final Report" assigned a risk rating for 2 Engineering Assets, as "critical red". Critical red describes an asset that has a high likelihood of risk being realized and high impact of risk should it be realized. These 2 assets were the Chaudière Crossing and the Alexandra Bridge. The report also reflected that based on the then planned 10 Year Program of Work for both bridges, the risk rating "after treatment" was anticipated to change to "yellow" for Chaudière Crossing and to "red" for the Alexandra Bridge.

It is important to note that PSPC has a rigorous inspection, monitoring and intervention regime to ensure that all its bridges remain safe at all time for users. PSPC perform routine and scheduled inspections. They include weekly and monthly maintenance inspections, general inspections performed by engineers every year, comprehensive detailed inspections performed by engineers every 4 years and underwater inspection every 4 years.

Further context is provided below on the condition, work completed, underway and planned for the 2 bridges that were assigned a risk rating of critical red.