PROPUESTA N° 3: ESTRATEGIA GENERAL PARA LA SUPERVISION DE OBRAS PUBLICAS

The Canadian International Development Agency (CIDA) is the principal organ of the Canadian government for planning and delivering foreign aid. When I joined the Agency in 1982, it was active in about 80 countries, had representatives on the boards of directors of all the regional development banks, supported about 15 multilateral development agencies and about 400 non-governmental organisations, such as CARE, the Red Cross, and World University Services of Canada. At that time, CIDA’s budget was about C$ 2.4 billion a year. There were about 1 200 employees in Ottawa and 400 overseas. The Agency’s programme was divided into four parts:

-- the bilateral programme, with a budget of about C$ 1.2 billion and 1 200 active projects in 60 countries;

-- the multilateral programme, with a budget totalling about C$ 800 million, with an emergency aid programme of C$ 20 million, contributions to about 15 multilateral aid agencies of C$ 250 million and to the international development banks of C$ 350 million, a food aid programme of C$ 120 million and other minor activities for the rest of the budget;

-- the special programmes, with a budget of about C$ 120 million which supported about 400 small and large non-governmental organisations, which ran a facility to promote co-operation between Canadian and third-world businesses, and which generally managed all the aid activities that did not easily fit into the other two programmes;

-- the administrative programme, with a budget of about C$ 150 million covering the salaries and benefits of the employees and all the other administrative costs associated with running the aid programme.

I was the Vice-President and Comptroller of CIDA from 1982 to 1986. I was chief financial and information officer, with a staff of 245 persons, and I also had responsibility for the administrative support of the internal audit function. As Comptroller, I chaired the Contracts Committee of the Agency, which issued about C$ 260 million worth of contracts a year, sat on the Internal Audit Committee, and was the official point of contact with the central agencies of government that were responsible for the management policies of the ministries. I was also responsible for relationships with the Auditor General of Canada.

My own management control needs were determined both by my functions and by the priorities set for me by the President. In addition, as chief information officer, I was responsible for seeing that the management control and information needs of all the managers in the Agency were satisfied.

When I joined the Agency, several major scandals involving fraud had recently occurred. The Auditor General of Canada had carried out a comprehensive audit and was very critical of the resource controls and procedures of the Agency; year-end expenditures were considered to be haphazard and inefficient; and a major, integrated information system had been defined and was about to be developed. Moreover, the financial staff of the Agency were in disrepute, because they were considered to be unresponsive, inefficient, and generally unsupportive to the operational branches. Parliament had also questioned the fairness of the contract-award process.

At that time, my management experience was quite extensive, but my experience in third-world development was non-existent. I was not responsible for the development programmes, but it was evident that the management control systems had to cover this area, since it presented the greatest potential for loss of control. Thus, my first step was to initiate what I termed a "vulnerability analysis" (I, para. 32). This was a survey of those operations and activities of the Agency whose character made them potential danger spots. These were not only spots at which, through accidental or purposeful actions, resources could be lost, diverted, misused, or misappropriated; the vulnerability analysis also identified points that were potentially politically dangerous. Public servants are usually familiar with these areas -- operations where errors, inaccuracies, or illegal actions do not result in a significant loss of resources but do cause the government embarrassment. Perhaps the allocation of social housing is a good example. If there is a limited supply of social housing and it is allocated to qualified applicants on the basis of favouritism rather than need or seniority, the state loses no resources, but the public’s knowledge of this favouritism can be very embarrassing to government.

Before describing a few of the systems that were set up to provide controls on danger spots, it should be pointed out that my chances of success in improving management controls rested not only on my own determination and energy, but also on the support I received from the President and Senior Vice-President of the Agency (I, para. 25). Moreover, the whole Agency was very concerned, and somewhat embarrassed, that the Auditor General had given it such a poor report as a result of a comprehensive audit, and a follow-up audit was expected to start in three years’ time (I, para. 80). The Agency staff wanted to do better next time (I, para. 26). Finally, the confidence of the Canadian public in its foreign development agency had been shaken by the revelations of the Auditor General, and the public’s willingness to continue to designate CIDA as the manager of a significant part of its taxes could not be taken for granted. If CIDA did not improve its management, it might cease to exist.

This factor of public confidence is very important to any organisation, whether private or public. Good management controls are not evident to the public, but poor controls usually are and result in loss of credibility and thus of confidence in the organisation (I, para. 19).

Project management and the protection of project assets

The bilateral programme area was one of the most vulnerable. As noted, there were 1 200 bilateral projects being managed in about 60 countries. These countries are doubtless among the most corrupt in the world, and CIDA was spending C$ 1.2 billion annually on them. The projects involved funds to pay for local staff and for work contracted locally, goods for construction, administration and monitoring, including vehicles and equipment of all kinds.

I met with the bilateral vice-presidents -- as a group and individually -- in order to convince them that they were endangering not only their own programmes but the Agency itself if they did not have adequate control systems in place in all their operations, and to offer my assistance (I, para. 25).

With their support, I assigned one of my senior staff and several assistants to each of the four bilateral branches. These persons were physically located at the branches and had instructions to become thoroughly familiar with the branches’ projects, countries, and staff. Moreover, they, or a qualified junior (I, para. 31), had to visit each country office at least once a year. The procedure that they were to follow while there was carefully outlined and included a review of the administration of all major projects, the office accounts and procedures, and a few field visits to ensure that what the books listed was reflected in reality (I, paras. 34 and 58). Each visit concluded with a report to the local head of the country office with copies to me and the branch vice-president (I, para. 59). Reports outlining the steps taken to correct any problems identified as a result of these visits had to be sent by the field office to headquarters, and subsequent visits verified that these steps had been taken.

The need for this follow-up activity can be inferred from the INTOSAI Guidelines, but its importance should be emphasized. Just as the announced return of the Auditor General was an incentive for the Agency to improve its management controls, so the return of internal auditors, or the follow-up activities of a manager can ensure that action to correct a lack of management control takes place promptly and effectively.

Throughout these visits, my staff and I stayed in very close touch with the internal audit staff, who were asked to take over when it appeared that illegal activities might be taking place (I, para. 78).

Also as a result of my meetings with the bilateral vice-presidents, we initiated a special course for all project officers on financial management. This was designed to ensure that those running projects became aware of where their new projects might be vulnerable to abuse or mismanagement and to show them how to make provision for the staff to put in place procedures to ensure that their project resources were safeguarded. In other words, we ensured that the managers of projects were adequately trained so that they could take responsibility for their own management controls (I, paras. 58 and 72). Moreover, with the agreement of the Human Resources Branch, my staff were involved in the hiring of project staff whose duties would involve resource management (I, para. 31). Once this training and the new hiring practices started to take effect, my staff could check procedures and controls and no longer had to work at the transaction level.

Internal audit, which had an extensive annual audit plan, reported directly to the President (I, para. 54). Although "separation of duties" generally refers to reducing risk at key points in important transactions, this same separation is important in controls. The chief operating officer of an organisation needs an independent and objective monitor of controls (I, paras. 13-15 and 78), as well as assurance that even the most senior officers are carrying out their duties, including their control duties. An independent and objective internal audit organisation is one of the most common and effective ways of achieving this. Its independence and objectivity did not, however, affect the potential for fruitful collaboration between internal audit and my staff.

Internal audit staff were effective and thorough, but, with CIDA headquarters and 60 country offices to cover, they could only travel to each country about once every five years. Our close co-operation allowed them to schedule extra visits when it appeared necessary (I, para. 74). The involvement of auditors in the strengthening of project management went further as we gained experience in following up suspected criminal activities. We sent the internal audit staff on special courses to learn to recognise illegal activities and, in addition, began to involve trained forensic auditors in cases such as suspected fraud.

Our purpose was not only to detect illegal activities but to prevent further occurrences. It is amazing how quickly illegal practices stop when those involved, or tempted to become involved, sense that the chances of getting caught are quite high [I, para. 60 (3)].

Year-end expenditure management

The Canadian government publicly announced a goal of a foreign aid budget of 0.5 per cent of GNP. The Canadian economy was growing while I was at the Agency, and each year our budget got larger, not because we asked for an increase, but because the national economy grew. When the economy grew more quickly than expected, we would sometimes receive a sudden increase in budget in mid-year. For a comptroller and his staff, it is a mixed blessing to have more money than expected.

There was a further complicating factor, and that was the uncertainty of project schedules. Each year the budget for each of the 1 200 bilateral projects was estimated and expenditures for each were related to milestones on the relevant project schedule -- good project management control procedures in any organisation (I, para. 32). The difficulty was that sometimes, for very valid reasons, the schedule could not be followed and thus the money went unspent. At the beginning of the year, it was impossible to tell which project would be behind schedule, but it was certainly possible, from past experience, to say that some would be. Thus, at the beginning of the year, we knew that a significant amount of the funds for bilateral projects would be unspent at the end of that year. In the Canadian government, with minor exceptions, any funds unspent at budget year-end "lapsed", that is, they ceased to be available for use.

Our first task was to determine from past experience how much money usually remained unspent for the purposes for which it was originally intended. Historical analysis showed that this was between 8 and 12 per cent, but at least 8 per cent, which, at the time I was there, was equivalent to C$ 96 million! To correct this problem, our first step was to convince the bilateral staff that there was solid logic behind steps to get authority to over-commit funds to the extent of 8 per cent of the bilateral budget, that is, to initiate additional projects with a value equivalent to 8 per cent of the budget. It is obvious that if every project remained on schedule we would "break the bank", but, statistically, the chance that this would happen, with 1 200 projects involved, was minute. The staff had difficulty in understanding the statistical basis for this, but once they were convinced, we obtained the necessary authority from the central agencies to initiate additional bilateral projects worth the equivalent of 8 per cent of the budget (I, para. 68).

We then used the same historical project data to establish a typical disbursement pattern for a typical financial year. This was done by taking the data for the previous three years and averaging it so that year-to-year variations were minimised. The result looked something like Figure 1.

The financial year (1 April to 31 March) got off to a fairly slow start as the new project budgets became available. Major budgetary commitments were made by contracting for goods and services, but disbursements were slow because most orders required several months before delivery. There was further slow-down as the summer holiday season started and staff interest in the projects was overcome by family interest in taking full advantage of the school holidays and good weather. (The bilateral staff often travelled for three-week stretches for annual total periods away from headquarters of up to six months.)

The disbursements really got under way in September as major contract deliveries were made. At this point in the financial year, project managers would watch the project schedules and the achievement of milestones carefully, in order to identify project delays early and inform more senior managers that funds were available for disbursement elsewhere (I, para. 39). Thus, disbursements tailed off as the year-end approached and reallocation occurred and took effect. Canadian government financial regulations allowed the payment of invoices for a limited period after the end of the year as long as the goods or services were delivered prior to the end of the year; thus, payments continued into June of the following financial year.

Figure 1. Disbursement profile 1, bilateral programme

There was a legitimate need to have some efficient means of expending as much of our budgets as possible. Our minister considered the international undertaking to expend 0.5 per cent of GNP important. There was an equally legitimate reason not to spend more than our budget; this was that it would contravene the Financial Administration Act (I, para. 3). Thus, we needed to have very accurate information about our disbursements.

Correcting the lack of control over year-end disbursements required changing the entire approach to budgetary management (I, para. 73). Budgetary commitments had to be made earlier, over-commitment of budgetary funds had to be permitted, and earlier warning was needed of deviation from the "ideal" disbursement profile. After those steps were taken and some experience was gained in implementing the new practices, a new disbursement profile was achieved (see Figure 2).

We had not removed all the variations but the rate of disbursement was more consistent and was predictable and controllable. The management controls that we established to monitor disbursements allowed us, on average, to end the year with between C$ 800 000 and C$ 2 million of our budget unspent during the time I was there. That represented about 0.05 per cent of our budget.

In part, our capacity to provide this close control and management was due to the fact that financial data was entered into our new accounting system directly by those responsible for transactions, thereby ensuring the timeliness and accuracy of our information at all times (I, para. 1).

We not only developed the profile for the bilateral programme as a whole but also for each of the four bilateral branches. Our monthly reports, which were analyses available six days after the end of the month, were more sharply focused and provided senior managers with current information on trends and deviations from plan (I, para. 39).

Figure 2. Disbursement profile 2, bilateral programme

A typical report for the project funds of a bilateral branch would provide: -- actual and planned disbursement of funds and balance to be disbursed; -- actual and planned commitment of funds and balance to be committed; -- a comparison of each of the above with performance in the previous year;

-- the reasons for any deviations from plan, if known; -- recommendations for corrective action.

Other information on travel and salaries, etc., was also provided and analyzed.

The same information was provided graphically and in written form for the bilateral programme as a whole and for each of the other programmes of the Agency. The administrative programme budget report contained many sub-entries for such matters as travel, hospitality, salaries, and informatics. Our monthly report ran to about 30 pages, the first page of which was a summary of significant deviations from plan and a reference to where details could be found. The President and all other staff were therefore aware, very shortly after the end of the month, of the financial status of the Agency. They could delve into as much detail as they wished and were in a position to make decisions on the changes necessary to achieve the operational plan (I, para. 19).

Contracting for goods and services

The contractual process of the Agency was overseen by a committee of vice-presidents who not only were responsible for the entire process but also reviewed all requests for proposals before they could be issued (I, para. 39). A request for proposals was an invitation to all interested suppliers, or a selected group of them, to submit a proposal to the Agency on how and at what cost they proposed meet a specific need -- whether for the provision of goods or services.

The main ingredients of the contractual process were laid down in a manual issued by the Treasury Board of Canada, which is a committee of ministers and forms part of the Cabinet Committee system of the Canadian government. This contractual process was monitored by part of the Secretariat to the Treasury Board, but there was a fair degree of discretion for the implementation of the process (I, para. 68).

The Agency was criticised for having a system that was not well understood; being biased in