Fleet Management

January 2009

Recommended for Approval to the Deputy Minister by Departmental Audit Committee on April 30, 2009
Approved by the Deputy Minister on May 1^st, 2009

Table of Contents

• 1.0 Executive Summary
  • 1.1 Introduction
  • 1.2 Main Findings
    • Governance
    • Control
    • Risk Management
  • 1.3 Recommendations
    • Governance
    • Control
    • Risk Management
  • 1.4 Statement of Assurance
  • 1.5 Audit Opinion
• 2.0 About the Audit
  • 2.1 Background
  • 2.2 Objective
  • 2.3 Scope
  • 2.4 Methodology
• 3.0 Findings and Recommendations
  • 3.1 Introduction
  • 3.2 Governance
    • Finding 1: Fleet Management roles and responsibilities are not clearly defined and oversight is limited.
    • Recommendation 1
    • Finding 2: IC policies, procedures and guidance for fleet management are incomplete.
    • Recommendation 2
    • Finding 3: Insufficient training in fleet management.
    • Recommendation 3
  • 3.3 Control
    • Finding 4: No formalized monitoring of the Industry Canada fleet
    • Recommendation 4
  • 3.4 Risk Management
    • Finding 5: Fleet management risks are not identified or assessed.
    • Recommendation 5.1
    • Recommendation 5.2
• Appendix A: Fleet Breakdown by Age and Usage
• Appendix B: Audit Criteria
• Appendix C: Methodology Detail
• Appendix D: Management Response and Action Plan

1.0 Executive Summary

1.1 Introduction

As of November 20 2008, Industry Canada (IC) had a fleet of 364 vehicles, consisting of cars, trucks, minivans and SUVs (the total number of vehicles for each region is shown in Appendix A).

Fleet management responsibility within IC is decentralized. The Contracts and Materiel Management Group (CMM) within the Financial and Materiel Management Directorate is responsible for providing functional direction and guidance on fleet management, as per IC Policy 015 on fleet management.

The audit objective, as per the approved Multi-Year Risk-Based Internal Audit Plan, was to assess the adequacy of the management control framework, related risk management strategies and practices, the information for decision making and reporting purposes as well as the extent of compliance to relevant policies.

The planning and on-site conduct phases for the fleet management audit were carried out between November 2007 and February 2008. The scope of audit included reviewing the fleet management practices in CMM, at three regional offices (Ontario, Quebec and Pacific) and at Communications Research Centre (CRC). The testing of transactions covered fiscal year 2006-2007 and the first six months of fiscal year 2007-2008. The report was updated to reflect current data.

1.2 Main Findings

Governance

1. The governance structure for fleet management is not clearly defined, resulting in varying practices in the department.

2. IC does not have comprehensive fleet management administrative guidelines and procedures that would ensure standardized procedures and compliance with Treasury Board (TB) directives.

3. Employees engaged in fleet management are not being trained in that function. Consequently, fleet management practices were found to be inconsistent.

Control

4. There is no formalized monitoring of fleet activities within IC to ensure the vehicle fleet is optimally used.

Risk Management

5. No action has been taken to identify, assess and minimize risks for the fleet management function which could impact the Department's fleet operations and maintenance of services.

1.3 Recommendations

Governance

The Chief Financial Officer (CFO), in partnership with Sectors which use vehicles, should:

1. Establish a clear governance structure for fleet management in terms of promoting good practices and providing support for managers to carry out their duties.

2. Develop a suite of directives, guidelines and procedures that are consistent with TB directives, reflect differences between specialized and non-specialized equipment, and provide criteria for the use of departmental vehicles.

3. Ensure that appropriate training is given to employees engaged in fleet management.

Control

4. The CFO, in partnership with Sectors which use vehicles, should implement an effective monitoring program and develop guidelines and tools to assist operational managers in monitoring their fleet performance.

Risk Management

The CFO, in partnership with Sectors which use vehicles, should:

5.1 Conduct a risk assessment of the fleet management function on a regular basis as part of the strategic planning process.

5.2 Ensure that driver's licences are periodically validated for all drivers of Departmental vehicles.

1.4 Statement of Assurance

In my professional judgment as Chief Audit Executive, sufficient and appropriate audit procedures have been conducted and evidence gathered to support the accuracy of the opinion provided and contained in this report. The opinion is based on a comparison of the conditions, as they existed at the time, against pre-established audit criteria. The opinion is applicable only to the entities examined and within the scope described herein.

1.5 Audit Opinion

In my opinion, the fleet management function in Industry Canada has weaknesses related to governance, control and risk management processes that require management attention.

Bill Merklinger
Chief Audit Executive, Industry Canada

Date

2.0 About the Audit

2.1 Background

As of November 20, 2008, Industry Canada (IC) had a fleet of 364 vehicles, consisting of cars, trucks, minivans and SUVs (The total number of vehicles for each region is shown in Appendix A).

Fleet management responsibility within Industry Canada is decentralized. However, the Contracts and Materiel Management Group (CMM) within the Financial and Materiel Management Directorate is responsible for providing functional direction and guidance on fleet management, as per IC Policy 015 on fleet management.

While CMM operates with a fleet management Policy (015) that was developed in 1996 by IC, Measurement Canada (MC) and the Communications Research Centre (CRC) have their own fleet policies.

ARI Financial Services (ARI) provides IC with a fleet card system to purchase and pay for goods and services associated with the operations of its vehicles. Information from the fleet card transactions is captured and provided to the department so life-cycle management of the vehicle fleet can be properly maintained. Currently, there are three IC agreements with ARI; one for MC, one for the Communications Research Centre (CRC) and the last covering the remainder of the Department.

Industry Canada's Long-Term Capital Plan, dated November 2006, raised concerns about the state of the Department's vehicle fleet. The document reported that ten percent of the vehicles were over ten years old and that 55 percent of the Department's vehicles had exceeded service life.

2.2 Objective

The objective of the audit was to assess the adequacy of the management control framework, related risk management strategies and practices, the information for decision making and reporting purposes, as well as the extent of compliance to relevant policies.

This audit objective was broken down into three components:

• To review and assess the adequacy of the management control framework and related risk management strategies for the fleet management function, including processes relating to the planning, organizing, controlling, directing, communicating, and the management of vehicle assets.
• To review and assess the extent to which the Department is complying with Treasury Board (TB) and IC policies, procedures and guidelines pertaining to fleet management.
• To review and assess the completeness and accuracy of the information available to management and the extent to which this information is used by management for decision-making and monitoring purposes.

Detailed audit criteria were developed for each component, and are provided in appendix B.

2.3 Scope

The scope of the audit included a review of the fleet management, operations and activities in the Materiel Management Section of CMM, and the fleet management operations at IC's Regional/District Offices and at CRC.

2.4 Methodology

The audit criteria used for this audit engagement were based on the Guidance on Assessing Control issued by the Criteria of Control Board (CoCo) of the Canadian Institute of Chartered Accountants and on the Treasury Board Secretariat (TBS) Guide to Planning, Conducting, and Reporting on Internal Auditing Assurance Engagements in the Federal Government of Canada. (See Appendix C for methodology detail).

3.0 Findings and Recommendations

3.1 Introduction

This section presents detailed findings from the audit of fleet management in IC as a result of examining the management control framework and business practices in the Contracts and Materiel Management (CMM), three regional offices and at the Communication Research Centre (CRC). Findings are based on the evidence and analysis from both our initial risk analysis and the detailed audit conduct. In addition to the findings presented below, observations and conditions that were non-systemic and of lower materiality and risk have been communicated to management for their consideration.

3.2 Governance

Finding 1: Fleet Management roles and responsibilities are not clearly defined and oversight is limited.

A clear governance framework is essential to ensure effective fleet management. A governance framework would be expected to include clearly defined roles and responsibilities, performance expectations for the function, and an effective strategy for communications.

The current IC Policy for fleet management identifies CMM as the departmental fleet manager. However, we found that CMM has little authority to manage IC's fleet. Regions and other entities such as Measurement Canada (MC) and CRC that have significant fleet do not report to CMM on matters related to fleet management.

In the absence of a clear authority to manage, CMM has not been active as the departmental fleet manager. Communications with regional fleet managers have been minimal and largely administrative.

In the absence of a clear governance structure, we have observed varying practices for fleet management at the regional level. Regions have developed some good practices, but these are not being shared with other regions. In interviews, regional staff expressed a desire to have better tools to manage their fleet operations.

Recommendation 1:

The CFO, in partnership with Sectors which use vehicles, should establish a clear governance structure for fleet management in terms of promoting good practices and providing support for managers to carry out their duties.

Finding 2: IC policies, procedures and guidance for fleet management are incomplete.

Departmental policies, guides and manuals for fleet management should be consistent with TB policies and ensure that IC vehicles are used only for operational purposes and managed in an efficient, effective and economical manner.

CMM operates with a Fleet Management Policy (015) that was developed in 1996 by IC. This Policy does not reflect two new TB Directives issued in November 2006; one for Light Duty Vehicles, and the other for Executive Vehicles. MC and CRC each have developed their own fleet policies that do not refer to CMM as the Department Fleet Manager. All the policies currently in use do not provide criteria as to when a departmental vehicle should be used.

Without comprehensive fleet management administrative guidelines and procedures which outline criteria for use of departmental vehicles, there is a risk of non-standardized fleet practices across the Department, and a risk of inappropriate use of vehicles.

Recommendation 2:

The CFO, in partnership with Sectors which use vehicles, should develop a suite of directives, guidelines and procedures that are consistent with TB directives, reflect differences between specialized and non-specialized equipment, and provide criteria for the use of departmental vehicles.

Finding 3: Insufficient training in fleet management.

Fleet management in IC requires knowledgeable specialists, well-trained managers, administrators and drivers.

CMM personnel involved in fleet management, and regional fleet managers have received limited formal training. Some examples of training that were observed included:

• ARI training on the fleet management system is offered on site and via web casts. At the time of the audit, we observed that ARI has been active in providing training on the system but some employees still have yet to participate.
• The Quebec Region has offered driving courses to its vehicle operators in defensive driving, skid control and pulling trailers.

Interviewees indicated that fleet training, coupled with appropriate guidelines and procedures, would assist employees in ensuring proper procedures are followed. In the absence of training, we noted that fleet management practices in the regions were inconsistent. There is also little analysis of fleet information.

Recommendation 3:

The CFO, in partnership with Sectors which use vehicles, should ensure that appropriate training is given to employees engaged in fleet management.

3.3 Control

Finding 4: No formalized monitoring of the Industry Canada fleet.

Effective administration of fleet management requires that there are processes in place to ensure that vehicle practices comply with policy requirements. Management oversight should ensure that practices and controls function appropriately and that early and remedial action is taken where significant deficiencies are encountered or improvements are needed.

There is no formalized monitoring program for fleet management activities in either CMM or in the offices we visited. The Department's fleet database, an essential component needed to monitor fleet activities, has not been maintained on a timely basis. Visits to the regional offices and CRC pointed out timing differences between the fleet records in these offices and the CMM inventory listings.

There has been little analysis of the information contained in the fleet management system. In that respect, fleet managers are not taking full advantage of the services ARI offers to help with monitoring fleet operations. For example, ARI offers a report that shows when scheduled maintenance is due and another report that indicates the efficiency (i.e.: kilometers/liters) of the vehicles but fleet managers have not requested either of these reports. This latter report would require that odometer readings be entered monthly into the fleet management system; something that is not done regularly in all offices. The Annual Departmental Fleet Review for 2006-07, published by ARI, which details information about the Department's fleet activities, has not been received or requested by the Department. In addition, we were unable to obtain an accurate total for the annual operating costs, including gasoline and maintenance.

The absence of monitoring increases the risk that IC is not using its fleet in the most optimal and judicious way. Our analysis of the fleet information system shows the fleet to be aging and overall mileage on the vehicles to be relatively low.

• Currently, 53.6% or 195 of the 364 vehicles are over five years old and 8% of the fleet (29 vehicles) is older than 10 years.
• Seventeen percent (17%) of vehicles traveled less than 5,000 kilometers annually; 28% traveled more than 15,000 kilometers annually; and 15% travelled more the 20,000 kilometers.

Some regions have made efforts to reduce the size of their fleet. The Spectrum, Information Technologies and Telecommunications Sector operations in the Quebec Region reduced its fleet to 19 vehicles from 28 in 2006-07 and the Pacific Region eliminated 4 pooled vehicles in January 2008. Measurement Canada also indicated that during FY 2007-08, it had started the process of rationalizing its fleet. The low mileage on many Departmental vehicles suggests that further reductions may be possible.

Some non-compliance with policies and directives was noted:

• Logbooks contained little detail as to exact destination and purpose of a trip; only the city or town visited is recorded. The logbooks were not regularly reviewed by administrators. In one region, we observed gaps in the recording of mileage between trips;
• Instances were noted where odometer readings were not recorded in the fleet system; and,
• Authorizations to Drive Forms were missing information. The vehicle identification section of the form was often incomplete and the signature of the Responsibility Centre Manager often missing.

There is a risk that weak monitoring systems may result in less than optimal use of vehicles and a greater likelihood of non-compliance.

Recommendation 4:

The CFO, in partnership with Sectors which use vehicles, should implement an effective monitoring program and develop guidelines and tools to assist operational managers in monitoring their fleet performance.

3.4 Risk Management

Finding 5: Fleet management risks are not identified or assessed.

Departments must take appropriate action to identify, assess and minimize risks associated with the acquisition, operation, use and disposal of vehicles. Risk factors may include, but are not limited to financial, legal, corporate, occupational, health, safety, security, and environmental. Risk assessments need to be done conducted as part of the strategic planning process.

IC has yet to undertake a risk assessment of its fleet management function that will provide for the identification, mitigation and management of high level risks. Risk management is a key component of the management control framework.

Departments are required to ensure that every driver possesses a valid licence to operate a motor vehicle to which he or she is assigned and determine the most appropriate manner of underwriting the risk to the Crown for damage to the vehicle, driver and passenger injury, or third-party claims. The audit found that driver's licences are validated only at the time that "Authorization to Drive" forms are completed. This could expose the Crown to liability should the status of the driver's licence change.

Without sound risk management of its vehicle fleet, the continuity of the Department's operations and maintenance of services could be affected. There is also a risk of costly settlements from accidents or emergencies, and potential embarrassment to the Department.

Recommendation 5.1:

The CFO, in partnership with Sectors which use vehicles, should conduct a risk assessment of the fleet management function on a regular basis as part of the strategic planning process.

Recommendation 5.2:

The CFO, in partnership with Sectors which use vehicles, should ensure that driver's licences are periodically validated for all drivers of Departmental vehicles.

Appendix A: Fleet Breakdown by Age and Usage

Notes:

1. This is based on information received from the ARI report dated November 20, 2008.

Appendix B: Audit Criteria

Audit objective—component no. 1

To review and assess the adequacy of the management control framework for the fleet management function including processes relating to the planning, organizing, controlling, directing, communicating, and the management of vehicle assets.

Criteria

1. Overall planning is effective to ensure the Department's fleet management objectives are achieved.
2. The Fleet Management Program is managed effectively to ensure achievement of its objectives and the requirements of the Department.

Audit objective—component no. 2

To review and assess the extent of compliance with Treasury Board and Industry Canada's policies, procedures and guidelines pertaining to fleet management.

Criterion

1. The Department is compliant with Treasury Board and the Department's fleet management requirements as it relates to fleet acquisitions; fleet operations, use and maintenance; and, disposal of vehicles.

Audit objective—component no.3

To review and assess the completeness and accuracy of the fleet information available to management and the extent to which this information is used by management for decision-making and monitoring purposes.

Criteria

1. The management information systems (automated and manual) provide accurate and timely information necessary to effectively manage the Department vehicle fleet.
2. Management makes an effective use of the information available to manage its fleet.

Appendix C: Methodology Detail

Information for this audit was obtained through the following methods:

• A review of the relevant documentation concerning the fleet management operations of Contract and Materiel Management (CMM), Measurement Canada (MC), the Communications Research Centre (CRC), the Quebec, Ontario and the Pacific regional offices. These three regions were selected as they have the majority of the vehicles;
• Interviews with management and staff of CMM involved in fleet management;
• Interviews with management and staff of MC, CRC and the regional offices who are involved with fleet management;
• Interview with the ARI representative in Ottawa; and
• Telephone interview with the Senior Policy Analyst, Real Property and Materiel Policy Directorate, Treasury Board Secretariat (TBS).
• Sampling
  • An audit sample of vehicle transactions from 2006-07 and the first six months of 2007-08 was selected from information contained in the ARI reports. Given the small population of vehicles in each office visited, judgmental sampling was used to select vehicle files for review against specific criteria. The focus of our sampling was on files with higher risk, as follows:
    • Vehicles purchased and disposed during the above period;
    • Vehicles traveling less than 10,000 kilometers annually;
    • Vehicles having high maintenance and operating costs; and
    • Vehicles older than 10 years.

Appendix D: Management Response and Action Plan