Internal Audit of Clearing Conditions Precedent

Summary of the Internal Audit of P3 Canada Fund Due Diligence to Clear Conditions Precedent (Report dated March 2015)

The overall objective of the audit was to provide the Chief Executive Officer (CEO), the management team and the Board of Directors with assurance that:
  • The framework of PPP Canada’s governance, systems, processes and internal controls related to the conditional financial agreement (CFA) due diligence to clear conditions precedent were in place, suitably designed, consistently applied and effective; and 
  • Sufficient information/evidence is contained within the project files to demonstrate that the conditions of the CFA have been met. 
Due diligence to clear conditions precedent is the process of overseeing transactions from project approval to financial close. Through this process, PPP Canada monitors P3 Canada Fund projects and advises Procuring Authorities (clients) on the recommended project structure and procurement process and practices, with specific emphasis on the commercial and financial aspects of the transaction. The objectives of the due diligence to clear conditions precedent process are to ensure that P3 Canada’s investment recipients working with PPP Canada have well-developed and comprehensive plans, and enable stakeholders to make informed decisions by ensuring that a methodological approach is taken, including effective project scoping, structuring, financial planning and risk management.

The goal of PPP Canada’s due diligence to clear conditions precedent process is three-fold: 
  • To ensure that the information contained within procurement documentation, including project scope, Value for Money (VfM) and risk transfer, are aligned with the project, as approved, including any project-specific conditions contained within the CFA; 
  • To assist P3 Canada Fund clients in developing an optimal P3 project structure and delivery approach based on lessons learned and market precedents (P3 Best Practices); and 
  • To assess and mitigate project-related risks to facilitate a successful procurement that delivers VfM.
Throughout the audit fieldwork, the audit team observed examples of how controls are properly designed and being applied effectively. This has resulted in several examples of strong management practices which are listed below:
  • Roles, responsibilities and accountabilities for the due diligence to clear conditions precedent process are understood and followed by those within the Investments business unit;
  • Generally, project files reviewed include sufficient evidence to demonstrate that conditions of the CFA have been met; 
  • PPP Canada’s Investments business unit advises Procuring Authorities on suggested language, structure, considerations and recommended approaches in the procurement process;
  • Risks that may prevent a successful financial close are identified, assessed and managed during the Request for Qualification (RFQ) and the Request for Proposals (RFP) processes;
  • Systems such as P3C Docs and tools such as checklists and grids are in place to support the process, track all required documents and ensure appropriate information management. 
The audit found that PPP Canada has an adequate framework of governance, systems, processes and internal controls related to the due diligence to clear conditions precedent process. However, opportunities for improvement were noted to strengthen controls used in documenting and demonstrating that due diligence to clear conditions precedent have been met.

The following table presents specific findings from the audit and provides a description of the recommendations and management responses.

Recommendations

Management Responses

We recommend that management finalize and approve the Investments business unit’s Due Diligence Guide and offer refresher training on the guide.

PPP Canada agrees with this recommendation. PPP Canada recognizes the importance of establishing a formal systematic process to support clearing the conditional financial agreement (CFA) due diligence to clear conditions precedent. The Investments business unit will finalize the Due Diligence Guide and continue to provide one-on-one training to new staff as well as ongoing training to existing employees on the guide, as necessary.

We recommend that management more clearly evidence completion of activities and formally evidence review and approval of key due diligence documentation by fully implementing electronic signatures capability in P3C Docs.

PPP Canada agrees with this recommendation. PPP Canada has already made significant progress implementing its Electronic Document and Record Management System (EDRMS); P3C Docs. Embedded within P3C Docs is value added workflow functionality, which facilitates an auditable process of document approvals. More specifically, PPP Canada has operationalized the workflow feature associated with the due diligence process for a number of P3 Canada Fund projects. Implementation of the workflows has automated the business rules to decide when one step has been completed successfully and when the next step begins (i.e. a director-level approval will trigger a VP-level workflow request). Workflow functionality has also streamlined the review and approval process including electronic signatures capability. PPP Canada will continue to work on leveraging the full capabilities of the workflow process associated with the due diligence process.

We recommend that management introduce a formal practice to seek client feedback on support provided by PPP Canada (e.g. survey, questionnaires or lessons-learned discussions).

PPP Canada agrees with this recommendation. PPP Canada has formal mechanisms in place, such as formative and summative evaluations which are specifically designed to capture client feedback on program design, management and performance. PPP Canada concluded a formative evaluation of the P3 Canada Fund in 2013. The evaluation provided tangible recommendations on ways PPP Canada could improve on its program management and performance. PPP Canada responded to all of the recommendations identified in the final evaluation report. A summative evaluation of the P3 Canada Fund is planned for fiscal year 2015–16. The methodological approach of the summative evaluation will employ formal practices to seek client feedback on PPP Canada’s program management and performance of the P3 Canada Fund. It is anticipated that the scope of the summative evaluation will include, among other areas, stakeholder feedback on PPP Canada’s performance during the due diligence process.

We recommend that management enhance controls to improve the standardization, consistency and relevancy of documentation and analysis that is used to demonstrate that conditions of the CFA have been met.

PPP Canada agrees with this recommendation. PPP Canada’s due diligence process has evolved significantly from Round 1 to Round 6. The due diligence process employed in the Investments business unit today has a greater set of controls and mechanisms in place to clear conditions precedent and document PPP Canada’s due diligence activities from project approval to the financial close stage. Knowledge transfer and information sharing within the Investments business unit have also been leveraged as opportunities to facilitate greater learning with regards to the intent and goals of the due diligence process. The Investments business unit continues to ensure that staff members are equipped with the knowledge and tools to adequately complete the due diligence process on P3 Canada Fund projects. 

Please refer to PPP Canada’s management response for finding #2.