Analysis of Findings and Recommendations – Audit of Supply Inventory Management

Objective 1: Ensure that effective governance mechanisms are in place to support the management of supply inventory.

Governance is a combination of processes and structures that are implemented by management to inform, direct, manage, and monitor the activities of the organization toward its objectives. It may include frameworks, policies, guidelines, directives, an action plan, job descriptions, performance reviews, training, and an oversight mechanism.

Overall, the audit concluded that there is no governance mechanism in place to manage supply inventory at EC.

1.1 Verify that a material management framework is in place at EC, complete with processes, systems and controls that include oversight, planning and reporting mechanisms.

The audit found that EC does not have a framework, nor does it have any alternatives such as policies, guidelines, or action plans to support the management of the materials in the supply inventory.

The audit also looked at whether, in lieu of a management framework, an action plan was in place that included measures to effectively implement the management of inventory. No plan was found, and it appears that inventory practices are not documented. The audit further noted the absence of any committees or working groups of key stakeholders (including business owners) to address issues, enhance information-sharing, and optimize inventory management. Similarly, no service standards for inventory management exist, though such standards do exist for hours of operation, daily deliveries, and shipping.

Finally, interviews revealed that EC is not guided in the delivery of its inventory management by the Policy on the Planning and Management of Investments. Key individuals responsible for managing the inventory appeared to be unaware of their obligations under this policy.

1.2 Verify that a material lifecycle management strategy is in place at EC.

Material lifecycle management is an important part of a governance framework, as it contributes to effective asset management. Lifecycle management requirements are listed in the Policy. To this end, EC must ensure that processes, systems and controls for investment planning and management allow for effective lifecycle management.

The audit revealed that there is no official strategy or controls in place at EC for effective lifecycle management. The practices in place are not documented and are inconsistent. It should be noted that business owners across branches do not consistently manage the lifecycle of the materials for which they are responsible. Each individual manages the lifecycle of the materials in their own way. This inconsistency has a negative impact on the use of storage space.

1.3 Verify that the training modules and job descriptions of relevant employees include their obligations regarding the management of supply inventory and determine whether specific objectives in this regard are included in performance reviews.

EC does not have an official training module for inventory and electoral material management activities. The training offered is specifically related to occupational health and safety, such as the use of forklifts in the warehouse. Evidence shows that members of the electoral material management team are encouraged, during less busy periods, to take a training course offered by the Canada School of Public Service on basic principles of procurement.

The audit included an analysis of the job descriptions of one director, four assistant/associate directors, and two managers. No specific activities related to the management of inventory and electoral materials were identified in any of these job descriptions. The following generic requirements were, however, noted:

• managing the division's financial, human, and material resources
• coordinating the preparation, production and distribution of electoral materials
• defining the evolving requirements and needs of the policy and procedural framework governing material management, warehousing, inventory control, distribution and delivery across EC offices

While most job descriptions reviewed referred to the development and implementation of operational policies, procedures, and outreach measures, evidence shows that no such items exist.

With regard to employee annual performance reviews, the audit showed a lack of specific inventory management targets in performance objectives.

Objective 2: Ensure that the internal control over supply inventory counts is effective, achieves operational results, and demonstrates good stewardship and value for money.

Accurate inventory counts, whether complete or partial, are critical to an organization's success, especially at EC, where nearly 90 percent of the inventory is made up of electoral materials. Considering that a general election or by-election could be called at any time, EC must have a representative and up-to-date inventory supported by a set of official inventory management and control measures.

A supply inventory discrepancy occurs when the number reported for a particular item in EC's SMS differs from the actual quantity in the warehouse. It should be noted that a discrepancy between book inventory and physical inventory is not uncommon and is most often due to human error. Common causes can include incorrect records, vendor errors, organizational problems, and theft.

Small discrepancies between actual supply quantities and values on record are normal. A percentage deviation of one to two percent is considered acceptable. On the other hand, any deviation greater than 10 percent should trigger alarms.

2.1 Verify that the physical count results are representative of the quantities recorded in the SMS.

Audit testing revealed discrepancies for 80 percent of the selected items, meaning that the quantity of 80 percent of the items counted did not match the count in the SMS. In addition, five of the selected items had a discrepancy of more than 10 percent, including items with discrepancies of 119 percent, 96 percent, and 61 percent (see Appendix B). These erroneous results uncovered raise doubts about the quality of the quantitative information and the value of the inventory.

In addition, interviews revealed significant issues with item storage. Among other things, packages and quantities of similar materials should be identical to avoid confusion in counting and inventory-keeping. Business owners play a crucial role in this regard. In particular, they must provide better specifications to suppliers. In this area, there is an urgent need to revise the ways in which materials are managed (packaging, bilingual printing of items, and consistency in the preparation of voting kits) to increase the efficiency of the inventory system.

Evidence demonstrated that the fact that different units can acquire the same item can also be a problem. Business owners and the electoral material management team who develop specifications for vendors must be vigilant in this regard. These factors need to be examined and standardized. Enhanced collaboration between business owners, vendors, and voting kit preparation teams would be beneficial.

2.2 Verify that the inventory system is updated in a timely manner in relation to the processes in place.

The audit confirmed that the SMS is not updated in a timely manner, and EC does not have an official process in place to do so. No physical inventory has been conducted at the main warehouse (Coventry Road) or the secondary warehouse (Walkley Road) since 2018. In fact, the OAG has expressed concerns about the inaccuracy of the SMS data.

2.3 Verify the accuracy of item classification and the frequency of physical inventory counts.

EC has developed its own storage-space coding system and has integrated it into the SMS. The on-site visit revealed that the quality of coding varies from good to poor. The SMS does not always accurately represent the quantity of items in stock or their location, such as row and height. For example, a large number of items were placed on pallets on the floor, and individual boxes were in the wrong locations, which required personnel to search a large area of the warehouse for the materials. In addition, some of the same items were in different aisles and even in the other warehouse. All of this makes counting more difficult.

It was noted that the aisles of the main storage spaces are usually kept clear, to facilitate access to pallets and storage cages and ensure personnel safety. Items may be placed in these spaces, implying that identical items can be found elsewhere in the warehouse. Different items can also be stacked in the same location, which impedes access to items below or behind the stack. This reduces the efficiency of warehouse functions, since more time is required to find items in different locations, and increases the risk of shipping errors. It was also noted that the main warehouse was clean and well-organized, aside from the shortcomings mentioned.

Multiple times during this audit, personnel expressed that they did not have the time to conduct a physical inventory because of the minority government environment and a heavy workload. To address this issue, EC must develop a strategy, such as reallocating internal resources or hiring an external firm to conduct a physical inventory, which should only take a few days.

Inventory management standards call for a physical count of all items to be conducted at least once a year. In order to have more control over supply inventory, the agency should undertake a count of electoral materials multiple times throughout the year. It is essential to reduce the inventory discrepancies as quickly as possible, before financial charges are incurred.

2.4 Verify the location of supply inventory.

The two warehouses targeted in this audit are located in privately owned buildings at some distance from EC's headquarters. Overall, the location of the supply inventory is appropriate.

The individuals we met with brought up some capacity problems in the warehouse and believe that more storage space is required. A good example of what is exacerbating the lack of capacity is the purchase of a large quantity of pandemic-related personal protection equipment meant to be used during electoral events. Another reason for the increase in supply inventory—and attendant lack of space—is that business owners delay disposing of obsolete materials.

There is an overflow of supplies outside the main warehouse (Coventry Road), which results in additional rental costs for the space.

Objective 3: Ensure that material management decisions are based on risk management practices, such as acquisition, lifecycle costing, and divestment.

According to the Policy on the Planning and Management of Investments, organizations must:

• Ensure the disposal or divestment of real property and material that no longer supports program requirements.
• Ensure that costs and risks are minimized for underutilized and surplus real property and materials and when disposal or divestment is not possible.
• Ensure that due diligence is exercised in the acquisition and disposal or divestment of real property and material.

The policy also states that material must be planned, acquired, operated, maintained and disposed of in a manner that enables the delivery of programs and services to Canadians, while ensuring value for money for the Crown.

3.1 Verify that electoral material acquisition decisions are made in an integrated manner, considering operational requirements, usage, risk, investment and divestment.

At EC, the business owners are fully responsible for managing electoral materials in a sustainable and fiscally appropriate manner. They are also responsible for ensuring the accuracy of the information used in the decision-making process, reporting any electoral material surplus, and ensuring that EC maximizes the economic benefits of using the materials for which they are responsible. The Distribution Centre, in turn, ensures that the materials are received, tracked, protected, maintained and prepared for divestment. The Centre is also responsible for the preparation of multiple election voting kits.

Almost all of the supply inventory is electoral materials. The business owners are concerned with the acquisition of materials to ensure the exemplary conduct of electoral events. It is clear from the feedback provided by managers during interviews that there is a fear of running out of materials, which leads to ordering excessive quantities of items. Having said that, it is difficult for business owners to manage the risk associated with material acquisition.

Similarly, analysis suggests that decisions are not always made with investment in mind. For example, during visits to the warehouse, 87,734 copies of a particular English form were counted. The assumption that this form was rarely used was confirmed by storage personnel, who observed that most of these forms are returned unused by the returning officers. Despite this, additional copies of the same form were ordered in 2019. Moreover, the audit team learned that the supply count of the French version of the same form is even higher.

Adequate monitoring of all electoral materials is necessary to identify and resolve these issues. Rigorous and regular inventory counts could help teams maintain appropriate inventory levels, identify inefficiencies, and budget more accurately.

The estimated value of EC's inventory is over $10 million, and yet the budget for electoral materials required for an electoral event is $6.5 million.

3.2 Verify that EC assigns a lifespan to all electoral materials and evaluates overall lifecycle costs.

Disposal is the final stage in the lifecycle of supplies. Business owners—including assistant/associate directors—are responsible for the lifecycle of materials, from acquisition and inventory updates to disposal.

Normally, there are three main phases to the disposal process: initiation, planning and execution.

Based on the information gathered during interviews, business owners are not fulfilling their responsibilities to initiate the disposal of excess inventory; the approach followed is rather informal and consists of providing information to the person in charge of the electoral material management as needed. Visits to the Distribution Centre confirm this. Business owners should visit the warehouses so that they can better see the impacts of not adequately disposing of items.

While business owners interviewed did not express concern that the tracking of the material lifecycle and related costs was not done in a structured manner, reducing the costs associated with storing surplus or obsolete items should be an important consideration for EC.

The audit sought to examine the targets set out in the performance reviews of a number of business owners to verify their responsibilities for managing the various stages of electoral material management, including disposal and lifecycle activities. No documents were received in this regard.

The audit revealed that EC is unaware of the amount of surplus electoral materials in its warehouses, even though these surplus materials are recorded in the SMS. It is possible that some items, which have not been used in recent years, will become useful again during an election. However, it is highly likely that most of these materials will remain unused. A good example of this is the "2014 Street Indexes" (EC06511) book.

EC will need to take steps to assign a lifespan to all electoral materials and evaluate overall lifecycle costs. In order to reduce warehouse space occupied by obsolete and surplus items, EC will need to allocate funds and resources to an inventory rationalization exercise that will require business owners to initiate the elimination of surplus. The agency will need to ensure that it no longer accumulates surplus items and that its warehouses are not overflowing. The lack of consistent and effective steps for disposing of surplus items is causing inventory to build up at a rate that exceeds the existing capacity. This, in turn, impedes warehouse efficiency and increases the cost of storing supplies. The audit recognizes that there are exceptions regarding the purchase of pandemic-related health supplies during elections.

In addition, there are no guidelines regarding the need to periodically assess assigned material inventory, resulting in inefficient, inconsistent and non-compliant management of electoral materials. These shortcomings are likely due to the lack of a governance framework. It is crucial that business owners understand their roles and responsibilities. Training could be provided to help them exercise their authority, and complementary training offered when new policies and guidelines are implemented.

Text version of "Figure 1: outlines the workflow of key activities related to inventory management at EC."

The above diagram shows the main activities of inventory management. First, the business owners determine which procurements are needed and authorize various purchases. They work with Procurement and vendors to execute the purchases. The materials are then delivered to the warehouse receiving area, where the items are entered into the Supply Management System (SMS). Items in the inventory are not always valid and up to date; those that are no longer needed are destroyed.

Objective 4: Ensure that effective oversight mechanisms are in place to support the management of supply inventory.

4.1 Verify that the Distribution Centre and the electoral material management team have effective inventory control mechanisms for supplies to ensure sound management practices for the control and protection of assets.

Information gathered during the audit indicates that there is no formal oversight mechanism in place at EC to ensure that material management decision-making is based on risk management practices such as acquisition, lifecycle costing, and divestment. EC does not formally monitor, specifically and at regular intervals, all activities related to inventory management, including the management of electoral material. The results presented herein are a reflection of this lack of such monitoring.

The audit of supply management inventory discussed in this report is in itself a control mechanism and should be considered as EC's first step in resolving this situation and addressing OAG concerns.

• Previous
• Table of Contents
• Next