Audit

An audit is a systematic examination of records, activities or controls to obtain evidence and assess whether they comply with specified requirements. In Canadian public procurement, the word most often means an examination of a contractor's records and costs to verify that the amounts claimed and the prices charged comply with the contract and are reasonable.

Public Services and Procurement Canada (PSPC) tells its buyers to include a general audit clause in every contract. The clause is the legal basis for Canada to look behind an invoice or a price. Related terms include accounts and records, cost audit, price certification, allowable costs and the buyer's right to audit. The CanadaBuys buyer's guide on audits sets out how these pieces fit together.

The general audit clause in every federal contract

PSPC buyer guidance states that the general audit clause must be included in every contract. The clause requires the contractor to maintain accurate records of estimated and actual costs. It also requires the contractor to make those records available for examination by Canada or its designated representatives when asked.

The Practitioner's Guide for Procurement Pricing adds that the Accounts and Records clauses require contractors to retain evidence supporting all amounts claimed under a contract. These clauses preserve Canada's right to audit claimed amounts calculated under the contract's basis of payment.

Price certification and audit clauses for non-competitive and cost-reimbursable work

The audit clause a contract carries depends on how it was awarded and how it is paid. For non-competitive firm-price contracts over $50,000, the offeror must provide the applicable price certification, and the guidance calls for the appropriate discretionary audit clause in the solicitation and contract. The CanadaBuys audit guidance sets out this threshold.

Procurements that contain cost-reimbursable elements must include the appropriate audit clause in the solicitation documents. Under a cost-reimbursable arrangement, Canada pays for costs incurred, so the records behind those costs are what an audit examines.

Audits of foreign contractors under NATO allied arrangements

Canada has agreements with several NATO allied governments to conduct audits and price certifications for foreign contractors involved in non-competitive contracts. Where significant subcontracts involve NATO-allied countries, PSPC recommends using the relevant foreign government's audit services. In these cases the audit may be carried out by another allied government's audit authority rather than by Canada directly. The CanadaBuys buyer's guide describes this approach.

Internal procurement audits inside federal organizations

Federal organizations also use the word audit for reviews of their own procurement governance, controls, contracting processes and compliance. These are examinations of the buyer, not the supplier. Examples include the Canada Revenue Agency's contract bidding and awards process audit and Natural Resources Canada's audit of the management of procurement services. Suppliers do not take part in these audits directly, but the findings can shape how a department runs its solicitations.

What an audit means for a supplier bidding on Canadian public contracts

Treat audit readiness as a condition of every federal contract. A supplier should:

• Maintain accurate records of estimated and actual costs.
• Retain evidence supporting every amount claimed under the contract.
• Make records available to Canada or its designated representatives on request.
• Provide the required price certification on applicable non-competitive firm-price contracts.
• Comply with any contract-specific audit, accounts-and-records, cost-reimbursement or discretionary audit clause.

Bid teams should read the audit and accounts-and-records clauses in each solicitation before pricing, and set up cost tracking that matches the contract's basis of payment from the first day of work.