Ontario’s Auditor General released two reports in late 2022 that raised concerns over the contracting practices of two large revenue-raising provincial agencies. In the first report, the Auditor General found significant flaws in the IT procurement practices of the Liquor Control Board of Ontario (LCBO). In its second report, the Auditor General found that the Ontario Lottery and Gaming Corporation (OLG) mismanaged the privatization of provincial casino operations by failing to enforce the terms of the originally tendered contracts.
In its November 2022 audit entitled Liquor Control Board of Ontario: Information Technology Procurement, Ontario’s Auditor General found that the “LCBO did not consistently prioritize its IT projects at the enterprise level so as to avoid duplicated or wasted effort and inconsistent decision-making” and that “IT business units did not prepare annual procurement planning documents, despite being required by its own policy to do so.” The report found that 24 of 25 business cases reviewed “lacked important details around costs and benefits, information required by both LCBO’s administration manual and the Directive” and that “expected project costs were determined after the vendor had been chosen.” In fact, rather than seeking funding approvals prior to proceeding with a procurement, the report found that contract costs “were presented to the decision-makers for approval when the final contracts were already prepared, instead of obtaining approval before procuring potential vendors.”
Further, the Auditor General found that in the reviewed sole-source contracts, “none of the business cases we sampled provided sufficient information to justify the decision to procure without a competition” and “there was limited documented evidence that only one supplier met business requirements, as per the LCBO’s internal policy.” The report also found multiple bid evaluation flaws, noting that “evaluation forms were incomplete in 10 of the 13 files we reviewed” and that the evaluation records “were missing information such as the rationale for scores given and documentation of a final consensus meeting.” In fact, the Auditor General highlighted one evaluation process where “the vendor evaluation panel included business unit leaders and their subordinates but only the leaders attended the final consensus meeting to select a vendor”. The report also found that the “vendor selected on this occasion did not deliver satisfactory service for the project.”
The Auditor General also found that most IT procurement contracts lacked performance targets and “payments were made without verifying the deliverables were accomplished.” In fact, of 25 reviewed IT procurements, “only five included performance indicators” and “neither IT business units nor the vendor management office could demonstrate that it had verified that vendors provided satisfactory service and met project milestones before issuing payment.”
The Auditor General ultimately recommended that the LCBO require its IT business units to prepare annual IT procurement plans and provide those plans to the IT procurement service team to ensure that those expenditures were properly approved. As this case study illustrates, public institutions need to properly plan and manage their technology procurements to safeguard the proper expenditure of public funds.
Further, in its November 2022 report entitled Ontario Lottery and Gaming Corporation: Casinos, Lotteries and Internet Gaming, Ontario’s Auditor General found that the Ontario Lottery and Gaming Corporation (OLG) “undermined the credibility of its own procurement process by failing to hold casino operators accountable for their financial commitments in the contracts they signed after winning the rights to operate casinos in a competitive bid process.” The report found that this resulted in billions in lost revenues.
By way of background, after initially awarding multiple 20-year contracts during a 2012 round of privatization, the report found that “OLG renegotiated the contracts for three regions (Ottawa, North and West GTA) which lowered OLG’s projected minimum revenue share over the first 10 years and the committed capital investments.” For example, the report found that “OLG renegotiated the contract for the West Greater Toronto Area (GTA) region that lowers OLG’s projected revenue share over the first 10 years of the contract (from 2018/19 to 2027/28) by $1.8 billion based on a projected reduction in overall gaming revenue for the region of $4.5 billion over the same period.” More generally, the report found that the “total casino gaming revenue projections for the first 10 years of operations were reduced by $9.1 billion from the projections included in the winning bids” which meant that OLG’s share of these projected revenues was reduced by $3.3 billion over that period. The report also found that the capital investments originally proposed by the winning bidders “were not included in any contracts with the casino operators.”
As the Auditor General concluded, “OLG weakened its ability to achieve the government’s objectives of maximizing provincial profits and private-sector capital investments.” In fact, the report found that OLG “failed to hold casino operators to the contracts they signed and in one case, another casino operator would have won the contract if the unreasonableness of the successful casino operator’s bid had been seriously considered during the competitive bid process.” The Auditor General therefore recommended that OLG “avoid further reducing contracted revenue and capital commitments made by operators” and “in the future re-procure casino operators if the current operators are unable to deliver on the revenue and capital investment commitments included in their existing contracts.”
As these two audits illustrate, while provincial liquor and gaming agencies may contribute significant revenues to the provincial government, some of their tendering and contracting procedures remain a work-in-progress. Like all public institutions, revenue generating agencies need to bolster their procurement governance practices to ensure that their expenditures are properly managed.
