Item - 2021.AU9.13

City Council recessed its public session on July 16, 2021 to meet as Committee of the Whole in closed session to consider this item, as it relates to commercial information supplied in confidence to the City of Toronto, which, if disclosed, could reasonably be expected to prejudice the competitive position or interfere with the contractual or other negotiations of a person, group of persons, or organization.

The Audit Committee recommends that:

1.  City Council request the Chief Technology Officer to:

a.  identify agreements that require license tracking and reporting; and

b.  implement procedures to monitor compliance and address any issues identified in a timely manner.

2.  City Council request the Chief Technology Officer to improve the existing software procurement process to ensure:

a.  software subscriptions are thoroughly evaluated before purchasing; and

b.  all software subscriptions are deployed in a timely manner so there are no excessive software subscriptions.

3.  City Council request the Chief Technology Officer to consult with the City Solicitor to help ensure adequate clauses are included in all future software agreements to reduce potential liability in situations where the City of Toronto is not able to comply with the agreement.

4.  City Council request the Auditor General to forward the report (June 23, 2021) from the Auditor General, except for Confidential Attachment 1 to the report (June 23, 2021) from the Auditor General, to City division heads and Chief Executive Officers of major City Agencies and Corporations to review and implement the recommendations that may be relevant to their respective operations.

5.  City Council direct that Confidential Attachment 1 to the report (June 23, 2021) from the Auditor General remain confidential in its entirety, as it contains commercial information supplied in confidence to the City of Toronto, which, if disclosed, could reasonably be expected to prejudice the competitive position or interfere with the contractual or other negotiations of a person, group of persons or organization.

The Audit Committee:

1.  Directed the City Manager, in consultation with the Auditor General, to report directly to the July 14 and 15, 2021 meeting of City Council on the approach taken by City staff to resolve the dispute as noted in the report (June 23, 2021) from the Auditor General.

The Audit Committee recessed its public session to meet in closed session to consider this item, as it relates to commercial information supplied in confidence to the City of Toronto, which, if disclosed, could reasonably be expected to prejudice the competitive position or interfere with the contractual or other negotiations of a person, group of persons or organization.

This report summarizes the Auditor General's review of an allegation of waste and its settlement regarding the City's non-compliance with a software end user agreement which resulted in the City making an advanced purchase for new software licenses that continue to remain underutilized.

The City purchases various proprietary software to meet its operational needs. Proprietary software is a software which is subject to copyright laws and restrictions on its use and distribution. Licensees (users) of the software are required to comply with the terms and conditions agreed by them in the end user license agreement. Non-compliance could lead to unexpected fees or litigation.

Software purchases are a significant expenditure for the City. In 2020, the City spent approximately $11.2 million on software acquisitions and $25.2 million on maintenance and support. Over the last five years, the City's total expenditures for software acquisition, maintenance and support was approximately $183.3 million. The City has over 3,300 licensed software titles.

In March 2021, a complaint came to the Auditor General's office alleging "the City was fined for using a vendor's proprietary software without a license". The complainant claimed the City settled with the vendor by purchasing additional software, and that "licenses were purchased in September last year and have been sitting on the shelf since". The Auditor General started her review of this matter after being informed of the allegation.

The City has been using this vendor's proprietary software for over 10 years to manage some information technology services on its servers. A key requirement of the end user agreement was for the City to install and properly configure the vendor's license reporting tool to track and report application usage on City servers.

In this case we confirmed that the City incurred significant costs by not complying with the software licensing agreement that required the City to install the vendor's reporting tool to track software usage. Management advised that instead of paying additional fees for non-compliance, for which the City would not realize any benefit, they settled by purchasing new software licenses earlier than planned.

We confirmed that the 12-month subscription period for most of the pre-purchased licenses will expire before the subscriptions are used. As of May 1, 2021, almost one year after the settlement, an aggregate of only 17 percent of all acquired licenses are being used. The cost of the unused license subscriptions (prorated to May 1) appears to be approximately $775,000, which includes a one-time set-up fee, annual subscription and maintenance and support costs that expire between June and August 31, 2021.

If all subscriptions are renewed in June and August 2021 for another year without being needed, the costs for the unused subscriptions will continue to rise if there are further delays in the deployment of these licenses. Management provided an estimated timeline to use all subscriptions by the end of 2022.

The Auditor General has made three recommendations in this report to improve the City's compliance with software license agreements and exercising due diligence before signing these agreements. This public report also contains two administrative recommendations.