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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.

*Reason for Confidential Information

The attachment to this report 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.