Review of Atlantic Innovation Fund Post Payment Audit

Acoa

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• Publié par: Phewyung
• Nombre de lectures: 31
• Langue: English

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Review of the Atlantic Innovation Fund -
Post Payment Audit -
Period Ended March 31, 2004



Audit Directorate




Final Report






March 2006

























TABLE OF CONTENTS




POST PAYMENT AUDIT RESULTS .................................................................1


RESULTS - CONSULTING AND AUDIT CANADA...........................................3


Audit Directorate
Review of the Atlantic Innovation Fund -
Post Payment Audit -
Period Ended March 31, 2004

Under the Atlantic Innovation Fund (AIF), ACOA disburses project funds on a
timely basis following a pre-payment review of the claim. The payment process
is designed to maximize client service while minimizing the risk that the Agency
disburses funds inappropriately. The payment process relies upon the client’s
signed attestation that the expenses claimed are authentic, eligible costs of a
project and have already been incurred.

ACOA’s Post Payment Audit (PPA) function plays an important role as a
necessary check on the functioning of the payment process. The PPA provides
an ability to assess the adequacy of control being provided by the claim review
and payment process. The objective of the post payment audit process is to
reach a conclusion about the appropriateness of the general population of
payments made under the AIF Program during a fiscal year based upon
examination of a statistically reliable sample.

At present, the PPA function is conducted on a regional basis with oversight from
Audit Directorate on specific issues (i.e. sample design and Agency-wide
reporting).

For the period ended March 31, 2004 (payments made in fiscal years 2002/2003
and 2003/2004), a sample of 34 claims was selected for post payment audit and
audits were performed by Consulting and Audit Canada (CAC). Results were
reported back to ACOA for roll-up and extrapolation.

Sample selection criteria for AIF were based on the total program funds of
$300 million. Materiality was selected at 2% of the population or $6 million for
the program. With reductions to allow for errors found during the audits, a
sampling interval of $1.3 million was employed to draw the sample for audit. A
95% confidence level was chosen.

Thirteen projects were found to have minor errors; the total of which was not
material as over 75% of the total value of the error for the population was related
to one project.

Conclusion

The rate of error for the years 2002/2003 and 2003/2004 is under the materiality
threshold noted above.



Page 1 Audit Directorate
The errors identified with the specific project have the potential of becoming a
significant issue in future years. However, these can be effectively mitigated if
specific action is taken to address the weakness. Since its completion, work
consultations have been undertaken with the principals of this project and
improvements have been implemented.









































Page 2 Audit Directorate
Consulting and Audit Canada

Post Payment Audits for the AIF Program

In connection with our engagement outlined above, we have recently completed
30 post-payment audits for the Atlantic Innovation Fund (AIF), covering the fiscal
years ended March 31, 2003 and March 31, 2004. As agreed, it will be ACOA’s
responsibility to extrapolate the results of these audits, combined with the 4
performed by New Brunswick Region’s post-payment audit (PPA) staff. This
letter is meant to convey findings where we saw some commonality in audit
errors or where program procedures may not be clear or well understood, all of
which may help ACOA improve its payment process related to this program.

We are pleased to report that, for the most part, the program’s control system
appears to be operating as intended, with adequate assurance; recipients are
complying with the terms and objectives of contribution agreements, terms of the
AIF program and with Treasury Board (TB) policies. We noted most regions
have a process/checklist for pre-audit of claims which aims to address many of
the requirements of the AIF claiming guidelines, and this control system has
proven effective in capturing several client errors. Nevertheless, some items
have come to our attention that, if highlighted, may assist you further in
enhancing your control structure. For presentation purposes, these items have
been grouped according to topic and include: claiming and payment of ineligible
costs, non-cash item and overhead valuation and support, amendment
documentation, proponent record keeping, support for advances, and financing
requirements. Also, you will note other general observations stemming from our
review of positive control systems at the end of the letter.

Claiming / Payment of Ineligible Costs

During our review process, it was indicated to us by some clients that they were
unsure of certain aspects of the claiming process and/or related requirements
outlined in the AIF Agreements. In many of these instances, we also noted that
some items claimed and paid included holdbacks, foreign exchange gains,
accrued expenses and estimated costs, and that some items on the claim were
not fully supported with details (dates, invoice numbers) and, as such, appeared
to be of questionable eligibility at the time of claim submission. There were also
a number of errors detected that stemmed from not-for-profit entity claims related
to sales taxes and how to calculate the eligible portion of HST. Although the
details of these ineligible items are found in the various audit reports we issued,
there appears to be some commonality that can be summarized for purposes of
this letter, i.e. costs incurred dates the same as or close to the prior commitment
date, rounded invoice amounts, vague or missing invoice or supplier information,
or simply the wording of certain items appearing on claims. In all but one region,
these items amounted to relatively small audit adjustments. Nevertheless, to
mitigate any possible weaknesses in the control system, a training session for
Page 3 Audit Directorate
new clients or clients who have significant and recurring errors and/or an
enhanced quality assurance review procedure or training for Account
Managers/Payment Officers may prove beneficial. Furthermore, to mitigate the
risk associated with errors in the application of taxes, some special advice
related to HST for not-for-profit entities through Schedule 3 should be
considered.

Non-Cash Item / Overhead Valuation and Support

There were some eligible non-cash contributions that were very highly detailed
and supportable for an audit evidence perspective, while some others were not.
In accordance with standard practice for these types of transfer payments, AIF
guidelines require a certain amount of support for costs claimed to verify that the
amount is correct and that the costs was, in fact, incurred on the dates and for
the purposes outlined. Where non-cash transactions are concerned, the level of
support available for our audit staff varied considerably. In many cases, the
request for additional support caused some confusion with AIF proponents, many
of whom felt that the non-cash item’s eligibility was adequately addressed in their
proposal initially. We therefore recommend where there may be some question
as to how an item of this sort may be supported, that this be clarified with the
proponent during the initial evaluation phase.

AIF guidelines allow for the payment of overhead allocations to proponents
based on a pre-determined formula, i.e. square footage calculation or percentage
of salaries. Payment by this method can be a prudent practice for types of costs
that are low risk, and where high transaction volumes coupled with small dollar
amounts, make audit sampling inefficient and not cost-effective. As is also the
case for non-cash items, as outlined above, TB policy nevertheless requires that
some verification of these amounts be undertaken. To this end, it seems that AIF
general practice is to assess the reasonableness of the allocation during the
evaluation phase. We were able to assess that all overhead amounts were paid
appropriately in accordance with the contribution agreement, but we were not
always able to identify where ACOA had undertaken a review of the
appropriateness of the overhead allocation at the outset. In these cases, we
were able to satisfy ourselves that sufficient overhead costs were incurred to
support the amount claimed through inspection of general ledgers and financial
statements; however, there remains some ri