Office of the Auditor General Canada—Internal Audit Report

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Office of the Auditor General of Canada Internal Audit Report Hospitality Expenses December 2005 Katherine Rossetti, Director Janet Jones, Principal Subhas Roy, Auditor OAG Internal Audit of Hospitality Expenses December 2005 Table of Contents 1.0 Executive Summary ........................................................................................................1 2.0 Introduction .....................................................................................................................3 2.1 Audit Mandate .......................................................................................................3 2.2 Background ...........................................................................................................3 3.0 About the Audit ...............................................................................................................3 3.1 Objectives and Scope ...........................................................................................3 3.2 Audit Approach and Lines of Inquiry .....................................................................3 4.0 Observations and Recommendations...........................................................................4 4.1 Policy Framework..................................................................................................4 4.2 Delegation of Responsibilities ....................... ...

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• Publié par: Anjo
• Nombre de lectures: 18
• Langue: English

Extrait

Office of the Auditor General of Canada Internal Audit Report Hospitality Expenses December 2005

Katherine Rossetti, Director Janet Jones, Principal Subhas Roy, Auditor

OAG Internal Audit of Hospitality Expenses December 2005 Table of Contents 1.0........................................................................................................ 1Executive Summary 2.0Introduction ..................................................................................................................... 3 2.1Audit Mandate ....................................................................................................... 3 2.2Background ........................................................................................................... 3 3.0About the Audit ............................................................................................................... 3 3.1Objectives and Scope ........................................................................................... 3 3.2Audit Approach and Lines of Inquiry ..................................................................... 3 4.04Observations and Recommendations........................................................................... 4.1.................................................................................................. 4Policy Framework 4.27Delegation of Responsibilities ............................................................................... 4.38Hospitality Transactions ........................................................................................ 4.49Disclosure of Hospitality Expenses .......................................................................

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OAG Internal Audit of Hospitality Expenses December 2005 1.0 Executive Summary Introduction The Internal Audit of Hospitality Expenses conducted by the Strategic Planning and Professional Practices group forms part of the Office’s annual internal audit plan for 200405 that was recommended by the Audit Committee and approved by the Auditor General. Conclusion This audit was conducted at a time when the external and internal hospitality policies were being reformed. However, we found that the approval process for hospitality transactions and related documentation needs to be strengthened. We also found cases where Office policy and practice need to be improved. These opportunities for improvement are discussed below. Background The unique role of the Office of the Auditor General and its work in conducting audits of government departments and agencies necessarily involves incurring hospitality expenses. It is government policy to extend hospitality in an economical, consistent and appropriate way when it will facilitate government business or is considered desirable as a matter of courtesy.The Office is subject to the Treasury Board Hospitality Policysince it is listed in Schedule I.1 of the Financial Administration Act. The Office should be able to assure Parliament and itself that it is in compliance with this Policy, as appropriate. Audit Objectives and Scope The overall objective of this internal audit of hospitality is to provide assurance to the Auditor General that the Office is in compliance with the Treasury Board Hospitality Policy and with its own policy and that there are adequate controls to ensure that hospitality expenditures are made with due regard for these policies. The scope of the audit includes hospitality expenditures for the 12 month period October 1, 2003 to September 30, 2004. We selected a sample of 50 transactions for testing, covering 65% of the dollar value of total hospitality expenditures for the period. Opportunities for Improvement The audit found that the internal approval process was a mix of formal and informal and not as rigorous as it should be. Despite this, the most senior levels in the Office were aware of planned hospitality for significant dollar amounts. In addition, the Office needs to ensure that its hospitality policy and guidelines are clearly explained, consistent and adhered to. Management Response The Office will continue to ensure that hospitality expenses respect Treasury Board policy, as appropriate to the Office’s status as an independent agent of Parliament.

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We accept the Opportunities for Improvement identified by internal audit. Effective immediately we will improve the documentation pertaining to the approval of hospitality expenses, and ensure hospitality guidelines are clearly communicated and exceptions properly approved and documented.

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Introduction

December 2005

2.1 Audit Mandate The Internal Audit of Hospitality Expenses conducted by the Strategic Planning and Professional Practices group forms part of the Office’s annual internal audit plan for 200405 that was recommended by the Audit Committee and approved by the Auditor General.

2.2 Background The unique role of the Office of the Auditor General and the nature of its work in conducting audits of government departments and agencies necessarily involves incurring hospitality expenses. It is government policy to extend hospitality in an economical, consistent, and appropriate way when it will facilitate government business or is considered desirable as a matter of courtesy. The Office is subject to the Treasury Board Hospitality Policy since it is listed in Schedule l.1 of the Financial Administration Act. The Office should be able to assure Parliament and itself that it is in compliance with the Treasury Board Hospitality Policy, as appropriate. Hospitality expenses are normally incurred when senior officials of the Office meet with parliamentarians; senior officials of other government departments, agencies, and Crown Corporations; and external advisors; to discuss the work of the Office. In addition, the Office has incurred hospitality expenses for events such as professional development symposiums, conferences, strategic planning sessions and report tabling days, among others.

3.0

About the Audit

3.1 Objectives and Scope The overall objective of this internal audit of hospitality was to provide assurance to the Auditor General that the Office is in compliance with the Treasury Board Hospitality Policy and its own policy, and that there are adequate controls to ensure that hospitality expenditures are made with due regard for these policies. The scope of the audit included hospitality expenses for the 12 month period October 1, 2003 to September 30, 2004. We selected a sample of 50 transactions for testing, covering 65% of the dollar value of total hospitality expenditures for the period.

3.2 Audit Approach and Lines of Inquiry The approach used in conducting the internal audit was as follows: − Key monitoring and management controls were identified and tested at the following levels: Officewide, Comptroller’s Group and at the AAG/PX level. Interviews were conducted with Comptroller’s Group managers and staff, and selected event organizers as representatives of the AAG Groups. −programs were developed to test a sample of transactions chosen from the Audit Oracle database of the Office. − Detailed tests of transactions were conducted. A judgemental sample of some 50 transactions amounting to 65% in dollar value of total hospitality expenditures for

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the period was selected, comprising all high value items, with some smaller items included on a random basis. The sample included transactions classified under a variety of product codes.

Observations and Recommendations

4.1 Policy Framework The Treasury Board Hospitality Policy applies to all departments and agencies listed in Schedules I, I.1 and II of the Financial Administration Act. As the OAG is listed in Schedule I.1, the Office is subject to that Policy. It provides the framework for all hospitality expenditures, together with the financial signing authorities delegated by the Minister of Finance. The Treasury Board policy is dated 1 April 1993. The Public Service Human Resources Management Agency of Canada (PSHRMAC) is in the process of updating this policy. Once complete, it will be submitted to Treasury Board for review and approval. Drafts were made available to the Office in 2004; the most recent dated October 2004. Discussions with Treasury Board Secretariat have indicated that the 1993 Treasury Board Policy was in effect during the audit period and is still in effect as of the date of this report. It is also the Policy that is posted on the Treasury Board website. The Office has its own policy and guidelines that supplement the Treasury Board Hospitality Policy. These appear on the Intranet or are communicated to staff in other ways. At the time of our audit, these included: −Office’s Hospitality Policy  This policy was posted on the Intranet in December The 2001, however, it was undated. We could not determine when it was actually prepared. As there were no subsequent hospitality policies, we considered it to be in effect during the period of the audit. − Employee Guide to the Bravo Program, dated December 2002. −Operational Planning and Budgeting Guideline that covers Hospitality and Group The Days – posted on the Intranet in October 2003. − Conference Guidelines dated January 2004.

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Findings Office policy, practice and documentation with respect to hospitality need to be improved in some areas:

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Hospitality Expenses over $5 000.The 1993 Treasury Board Policy states that hospitality expenses over $5 000 require the approval of the designated Minister, the Minister of Finance. Our analysis of the audit sample indicates that such approvals were not obtained. It was explained to Internal Audit that seeking such approvals is not consistent with the Office’s status as an Agent of Parliament. The requirement for Ministerial approval does not exist in the October 2004 draft policy. However, the draft policy does require that single events over $5 000 have the preapproval of the Deputy Head.

Hospitality Expenses over $1 500.The Office’s Hospitality policy (posted in 2001) states that “any hospitality function exceeding $1 500 requires the prior written approval of the Auditor General.” This level of approval is also a requirement of the 1993 Treasury Board Hospitality Policy, for amounts between $1 500 and $5 000. Our analysis shows that such approvals were not documented. In fact, we noted that the majority of hospitality expenses in our sample, ranging from $1 500 to $15 000, were initiated and approved by employees below the level of Assistant Auditor General. However, many of these expenses related to Office wide events which are discussed at Executive Committee meetings.

Meal Allowances – Average and Maximum Per Person Cost.Meal allowances for hospitality are based on the Treasury Board Travel Directive. Two criteria have to be met in determining the acceptable meal cost. The first criterion is an “average per person cost,” which, for example, is 1.5 times the breakfast travel allowance and 2 times the lunch travel allowance. The average is not to be exceeded over the course of the fiscal year. The second criterion is a “maximum per person cost” which is determined on an individual event basis. The Treasury Board policy states that the average and maximum per person limits must be used in planning all hospitality functions. We found that sufficient consideration was not given to this requirement. A number of events in our sample exceeded the average allowable per person cost and for two events, the maximum limits were also exceeded. This may have been due to control weaknesses.

Events of a social nature.Some of the events were of a social nature, such as the farewell and retirement receptions. The effective Treasury Board Hospitality Policy specifies that hospitality may be extended in an economical way when it will facilitate government business or is considered desirable as a matter of courtesy.Because of the lack of clarity in the 1993 Policy, it is not clear whether the events in question fit within these criteria. As indicated above, we have been informed that these events were discussed at Executive Committee meetings. A new Office Hospitality Policy.A new Office Hospitality Policy and guidance were approved by the Executive Committee in December 2004 and posted on the intranet in April 2005. The policy reaffirms the Office’s intent to comply with the Treasury Board policy. It further states that “The Office has developed related guidance and

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procedures to apply the draft Treasury Board Hospitality Policy to our circumstances.” This statement is made in reference to the October 2004 draft PSHRMAC policy. The details of the new Office Policy, its implementation and impact were not included in the scope of this audit. However, it appears that the early adoption of the direction of the draft PSHRMAC policy may have some positive implications. This is particularly true where the effective Treasury Board Policy could be subject to interpretation that might not reflect the intent of the Policy. For example, the draft policy is clearer with respect to excluding work related social events, restricting the provision of alcohol and limiting hospitality in restaurants. However, the early implementation of the draft policy has significantly reduced the amount that can be spent on work related hospitality events, when compared to the effective 1993 Hospitality Policy. For example, for lunch, the draft policy amount equals the travel allowance amount, which is $11.85, whereas the 1993 Policy permits two times this amount to be spent on average. The reduced amount may make it more difficult for staff to comply, particularly since we have already noted cases where even higher allowable limits have been exceeded. The Office may wish to consider increasing the amount allowed for workrelated events, to a level consistent with the 1993 Policy. In addition, the Office has decided to create a unique category of hospitality called “formal workrelated events.” This is not a category which is recognized by any existing or draft Treasury Board policy. The Office should reconsider whether it wishes to maintain this category. Recommendation 1 As a minimum the Office should: •Document the rationale for not seeking Ministerial approval of hospitality expenses exceeding $5000; •Ensure all hospitality transactions over $5 000 are formally preapproved by the Auditor General on the recommendation of the Deputy Auditor General, such that there is a financial record of such approval; •Ensure all hospitality transactions between $1 500 and $5 000 are formally approved by the Deputy Auditor General on the recommendation of the Assistant Auditors General, such that there is a financial record of such approval; •Increase its efforts to ensure that meal allowance requirements are respected, and document its rationale when this is not the case and obtain the necessary approvals; •Reconsider the “formal work related event” category; and •Monitor progress of the draft policy, and comply fully with it once it has been approved by Treasury Board and it is in effect. Management Response  Recommendation 1: The Office follows the intent of the Treasury Board Hospitality Policy, as well as the great majority of its detailed requirements. Government policies, however, do not

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always adequately reflect the nature and reality of agents of Parliament such as the Office of the Auditor General. Particularly, policies do not always recognize the independence requirements of the Office. In this context, some interpretation of government policy was required and endorsed by senior management. In substance however, all significant hospitality expenses were approved by senior management. Nonetheless we agree that documentation of the approvals needs to be improved. Specifically, we agree to: y document the rationale for not seeking Ministerial approval for expenses exceeding $5,000; ydocumented approval of expenses exceeding $5,000 by the Auditor ensure General, and expenses between $1,500 and $5,000 by the Deputy Auditor General; yto ensure hospitality meal allowances are respected, and provide continue documented approvals and justifications of any exceptions; ythe progress and status of the government’s draft hospitality policy monitor Once the policy is approved by Treasury Board, we will review the Office’s hospitality guidance to ensure continued compliance. As part of this review, we will submit Internal Audit’s other suggestions for consideration by the Executive Committee (Finance Working Group). 4.2 Delegation of Responsibilities Approval authorities.We found that approval authorities for the hospitality transactions examined were exercised in accordance with the Office’s Detailed Financial Signing Authorities chart, by persons authorized to approve under sections 32, 33 and 34 of the Financial Administration Act. Consistency of Guidance.The April 2004 “Detailed Financial Signing Authorities” chart shows the hospitality limits for AAGs as $200 and for PXs as $50. In December 2004, the approval limits for hospitality for AAGs were raised from $200 to $1500 and for PXs from $50 to $200. This is reflected in a revised “Detailed Financial Signing Authorities” chart. However, the Financial Signing Authority Policy on the intranet still indicates the lower limits. Recommendation 2 We recommend that: •The Financial Signing Authority Policy be revised as indicated above. Management Response  Recommendation 2: We have revised the Office’s Financial Signing Authority Policy as recommended. As well, we agree to ensure better consistency between the Office’s guidance documents.

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4.3 Hospitality Transactions We tested hospitality transactions for compliance to policies, completeness of documentation on files and /or in the Oracle system and for accuracy of posting and coding. We reviewed 50 transactions comprising high values and a representative sample of various categories of Office events. Our sample comprised approximately 65% of $207,000 in dollar value of hospitality expenditures for the audit period. Other than the findings already mentioned under 4.1, we found: •Information from event organizers.Information from event organizers is key to controlling hospitality expenses. They enable one to determine, in advance, whether the hospitality will comply with Treasury Board and Office policy and the level of approval required. However, we found that sufficient information was not always provided to the Comptroller’s Group. The Office has recently issued easy to use “templates” to record the type of information required in files for the approval of hospitality expenditures. If these templates are consistently used, this should alleviate the problem. •Group Days.The Office’s Group Day allowance per person for lunch in the Operational Planning and Budgeting guideline (posted October 2003) was $30. This was not consistent with the Treasury Board average per person hospitality lunch allowance then in effect of $23.20, although it was under the maximum per person amount of $34.80. Other Group Day guidance indicated that the $30 was to cover accommodation, materials, etc. as well as hospitality in relation to food, and set an annual Group Day ceiling of $1500 per group. We found that the hospitality expenses alone for the majority of Group Day events exceeded both the $30 limit (either on a total or per meal basis) and the annual Group Day limit of $1500 and that the necessary approvals were not obtained for Group Days exceeding $1500. Due to the early adoption of aspects of the draft PSHRMAC Hospitality Policy, the Office’s new Operational Planning  Budgeting guideline for 200506 indicates meal amounts for Group Days which are significantly more restrictive than the amounts allowed by the 1993 Treasury Board policy.

Recommendation 3

We recommend that: •The Comptroller’s Group ensure that Group Day limits, in relation to hospitality, are respected; •Any hospitality transactions over $1 500 for Group Days be formally approved by the Deputy Auditor General, such that there is a financial record of such approval. Management Response  Recommendation 3: Agreed  the Comptroller’s Group will continue to ensure that hospitality limits with respect to group days are respected, and that any exceptions are documented and approved. As well, all group day hospitality which exceeds $1,500 will be submitted to the Deputy Auditor General for approval.

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4.4 Disclosure of Hospitality Expenses In December 2003, the Treasury Board of Canada announced a new policy on the mandatory disclosure of travel and hospitality expenses of senior executives. Prior to 2003, the Office took the lead by voluntarily disclosing this information yearly on its web site and in summary form in its Performance Report, for some senior executives. The Office’s web site currently provides information on the expenses incurred by the Auditor General, the Deputy Auditor General, the Commissioner of the Environment and Sustainable Development, and the Assistant Auditors General. Every three months, the Office discloses hospitality expenses of senior officials incurred in the previous quarter. We set out to assess compliance with TB guidance on quarterly reporting of hospitality expenses on the Internet. We also wanted to determine if management ensures that information produced for reporting on the Web is timely and accurate. From our transaction sample of 50 items, there were seven transactions that were reported under the disclosure requirements. For these transactions, the reporting was accurate and timely and we do not recommend any further measures. We found that disclosure of hospitality expenditures was consistent with Treasury Board guidance on proactive disclosure. Despite this, most hospitality expenditures were not disclosed on our website. The Office may again wish to take a leadership role and provide fuller disclosure of its hospitality expenditures. Management Response In our view, it would not be appropriate at this time to expand our hospitality disclosures beyond the requirements of the Treasury Board guidance (i.e. beyond that for senior executives).

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