AUDIT OF CONTRIBUTION AUDITING
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TABLE OF CONTENTS STATEMENT OF ASSURANCE ................................................................................................ i EXECUTIVE SUMMARY .......................................................................................................... 1 1. INTRODUCTION ................................................................................................................. 7 1.1 Background ..................................................................................................................... 7 1.2 Organizational Structure ................................................................................................. 8 1.3 Audit Objectives and Scope ............................................................................................ 9 2. OBSERVATIONS – MANAGEMENT FRAMEWORK ................................................. 11 2.1 Follow-Up on Previous Audit of Contribution Auditing Process ................................. 11 2.2 Departmental Contribution Audit Policy ...................................................................... 11 2.3 Appropriateness of the Level of Audit Activities within Programs Branch ................. 12 2.4 Audit Process ................................................................................................................ 13 3. OBSERVATIONS – INFORMATION SYSTEMS .......................................................... 25 3.1 Audit Risk Matrix ............... ...
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| Publié par | Maceb |
| Nombre de lectures | 12 |
| Langue | English |
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TABLE OF CONTENTS
STATEMENT OF ASSURANCE ................................................................................................ i EXECUTIVE SUMMARY .......................................................................................................... 1 1. INTRODUCTION ................................................................................................................. 7 1.1 Background ..................................................................................................................... 7 1.2 Organizational Structure ................................................................................................. 8 1.3 Audit Objectives and Scope............................................................................................ 9 2. OBSERVATIONS MANAGEMENT FRAMEWORK................................................. 11 2.1 Follow-Up on Previous Audit of Contribution Auditing Process................................. 11 2.2 Departmental Contribution Audit Policy ...................................................................... 11 2.3 Appropriateness of the Level of Audit Activities within Programs Branch ................. 12 2.4 Audit Process ................................................................................................................ 13 3. .......................................................... 25OBSERVATIONS INFORMATION SYSTEMS 3.1 Audit Risk Matrix ......................................................................................................... 25 3.2 GCIMS Grants and ContributionsInformation Management System....................... 26 4. OBSERVATIONS INTERFACES WITH RECIPIENTS ............................................ 29 5. OBSERVATIONS, RECOMMENDATIONS AND MANAGEMENT RESPONSES . 31 APPENDIX A AUDIT METHODOLOGY ........................................................................... 37 APPENDIX B CONTRIBUTION AGREEMENTS BY FUND/PROGRAM: APRIL 2005 TO MARCH 2008 .............................................................. 39
STATEMENT OF ASSURANCE
We have completed the internal audit of the Contribution Auditing Process. The overall objectives of this audit were to review and assess the adequacy of the management control framework in place in the Department for auditing contribution agreements (e.g. policies, practices, and procedures relating to planning, organizing, controlling, leading, and communicating); the appropriateness of the methodology and procedures for performing and reporting on contribution audits; the appropriateness of the level of contribution audit activities in the Department; the extent to which contribution auditing practices conform to central agency requirements; the reliability of information systems for decision-making and accountability purposes; and the appropriateness of interfaces with recipients with regard to auditing of contribution agreements The internal audit was conducted in accordance with the requirements of the Treasury Board (TB)Policy on Internal Audit the Institute of Internal Auditors’ Standards for the and Professional Practice of Internal Auditing. The audit team assessed the management control framework against criteria found in the July 2006 Treasury Board document “Core Management Controls. In our professional judgment, sufficient and appropriate audit procedures have been conducted and evidence gathered to support the accuracy of the conclusions reached and contained in this report. The conclusions were based on a comparison of the situations as they existed at the time of the audit and against the audit criteria. It should be noted that the conclusions are only applicable for the areas examined.
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EXECUTIVE SUMMARY
The Department of Justice has identified two outcomes in its overall departmental strategy: a fair, relevant, and accessible justice system that reflects Canadian values, and a federal government that is supported by effective and responsive legal services. A significant number of the initiatives necessary to achieve the above strategic outcomes are funded through grants and contributions programs, which in 2007-08 amounted to approximately $361 million (see Appendix B for details). Within the Department, the Programs Branch is responsible for managing the majority of grants and contributions programs. This audit focused on the contribution auditing process followed by the Programs Branch. The planning and on-site examination phases for this audit were conducted between September 2008 and December 2008. MANAGEMENT FRAMEWORK Departmental Contribution Audit Policy The Department has developed a departmental Contribution Audit Policy that complies with the requirements of the Treasury Board’sPolicy on Internal Audit 2001) and (AprilPolicy on Transfer Payments(June 2000). During the course of the audit, Treasury Board Secretariat introduced a newPolicy on Transfer Payments 2008), Programs Branch is currently assessing the impact this Policy may (October have on the administration of transfer payments within the Department and determining the effect, if any, on the departmental Contribution Audit Policy. Appropriateness of the Level of Audit Activities within Programs Branch Programs Branch prepares an annual audit plan based on the level of recipient audit activity dictated by risk-based audit frameworks (RBAFs). A review of the audits conducted between April 2005 and March 2008 has demonstrated that some recipient audits scheduled in the audit plan have been postponed or cancelled without documented justification. While changes to the 1
Internal Audit Branch annual audit plan may be appropriate, the reasons supporting these changes need to be documented. Audit Process The planning and conduct of recipient audits are based on procedures that need to be supported by a formal process. They include the following: • objectives and scope of recipient auditsidentification of preparation and approval of the annual audit plan • • conduct of audits • review of audit results Identification of objectives and scope of recipient audits The RBAFs provide the basis for including recipients of contributions in the Programs Branch annual recipient audit plan. The objectives and scope of these recipient audits are dictated by the provisions of the Guide for the Audit of Contribution Recipients of the departmental Contribution Audit Policy. While we found that all files and resulting audit reports contained a reference to an examination of financial transactions and financial statements and/or reports, there were instances where the review of the recipient’s internal controls was not addressed either in the statement of work or in the audit report, as required by the departmental Contribution Audit Policy. Preparation and approval of the annual audit plan The selection of recipients for audit is governed by the RBAFs for all programs managed by Programs Branch. While a number of RBAFs identify clearly which recipients will be audited, in some cases the input of the program analysts and financial officers in the selection of recipients is required. In such instances, the audit showed that the reasons supporting the selection of a specific recipient for audit are not always appropriately documented. Furthermore, in the case of cost-shared programs with provinces and territories, we found no documented evidence that due consideration was given to prior audits conducted by the provinces and territories, as recommended by the TBPolicy on Transfer Payments. The annual audit plan ensuing from the recipient selection process is presented to the Grants and Contributions Audit Advisory Committee (GCAAC) for approval on an annual basis. Established in 2003 further to a recommendation from a previous audit, this Committee is responsible, 2
Contribution Auditing Process Executive Summary among other things, for the approval of the plan and any subsequent changes to the said plan. The decision process followed by the Committee with respect to the approval of the annual plan is not supported by sufficient documentation and we found no evidence that changes to the annual plans are presented officially to the Committee for approval. Conduct of audits The Operations Directorate is currently managing the audits of contribution agreements for Programs Branch and the Youth Justice, Strategic Initiatives and Law Reform Section of the Policy Sectorof consultants (from outside the Department of. The Directorate uses the services Justice) to conduct recipient audits. Over the years, the Directorate has secured the services of Audit Services Canada (ASC), based on the quality of services rendered and the efficiency of the procurement process. Services required are well defined in Memoranda of Understanding (MOUs). The planning phase of the audit is completed through the joint efforts of the program analyst, the finance officer from Operations Directorate assigned to the program, and the team of ASC auditors. The program analyst or the program director formally advises the recipient of the upcoming audit in a letter that describes the audit objectives and scope. The fieldwork is conducted after giving due consideration to the needs of the recipient and the complexity of the file. Once the fieldwork is completed, the ASC auditor completes the audit file and prepares a draft report that reflects the findings of the audit and then submits the report to the auditee for comments. The final audit report is forwarded to the recipient by the Director of the program with an accompanying letter. The examination of the sample files confirmed the appropriateness of the documentation in the audit files. Quality assurance on audit files The involvement of the finance officer and the program analyst in the conduct of the audit provides assurance to the Branch that the audits are conducted in accordance with generally accepted auditing standards. Furthermore, the quality assurance process in place is appropriately documented in the audit files. Audit results In certain instances, audits will result in financial adjustments to the original contribution payments based on the terms and conditions of the Contribution Agreement. During the audit, we found that all final audit adjustments were recovered by the program and were appropriately documented.
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Internal Audit Branch Operations Directorate prepares an annual summary report on the status of the audits planned for the year and submits this report to the GCAAC for review. We found that this report addresses audits scheduled for the current year only and does not provide any information on the status of incomplete past audits or explanations for cancelling or postponing current year audits. On the basis of this report, the Committee provides an informative annual report to Senior Management on the status of the audits conducted during the year. INFORMATION SYSTEMS Audit Risk Matrix As a result of the 2003 audit of Contribution Agreement Auditing, the GCAAC developed an audit risk matrix (ARM) to support the decision-making process for the selection of recipients for audit. Furthermore, to facilitate the production of useful reports in the recipient audit selection process, the ARM was integrated into the Grants and Contributions Information Management System (GCIMS). A review of the ARM information in the system has revealed that the tool is not widely used and therefore any report that can be generated from the system is based on incomplete data and cannot be relied upon to support the decision-making process. GCIMS Grants and ContributionsInformation Management System The Programs Branch currently uses GCIMS to monitor information on recipients that receive funding from discretionary funds and to compile information on proactive disclosure. GCIMS has the capacity to be used to facilitate the management and tracking of all recipients’ files and provide up-to-date information on any file through the generation of various reports. The report that is currently generated from the system with respect to the ARM is incomplete and needs to include the tabulated risk assessment results in order to become a more efficient tool that can be used in the decision-making process for selecting auditees. INTERFACES WITH RECIPIENTS Programs Branch has developed a good communications process with recipients that are audited in any given year. Recipients are advised of upcoming audits, involved in the timing of the audit, provided with feedback when the fieldwork is completed, and given the opportunity to provide additional information when financial adjustments to contribution payments are proposed further to an audit. 4
Contribution Auditing Process Executive Summary
In conducting audits over the years, Programs Branch has identified the need for a tool that would help NGOs better understand their role and responsibilities with respect to the terms and conditions of contribution agreements signed with the Department. As a result, Programs Branch is proactively developing a handbook that addresses the requirements of a typical NGO and provides guidance on the internal controls needed to support the delivery of the project/program. The management responses to the recommendations contained in this report were provided by the Director General, Programs Branch.
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1.1 Background The Department of Justice has identified two strategic outcomes: a fair, relevant, and accessible justice system that reflects Canadian values, and a federal government that is supported by effective and responsive legal services. The Department of Justice contributes to the achievement of these strategic outcomes by: • and with stakeholders across Canada to develop and maintain a fair, relevant, and accessible justice system; • ensuring a bilingual and bijural national legal framework for the administration of justice; • provinces and territories for the delivery ofproviding significant ongoing funding to programs aimed at the day-to-day administration of justice; • providing legal services to the federal government and its departments and agencies. A significant number of the initiatives necessary to achieve the above strategic outcomes are funded through grants and contributions programs (Gs&Cs), which in 2007-08 amounted to approximately $361 million. Within the Department, the Programs Branch is responsible for managing the majority of grants and contributions programs. These programs fall within two categories: cost-shared programs or discretionary programs. Cost-shared programs are those for which costs are shared with the recipient (provinces and territories) and are usually for ongoing programs. Discretionary programs are funded by the Department with funds being disbursed directly to recipients (individuals, governments, and non-governmental organizations (NGOs)) in support of non-recurring activities and/or projects (e.g. pilot projects) that are conducted over a shorter period of time. The table in Appendix B illustrates the funds allocated to the various programs and the number of contribution agreements in place by program for the fiscal years 2005-06, 2006-07, and 2007-08.
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1. INTRODUCTION
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Internal Audit Branch 1.2 Organizational Structure Programs Branch, which is part of Policy Sector, is comprised of the Office of the Director General and five directorates: Policy Planning; Legal Aid; Innovations, Analysis and Integration; Aboriginal Justice; and Operations. The directors who head up each of these directorates report to the Director General, Programs Branch. Programs Branch’s overall organization comprises 107.5 full-time equivalent (FTE) positions allocated between the Office of the Director General (five FTE positions) and the five directorates (102.5 FTE positions). The nature of the mandate of the Branch requires that a significant number of positions within the Branch be filled by program analysts, financial officers, and support personnel. Each directorate, with the exception of Operations, is responsible for a variety of programs and is supported at the operational level by the Operations Directorate: The Policy Planning Directorate is primarily responsible for the program agreements with • the provinces and territories (except for legal aid) and for broader issues related to how the Department uses programs to meet its specific key priorities and those of the Government. • The Legal Aid Directorate is primarily responsible for negotiating, implementing, and monitoring federal/provincial/territorial funding agreements with respect to legal aid in criminal law matters and in matters relating to theYouth Criminal Justice Act. • The Innovations, Analysis and Integration Directorate is responsible for grants and contributions funding programs that offer funding to recipients such as individuals, non-profit organizations, universities, bands, and tribal councils for justice-related activities. • focuses on strengthening the capacity of AboriginalThe Aboriginal Justice Directorate communities to reduce victimization, crime, and incarceration rates through increased community involvement in the local administration of justice. The Operations Directorate is the Programs Branch's centre of expertise on finance and • compliance, and provides financial services and advice to the Programs Branch’s directorates and to other sectors which have programs administered by the Programs Branch. The Directorate is responsible for the managing, planning, conducting, and reporting of contribution audits.
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1.3 Audit Objectives and Scope The main objectives of the audit were to review and assess: • auditing contribution agreements (e.g. policies, practices, and procedures relating to planning, organizing, controlling, leading, and communicating); • methodology and procedures for performing and reporting onthe appropriateness of the contribution audits; the appropriateness of the level of contribution audit activities in the Department; • contribution auditing practices conform to central agencythe extent to which • requirements; • information systems for decision-making and accountability purposes;the reliability of • with recipients with regard to auditing of contributionthe appropriateness of interfaces agreements. The planning and on-site examination phase of this audit was carried out between September and December 2008 and covered practices and procedures pertaining to the contribution auditing process in the Department of Justice at headquarters. Details on the audit methodology are outlined in Appendix A.
Contribution Auditing Process 1. Introduction
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2. OBSERVATIONS MANAGEMENT FRAMEWORK
2.1 Follow-Up on Previous Audit of Contribution Auditing Process In 2003 the Department conducted an audit of “Contribution Agreement Auditing and in its report elaborated a series of recommendations that triggered changes to the contribution auditing process. The most significant recommendations included the introduction of a generic risk-based audit framework (RBAF) to be completed for all programs, the establishment of the Grants and Contributions Audit Advisory Committee (GCAAC), and the requirement to include in all recipients’ files a completed audit risk matrix (ARM) and a justification for conducting (or not conducting) an audit. The current audit found that the above noted recommendations have been implemented with a varied degree of success. They have been revisited during the course of this audit and are commented upon in the appropriate sections of this report. 2.2 Departmental Contribution Audit Policy The Department has developed a departmental Contribution Audit Policy that complies with the requirements of the Treasury Board’s Policy on Internal Audit (April 2001) and Policy on Transfer Payments (June 2000). The Department of Justice implemented a Contribution Audit Policy in August 1991. This policy was updated in June 2002 further to the tabling in March 2000 of a Treasury Board document, entitledfor Canadians: A Management Framework for the Government of Canada,Results and the issuance of revised Treasury Board policies on Transfer Payments (June 2000) and Internal Audit (April 2001). Revisions to the TBPolicy on Internal Audit 2006 did not require any in changes to the Department’s Contribution Audit Policy. The departmental Contribution Audit Policy outlines the purpose of program audits as well as recipient audits for all contributions programs administered and delivered by the Department. Section 2 of the policy defines its objective as follows: “The objective of the Contribution Audit Policy is to ensure sound management of, control over, and accountability for the delivery of 11
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