2015-2016 Departmental audit committee annual report

3.1 Departmental audit committee meetings

During the 2015-2016 fiscal year, the committee held three two-day on-site meetings, down from four two-day meetings in the previous year:

• June 11-12, 2015;
• November 26-27, 2015;
• March 10-11, 2016.

There were, in addition, four teleconference meetings:

• August 19, 2015: To review, discuss and comment on the Canadian Heritage Financial Statements;
• September 4, 2015: To review, discuss and comment on the draft Departmental Performance Report;
• January 14, 2016: To review, discuss and comment on the draft Report on Plans and Priorities;
• January 20, 2016: To review, discuss and comment on the key activities to develop the 2016-2019 Risk-Based Audit Plan and review and recommend for approval the Real Property and Accommodations and the Procurement and Contracting Operations Audits.

Ahead of each Departmental Audit Committee on-site meeting, short teleconference meetings were held to provide contextual background to the main audit reports to be considered and to review the agenda and other items.

The committee also met on June 10, 2015 to prepare the 2014-2015 Departmental Audit Committee Annual Report.

3.2 Changes in departmental audit committee membership

This fiscal year saw the first significant changeover in the Departmental Audit Committee membership since 2008. Morina Rennie was a member for the full fiscal year while Norman Turnbull joined the Departmental Audit Committee in November 2015, with some overlap with his predecessor, Robert Martin whose term ended in January 2016.

As part of their orientation program, Dr. Rennie and Mr. Turnbull received background materials and, on March 9, 2016, participated in a day of briefings. This included meetings with the department’s Assistant Deputy Ministers and their key team members to discuss and better understand their responsibilities and operations.

3.3 Annual work plan

The Committee successfully completed all elements of the 2015-2016 work plan covering all core areas of responsibility.

Although the November 2015 Departmental Audit Committee Guidebook gives Departmental Audit Committees the option of covering these key areas over a two year period, the Departmental Audit Committee continued with its original work plan in fiscal 2015-2016. The Departmental Audit Committee proposed the same approach in its 2016-2017 work plan at the March 2016 Departmental Audit Committee meeting. This will give the two new members of the Departmental Audit Committee another year of in-depth exposure to all core areas of responsibility.

3.4 Departmental audit committee core areas of responsibility

The Treasury Board Directive on Internal Auditing in the Government of Canada outlines eight areas of responsibility for the Departmental Audit Committee and we report on each of these areas in the next section:

• Values and ethics;
• Risk management;
• Management control framework;
• Internal audit function;
• External assurance providers;
• Follow-up on management action plans;
• Financial statements and Public Accounts reporting; and
• Accountability reporting.

4.1 Values and ethics

Based on our observation and experience, we believe that, on the whole, Canadian Heritage is well grounded in a strong ethical and values-driven working environment, which provides management with confidence that employees can be empowered to manage more risk, thereby allowing more room for innovation in policies, programs, and practices.

In November 2015, we met with the new Canadian Heritage Ombudsman, Janet Campbell, who presented her Annual Report for 2014-2015 entitled Organizational Well Being: A Shared Responsibility.

The report provides much useful content for senior management. The report indicates that “87% of Canadian Heritage employees know where to go when facing an ethical dilemma or conflict between values in the workplace ^{Footnote 1}.” We see this as a departmental strength.

On the challenging side, the Departmental Audit Committee notes that the implementation of the Performance management system continues to cause stress and concerns among both employees and managers in Canadian Heritage. This situation will require ongoing attention by the executive group as the system moves into year 3.

Finally, we would agree with the Ombudsman that “Change and Workload” are stressors for many, and welcome the creation of the Chief Transformation Officer position. Since the Ombudsman’s report was written, a new federal government has brought further change that, while exciting and energizing, can add to stress if not innovatively and proactively managed.

While the annual sessions with the Ombudsman are very helpful and informative, we believe that the Departmental Audit Committee would be able to better perform its responsibilities in the area of values and ethics if we were also provided with information to help us evaluate compliance with laws, regulations, policies, and standards of ethical conduct.

4.2 Risk management

The Departmental Audit Committee believes that the Department continues to improve its understanding, tracking, and management of risk.

Building on the progress noted in our 2014-2015 Departmental Audit Committee Annual Report, the major development this year was the completion by the Department of the 2015-2018 Departmental Risk Profile. The Departmental Risk Profile was discussed at the June 2015 Departmental Audit Committee meeting. The Departmental Audit Committee commends the Department for this more in-depth and sensitive assessment of risk, highlighted by its matrix approach to identifying and measuring key risks, considering both impact and likelihood of occurrence.

The Departmental Risk Profile gives the government and senior management a more assured platform for engaging in innovative policy and program development. We note that the “risk that current Canadian Heritage policies and program design will not support the innovation and transformation challenges that will be faced by stakeholders… ^{Footnote 2}” is seen as the most important risk to the Department.

At the November 2015 Departmental Audit Committee meeting, the Committee was pleased to see how: (1) information and training sessions were being used to raise awareness and engagement of departmental staff with respect to risk management; and (2) the Integrated Business Planning process was reinforcing best practices and improving the monitoring and mitigation of risks.

4.3 Management control framework

The Committee continues to be satisfied with the monitoring work being carried out in the area of Internal Control over Financial Reporting and that this work provides senior management with good assurances as to the quality of internal controls. The assessments are rigorous and identified problems are quickly corrected.

In June 2015, the Committee was presented with the 2015-2016 Internal Control Annual Plan and the March 2015 Internal Control over Financial Reporting Framework, as well as the Internal Control over Financial Reporting Monitoring Assessment Report: Athlete Assistance Program. In March 2016, the Departmental Audit Committee reviewed KPMG’s Assessment of IT Application Controls in Support of Financial Statements. We note that the changing landscape around financial systems and related support structures makes it difficult to carry out the annual assessment plans as initially articulated. We note, very favorably, that the 2015-2016 Treasury Board Secretariat Management Accountability Framework Assessment results included as a notable practice, the work conducted by Canadian Heritage as it relates to Internal Control over Financial Reporting.

However, as we noted in the previous two years, given our mandate, we would like increased assurances that internal controls that go beyond financial reporting are well documented and effectively implemented. Conclusions from internal audits completed in 2015-2016 provide some assurances that progress has been made, but also indicate several opportunities for improvement (see 2015-2016 Chief Audit Executive Annual Report). We remain concerned that we do not have a full and accurate picture of the range and effectiveness of non-financial internal controls across programs in such a manner as to provide appropriate assurance to the Deputy Minister.

Recipient audits

The Departmental Audit Committee welcomes the review that has been undertaken over the past year by the Chief Financial Officer (who has oversight of this activity) towards a more rigorous recipient audit strategy. The new strategy includes a more risk-based, independent selection process for audits.

The Departmental Audit Committee is pleased to note that in line with its observations in last year’s Report, the Department is moving to scheduling recipient audits throughout the year rather than in the last two quarters. We observe that lessons learned from these audits have led to recommendations applying to recipients and to the Department.

4.4 Internal audit function

The 2015-2016 fiscal year has brought a number of changes to the Internal Audit function, led by the appointment of a new Chief Audit Executive, Natalie M. Lalonde in September 2015. Reporting directly to the Deputy Minister, Ms. Lalonde is bringing important new direction and leadership to the function, with an emphasis on quality and innovation.

Internal audit charter

At the November 2015 Departmental Audit Committee meeting, an updated Internal Audit Charter was recommended for approval. The Deputy Minister approved the new charter in January 2016.

Implementation of annual risk based audit plan

The Departmental Audit Committee approved minor adjustments to the Annual Plan at the November 2015 Departmental Audit Committee meeting.

The reports from six audit engagements were presented to the Committee during 2015-2016 and recommended for Deputy Minister approval:

• Integrated Business Planning Audit (June 2015);
• Grants and Contributions Modernization Audit: Post-Implementation Review of the Grants and Contributions Business Process Modernization Audit (June 2015);
• Real Property and Accommodations Audit (January 2016);
• Procurement and Contracting Operations Audit (January 2016);
• Capital Experience Assets Audit (March 2016); and
• Grants and Contributions Modernization Audit (March 2016).

One advisory/consulting engagement requested by the Deputy Minister was presented to the Committee during 2015-2016 and was discussed—Advisory/ Consulting Engagement on Control Framework Federal Secretariat Canada 150 (November 2015).

The number of engagements completed has been relatively stable in the past few years.

The Committee has observed an improvement in the quality of reports over the 2015-2016 year. In addition to being clear and concise, reports correctly addressed audit objectives and were issued on a timely basis. Recommendations were relevant and practical, and management responses and action plans appear to have effectively attended to the problems and issues outlined in the reports.

At its March 2016 meeting, the Departmental Audit Committee was briefed on a Horizontal Audit of the Governance of Information Management, completed by the Office of the Comptroller General of Canada with the support of the Office of the Chief Audit Executive. This engagement was not included in the 2015-2016 Risk Based Audit Plan.

The 2016-2019 Risk Based Audit Plan was presented in March 2016. The Committee had requested detailed information on the methodology used for the development of the Risk Based Audit Plan which, upon review, was considered to be sound. The Committee recommended the Plan for approval by the Deputy Minister.

Capacity and performance

At each Departmental Audit Committee meeting, the Chief Audit Executive provides a brief overview of the status of the Office of the Chief Audit Executive’s work plans and speaks to any risks affecting completion of projects.

The Chief Audit Executive also presented regular updates on human resources staffing and development.  The Departmental Audit Committee had asked for a more comprehensive reporting mechanism on Internal Audit resources and is pleased with the current format of the report and greater transparency on this important issue.

Although recruitment and retention remain a challenge for the Government of Canada, the new Chief Audit Executive has made considerable progress in staffing permanent positions.

However, as we have noted in previous years, the Committee considers that the current proportion of auditors with professional designations is not sufficient.
We note that the Chief Audit Executive is working to address this situation. In addition, she has, very commendably, introduced retreats and team-building exercises into the Office of the Chief Audit Executive schedule. The clarity of priorities and structures has improved.

The new Chief Audit Executive continued to make progress on the follow up to the recommendations from the five year External Assessment (Practice Inspection) for the Internal Audit Function (delivered in April 2014). The Departmental Audit Committee is pleased to hear that this work is expected to be completed in the fall of 2016.

4.5 External assurance providers

Throughout 2015-2016, the Committee was regularly briefed on the status of various external assurance providers’ audit activity in the department.  This year, there was activity from the Office of the Auditor General, the Commissioner of the Environment and Sustainable Development, the Public Service Commission, and the Office of the Comptroller General.

The Committee was provided with the opportunity to meet with representatives from the Office of the Auditor General who provided updates on the following topics:

• the change to the Office of the Auditor General management structure of the Canadian Heritage Portfolio along with past and future potential audits; and
• the development of the new Canadian Heritage strategic audit plan that is expected in early 2017.

In March 2016, the Office of the Auditor General representatives came to the Departmental Audit Committee meeting to formally present the results of an audit completed by the Commissioner of the Environment and Sustainable Development concerning Canadian Heritage’s progress in implementing sustainable development strategies.

Also in March 2016, representatives from the Public Service Commission presented the results of the departmental audit on appointment activities and provided an overview of the PSC’s new direction in staffing.

The Departmental Audit Committee was briefed at its March 2016 meeting on the draft results of the horizontal audit of Electronic Recordkeeping in Large and Small Departments, as it pertained to Canadian Heritage (conducted by the Office of the Comptroller General in collaboration with the Canadian Heritage Office of the Chief Audit Executive). We look forward to seeing the overall results when they are released by the Office of the Comptroller General.

Due to unforeseen scheduling complications on the part of the Office of the Comptroller General, we were not able to hold any sessions with representatives that Office. We believe that at least one meeting with the Office of the Comptroller General per year is essential and we look forward to an opportunity early in the upcoming fiscal year.

4.6 Follow-up on management action plans

The Committee was provided with an overview of the status of implementation of the audit management action plans at the November 2015 meeting. It is noted that as of March 31, 2016, 14 recommendations remain outstanding, as compared to 13 recommendations outstanding at March 31, 2015.

4.7 Financial statements and public accounts reporting

On August 19, 2015 the Departmental Audit Committee discussed and recommended for Deputy Minister approval, the Canadian Heritage annual Financial Statements for fiscal 2014-2015. In addition the Departmental Audit Committee reviewed the Quarterly Financial Reports for Q1, Q2 and Q3 and recommended them for Deputy Minister approval.

4.8 Accountability reporting

On September 4, 2015, a teleconference was held to review the draft 2014-2015 Departmental Performance Report.  Members provided several suggestions for improvement and expressed appreciation for the opportunity to review and provide input prior to the Deputy Minister’s approval.

On January 14, 2016, a teleconference was held to review the draft 2016-2017 Report on Plans and Priorities.  The Committee members commended the departmental officials on improvements to the quality of Section I: Organizational Expenditure Overview.  However, Departmental Audit Committee members expressed strong concerns that some of the performance measures were of questionable value and/or lacked sufficient ambition.

At the March 2016 meeting, the Departmental Audit Committee was briefed on the new government-wide ‘deliverology’ initiative and Canadian Heritage’s proposed approach. The Committee believes that this initiative is promising and could lead to improved approaches to performance measurement and accountability reporting.

Also, on March 2016, the Committee was provided with an update on the Management Accountability Framework Assessment process for 2015-2016 and an initial overview of the results. The Committee looks forward to receiving the final results early in the new fiscal year.

4.9 Governance

The Committee notes the continued strong performance of Canadian Heritage in the area of governance—the quality of management at multiple levels, the ongoing positive and forward looking leadership, and the tone at the top being key drivers.

During the course of reviewing internal audits, we observed that most of the audit reports’ comments in this area were positive in nature. It is recognized that where areas for improvement were noted in an audit report, management responded with a corrective management action plan.