Audit of the National Infrastructure Contribution Program, 2021

The Audit of the National Infrastructure Contribution Program was conducted as part of Correctional Service Canada's 2019-2022 RBAP. The audit links to the following CSC's corporate priorities: "Efficient and effective management practices that reflect values-based leadership in a changing environment" and "Productive relationships with diverse partners, stakeholders, victims' groups, and others involved in support of public safety". It also links to the following corporate risk that "CSC will lose support of partners delivering critical services and providing resources for offenders".

The National Infrastructure Contribution Program funds other levels of government and/or non-profit organizations to make capital improvements to support CSC's operations where CSC cannot otherwise make the needed improvements in a reasonable and cost-effective manner or through existing mechanisms. CSC is permitted to fund the program by transferring up to 4.7 million dollars from its operating allotment to its grants and contributions allotment each year. This funding structure allows CSC to maintain greater flexibility with its operating allotment.

The NICP was originally approved by TB in June 2013 until March 31, 2016. CSC sought and received approval from the TB to extend the program beginning in fiscal 2016-17 on an ongoing basis. At that time, the NICP was focused on two major projects: the construction of a roadway and a pipeline. These projects spanned multiple years, cost millions of dollars, and followed a robust investment planning methodology. This methodology involved project identification, options analysis including multiple internal assessments with CSC's Legal Services, Contracting and Material Management, Financial Services, and Technical Services and Facilities. The methodology also included an approval framework that included the National Investment Prioritization Committee (NIPC), Chief Financial Officer (CFO), and CSC's Senior Management Committee (EXCOM).

The NICP underwent a shift in the 2018-19 fiscal year. Until that point, it had consisted of the large projects identified in the TB submission and had been fully managed at the National Headquarters (NHQ) level. With those initial projects largely completed, CSC shifted to a new model for the NICP. This new model would be directed primarily at the Regional Headquarters (RHQ) level to allow for greater flexibility in addressing the smaller scale needs of CSC's partners which consists primarily of the Community Residential Facilities (CRF) which are facilities owned by non-governmental agencies.

Regional staff would canvass partners for projects and opportunities to leverage NICP funding and then submit proposals to NHQ for approval. In 2018-19, the NICP provided funding to over forty smaller scale projects at the regional level.

CSC relies on partners from other levels of government and non-profit organizations in order to carry out key portions of our mandate. These relationships must be carefully managed in order to ensure continued productive relations. The NICP is a key tool that allows for contribution payments to be made to fund specific projects of value to CSC when other payment mechanisms cannot be used in a reasonable or cost-effective manner.

CSC must also follow TB policy direction, including the TB Policy on Transfer Payments, while managing the NICP. CSC has the responsibility to ensure that cost-effective oversight, internal control, performance measurement, and reporting systems are in place to manage the payment of contribution funds to partners. These contribution payments should be used appropriately to help fulfill our mandate and provide value for Canada.

The following legislation and TB policies provide the overall framework in place for the NICP.

The Corrections and Conditions Release Act, Section 6, Paragraph 1 provides the legislative authority for CSC to undertake the NICP. CSC must also adhere to the Financial Administration Act in prudently managing its financial resources.

The TB Policy on Transfer Payments, along with the supporting Directive and Guidelines, are the primary policy tools governing contribution programs.

The Terms and Conditions for the Correctional Service of Canada's National Infrastructure Contribution Program (Terms and Conditions), as approved by the TB, provides the authority for CSC to undertake the NICP. It outlines the background, rationale, design, delivery, implementation, expected outcomes, risks, risk responses, cost, funding requirements, source of funds, and costing due diligence and validation of the NICP.

No CSC directives or procedures currently exist specifically for the management of the NICP.

CSC has financial directives in place that assign authorities and procedures based on broader government policy and direct staff on how to apply these policies. The relevant financial directives for the NICP include:

• FD 350: Contracting and Material Management
• FD 350-3: Contracting
• FOps-DIR-2019-340: Expenditure Initiation and Commitment Control
• FOps-DIR-2019-325: Account Verification

The NICP falls under the purview of the Assistant Commissioner, Corporate Services Sector. The Technical Services and Facilities branch is the overall policy centre for the program and plays a central role in the management and oversight of the NICP. TSF created a working group for the NICP with representatives from each region to discuss policy issues and provide guidance and support for the administration of the program.

Each region is responsible for managing the program and specific projects in their areas; this includes soliciting applications for NICP funding, recommending projects for approval, and managing approved projects. Regional responsibility is generally delegated to the District Directors with support from the Chief of Finance. Representatives from each region typically District Director, Associate District Director, Management Services (ADDMS), and Chief of Finance participate in the TSF working group. Regional representatives are responsible for managing the particular projects in their own regions.

NICP projects are subject to the following review and approval process:

• Regions recommend possible NICP projects after soliciting proposals from partner organizations;
• TSF reviews proposals through their National Investment Prioritization Committee which is chaired by the Director General, TSF;
• EXCOM reviews NICP projects approved by the NIPC as part of the capital funding process; and
• Final approval is made by either the Commissioner (projects over $200,000) or the respective Regional Deputy Commissioner (projects under $200,000).

The Audit of the National Infrastructure Contribution Program was identified as a moderate audit priority and an area of risk to CSC in the 2019-2022 Risk-Based Audit Plan. The audit team completed an engagement-level risk assessment using the results of interviews and policy research to determine what areas of the NICP the audit should cover. Overall, the assessment identified key risks associated with the management framework in place to support the NICP as well as with compliance with TB policies and the TB approval for the NICP. These risks were incorporated into this audit to assess whether sufficient mitigation strategies were in place.

The objectives of this audit were to provide assurance that:

• A management framework is in place and supports the effective and efficient management of the National Infrastructure Contribution Program; and
• CSC is compliant with Treasury Board's approval of the NICP and the TB Policy on Transfer Payments.

Specific criteria are included in Annex A.

The audit was national in scope. In order to evaluate the management framework in place, we interviewed staff from NHQ and regions (selected on the basis of number and value of NICP projects). These interviews focused on:

• Training, documentation, guidance, and directives in place to support the NICP;
• Methodology used for selection and management of NICP projects; and
• Monitoring and reporting activities.

We also examined whether approved projects conformed to the terms and conditions approved by the TB. This included reviewing:

• How CSC assessed the eligibility of the project, expenditure, and recipient;
• If projects were properly reviewed and approved by management and the investment planning process; and
• Whether payments were made appropriately, were supported by documentation and evidence of completion, and were recorded and reported in CSC's Integrated Financial and Material Management System (IFMMS).

We reviewed a sample of 13 NICP projects, 10 from the 2018-19 and 3 from the 2019-20 fiscal years. There were 49 regionally led projects approved in 2018-19, 37 at the time of the audit in 2019-20, and one active NHQ led project. The sample was selected to ensure that at least one project from each region was selected, a reasonable number of larger projects were selected (threshold of $100,000 budget), and that a sufficient number of projects judged to potentially be at a higher level of risk were included. Appendix C provides a list of the projects selected for review and the reasons that each project was selected. We conducted this work through document reviews as site visits were determined to be unnecessary.

The NICP is an important tool for CSC despite the relatively modest funding allocated towards it. Our audit findings indicate that it generally accomplishes its purpose of providing a method for the organization to fund projects with partners (other levels of government and non-profit organizations) where other mechanisms would not be efficient or effective. This capability assists CSC in achieving its priority of building productive relationships with partners.

The shift in the NICP model to multiple, low-cost projects managed regionally has created several areas of concern and/or weakness. With respect to the first objective, the management framework for the NICP should be reviewed, including:

• Establishment of clear roles and responsibilities;
• Development of reference documentation for staff responsible for managing the program; and
• Development of a performance management strategy for the NICP.

With respect to the second objective we found that all recipients of NICP funds were eligible as per the terms and conditions approved by Treasury Board. The processes in place for making payment to recipients and recording financial information were generally functioning well.

Management should review the following areas of weakness for the second objective:

• Some project expenditures may not have been eligible;
• Investment planning activities for projects may not have been compliant with the expectations set forth in the TB submission; and
• Administrative processes have gaps that should be addressed.

Audit evidence was gathered through the following techniques:

Interviews: Interviews were conducted with senior staff responsible for managing the NICP in NHQ and in the regions. At the NHQ level, we interviewed the Senior Manager, Management Services and the Project Coordinator, Investment Planning at TSF. At the regional level, we interviewed staff responsible for managing the program (normally at the District or Area Director level) and a Regional Chief of Finance.

Review of Documentation: Relevant documentation, such as legislation, process maps, accounting manuals, financial directives, commissioner's directives and guidelines, financial records and reports as well as supporting documentation for key controls was reviewed.

Sampling Strategy: We selected a sample of NICP projects to review such that we:

• Included at least one project from each region;
• Included a reasonable number of large projects (threshold of $100,000 budget or greater); and
• Included a sufficient number of projects at a higher risk of non-compliance.

Analytical Review: Detailed analytical reviews and testing was performed for each sample selected. This included reviewing documentation of the investment approval process, eligibility of the project and expenditures, management of the project, payments to recipients, and recording of the financial information.

No CSC internal audit or external assurance work has been completed in the last five years that focused on the NICP.

In my professional judgment as Chief Audit Executive, sufficient and appropriate audit procedures have been conducted and evidence gathered to support the accuracy of the opinion provided and contained in this report. The opinion is based on a comparison of the conditions, as they existed at the time, against pre-established audit criteria that were agreed on with management. The opinion is applicable only to the area examined.

The audit conforms to the Internal Auditing Standards for Government of Canada, as supported by the results of the quality assurance and improvement program. The evidence gathered was sufficient to provide senior management with proof of the opinion derived from the internal audit.

Christian D'Auray, CPA, CA

Chief Audit Executive

The following table outlines the audit criteria developed to meet the stated audit objective and audit scope: