Audit of Accounts receivable phase I – Governance, establishment, monitoring and reporting

Governance

A/R for EI, CPP, OAS, and Gs and Cs, included in the scope of this audit, are normally triggered by overpayments resulting from incorrect information reported by the claimant, computer processing errors, administrative errors or manual entry errors. For CSL, it is frequently the expiration of the grace period after the end of studies that gives rise to a loan receivable. For WEPP, participation in the program leads to the creation of an A/R.

Branches are responsible for managing program overpayments within their respective areas. They carry out these responsibilities by establishing guidelines and processes to establish overpayments, calculating overpayments and penalties when applicable, inputting these into their programs’ system, and sending notification letters to clients.

The audit team found there is an adequate governance framework at the Branch level which provides policies, guidelines and practices on how to identify and establish overpayments within each individual program.

The CFOB is responsible for the accounting functions once the information is transferred to DARS from the program source systems. Other CFOB responsibilities include maintaining integrity and accountability of the information in DARS. CFOB also monitors transactions using sampling techniques to verify that proper procedures were followed in order to recommend debt for write-offs.

The audit team found an adequate governance framework within CFOB, including roles, responsibilities and policies, for managing A/R once the accounts have been transferred to DARS.

The audit team noted the absence of requirements for overpayments to be set up as an A/R and be recorded into DARS which have led to inconsistent practices among programs. These inconsistencies, which are described below, pertain to file documentation practices, timeliness to establish overpayments, and communication with clients.

Supporting documentation and file maintenance

Branches are responsible for maintaining adequate documentation to support the establishment of program overpayments. The audit conducted walkthroughs and file reviews which revealed that overpayments and A/R documentation practices in program systems are inconsistent. These inconsistencies were observed between programs and sometimes within the same program, from file to file, depending on the agent who worked on the file.

Some files were well organized, and contained key documents such as the rationale supporting the overpayment, the overpayment calculation, delegated authority to modify the file, and communication with the client. Other files did not contain any key documents. Retaining adequate documentation on file would enable the Department to support and demonstrate the legitimacy of overpayments and A/R.

Timeliness

The identification and establishment of program overpayments is a Branch responsibility. Overpayments are identified through multiple avenues including: investigation activities performed by the Integrity Services Branch, payment accuracy reviews performed by PPSB and updated information about the claimant. Examples of updated information include changes in marital status and earnings.

The audit reviewed the process for the establishment of overpayments and noted that the timeliness of this activity varies among programs. For example, the file review for WEPP showed that overpayments were recorded in a timely manner. There was an approximate two week time difference between the identification of the overpayment and its establishment in the program system, which is sent automatically to DARS. In contrast, the EI file review revealed delays resulting in a backlog for establishing overpayments. The auditors were informed that the backlog may cause delays which, at times, may lead to exceeding the legislated time limit to recover overpayments. An ageing analysis of EI A/R within DARS as of March 31, 2015 showed that 18 % of EI A/R was past the legislative collection time limit of six years. The analysis we conducted on March 31, 2015 also showed that 19 % of CPP accounts are older than six years. While CPP accounts are not constrained by legislative timelines the audit does not consider the likelihood of collection for these accounts to be high.

Timeliness is a determining factor in identifying, accounting for, collecting and reporting on A/R. Establishing overpayments in a timely manner plays a fundamental role in increasing the likelihood of recovery, both when the claimant is still receiving benefits (active) and when the claimant is no longer receiving benefits (inactive). It is in the best interest of the client that the Department identifies, establishes and adjusts any benefit paid as early as possible.

Communication and notification

When an overpayment is identified, programs are required to notify the claimant in writing of their debt. The audit reviewed this communication process with the client and noted some inconsistencies. For example, EI has standardized letters which are automatically generated and sent to the client. Other programs require officers to access a database, choose the appropriate letter template, customize it to the case being worked on and manually print and send the letter to the client.

Our file review showed that the level of detail contained in those letters varies between programs and within programs. For example, some letters provided useful information such as an explanation of the reason behind the overpayment, the total amount owed, the client’s new entitlement amount, the date the new entitlement becomes effective, and a request that the client inform the program as soon as possible if the proposed recovery rate will cause financial hardship. Other letters reviewed by the audit team contained only minimal information.

The file review also showed that updated client information is not always shared between programs. For example, we found instances where benefits were stopped for one program as a result of a claimant death, but benefits continued for another program for the same claimant. The likelihood of collection is higher when benefits are stopped as early as possible and collection is attempted shortly thereafter.

We were informed, through interviews, of cases where the notification of overpayment was sent simultaneously to different parties such as insurance companies, the CRA, and the estate to recoup the amount owed to the Department. Interviews indicated this practice has led to the receipt of payments from multiple sources which resulted in the creation of a credit account. The audit team encourages departmental programs to assess the magnitude of this situation, and take corrective action, where appropriate. Communication between all different parties involved is important. When it is performed properly, it may increase the likelihood of recovering the debt.

Recommendation

CFOB, in collaboration with ADM of programs generating overpayments, should develop appropriate requirements to address issues pertaining to overpayments supporting documentation practices, timeliness in establishing overpayments, and communication with clients.

Management response

CFOB agrees with the recommendation. As part of the Accounts Receivable Modernization initiative, a governance lead by an ADM committee will be established with all necessary stakeholders. CFOB will work with program areas to develop guidelines with key minimal requirements for overpayment establishment. The first ADM committee is to take place in June 2016. Actions are expected to be completed by April 2019.

Recommendation

CFOB, in collaboration with ADM of programs generating overpayments, should establish a mechanism to enhance data integrity between DARS and program systems.

Management response

CFOB agrees with the recommendation. For those systems that are fully automated with a two-way interface (i.e. EI, CSL, WEPP, CSGC-client module) between the program system and DARS, no further work is required. This represents approximately 90 % of the A/R currently in DARS. With system controls and built in edit checks within the interface, any transactions that do not meet the file specifications are reported on a daily report screen for manual correction. Thus, the level of risk is low and there is no value added in doing any additional verification.

For those systems in which a two- way interface does not exist (i.e. CPMS) which represents 10 % of the A/R currently in DARS, a working group has been established to analyse the issues and to take corrective action. Considerable effort over the years has been made in resolving most system variances identified. For the remainder, periodical meetings with the Directors General of PPSB and CFOB are underway to provide regular updates and to ensure that progress is being made. Continued monitoring is done to ensure data integrity until such time as a two-way interface has been created. Actions are expected to be completed by April 2019.

Cash receipts and deposits

The NAR group is responsible for many aspects of the management of A/R through three national A/R sites based in Moncton, Toronto, and the National Capital Region. The audit reviewed key processes for cash receipts and deposits, bank reconciliations, credit refunds, and the clearing of suspense accounts.

The cash receipt process is initiated when the cash bags/packages are received from Canada Post. Officers receive the packages and count the cash once they return to their office. The officers will access SharePoint to print the Public Money Transfer Record (PMTR) prepared by Service Canada Centers (SCC), which includes debits, credits, cash and cheques and will match it with the packages received to ensure the total amount of cash on hand is equal to the total amount listed on the PMTR. Any difference is investigated immediately. When the cash amount in the package agrees to the amount listed on the PMTR, the officer signs off the PMTR. A second officer will verify the totals and sign off.

We noted during walkthroughs and process examinations that there are controls over the handling of cash. Examples of controls include opening the package and counting the cash in a restricted zone, the requirement to have two employees present at all times during the cash handling cycle, and locking funds in a safe between the reception and deposit. However this process is neither fully documented nor standardized between the different sites visited by the audit team.

Protected

Bank reconciliations

Bank reconciliation is a fundamental control in the cash handling and banking process. Timely, properly documented and completed bank reconciliations help to detect fraud and/or errors pertaining to cash. The audit reviewed this process and found that it is performed in a timely manner. Financial officers at A/R sites complete bank reconciliations on a daily basis, and any variances or unusual transactions are investigated and corrective actions are undertaken.

Controls in place include using journal vouchers to correct accounting errors, contacting the bank to discuss uncommon transactions and correcting discrepancies that are not due to timing differences between the date the data is recorded in the accounting books and at the bank. However, the audit noted that the bank reconciliation process is not standardized across A/R sites and key controls are not fully documented. There is neither a record kept of periodic reconciliations, nor managerial sign-off or approval of reconciliations.

Suspense accounts and credit refunds

Occasionally payments are received before A/R are established in DARS. In these situations any payment received would end up in a suspense account and would require further analysis to determine which A/R it relates to. Credit refunds generally occur when the Department receives multiple payments for an A/R or more than what was owed.

The auditors conducted walkthroughs of both processes and found that controls were sufficient. The processes were not fully documented. When they were documented, processes were site specific. For example, suspense account clearing is a common process across sites; however no common process documentation has been developed.

By standardizing common processes, efficiencies might be gained and each site could be better positioned to act as a backup site for business continuity planning purposes should one site go offline. The audit noted that efforts are underway by CFOB to standardize common processes within the NAR.

Recommendation

CFOB should standardize processes and document key controls pertaining to cash handling, bank reconciliations, credit refunds, and suspense accounts.

Management response

CFOB is in agreement with the recommendation. One of the priorities of CFOB, and in particular NAR, since consolidating the receivables function to three sites has been to standardize its business processes. In fiscal year 2015–2016, additional resources were hired to review 2-3 processes within NAR with the goal of standardizing the processes across the regional sites. This work will continue into fiscal year 2016–2017. Actions are expected to be completed by March 2017.