Progress Report on the Implementation of the Management Action Plan of the Audit of Accounts Receivable Phase I

Context

The Audit of Accounts Receivable Phase I – Governance, Establishment, Monitoring and Reporting was conducted in 2015. The audit report was tabled at the Departmental Audit Committee (DAC) in May 2016 and subsequently published in August 2016. Management has developed a Management Action Plan (MAP) to address the recommendations included in the audit report. The full implementation of this MAP is expected to be completed by April 1, 2019.

At the DAC meeting held on May 31, 2016, the Chair of the DAC requested that a status on the progress of the implementation of the MAP for the Audit of Accounts Receivable Phase I be provided.

Objective

The objective of this engagement is to assess progress made vis-à-vis planned actions identified in the MAP approved by the Deputy Minister.

Scope

The scope of this engagement includes a review of the activities undertaken towards the MAP implementation. The adequacy of the actions undertaken has not been assessed in the context of this engagement.

Methodology

Interviews have been conducted with representatives from the Chief Financial Officer Branch (CFOB) and the Transformation and Integrated Service Management Branch (TISMB) to get feedback and confirmation on the progress made towards the completion of the MAP. In addition, documentation has been reviewed such as deck presentations and records of decision from the Accounts Receivable Modernization Steering Committee (ARMSC) meetings.

CFOB is on track to meet the targeted completion date for the recommendation pertaining to the establishment of overpayments

CFOB is on track to meet the targeted completion date for the recommendation pertaining to the establishment of overpayments continued

CFOB is leading all activities for this MAP action item. It was expected that through the Accounts Receivable Modernization initiative, CFOB would start discussions with all programs to review the Accounts Receivable cycle from beginning to end with the goal of developing consistent practices throughout the Department for establishing an overpayment in the financial system.

The first meeting of the ARMSC took place on June 21, 2016. The record of decision confirmed that the Terms of Reference for the Committee were adopted. The Canada Pension Plan (CPP) and Old Age Security (OAS) data clean-up strategy has also been presented by TISMB at that meeting.

Starting November 2016, Accounts Receivable Information Sessions were held in the National Capital, Ontario, Quebec and Atlantic regions. These sessions aimed to provide an overview and increase awareness of the life cycle of Accounts Receivable; provide an opportunity to consult business lines to develop consistent practices in establishing overpayments throughout the Department; and support Canada Revenue Agency (CRA) with collection activities. CFOB informed Internal Audit that these sessions were a success and positive feedback was received.

Starting April 2017, CFOB plans to work with business lines in developing guidelines to ensure consistent practices across the Department.

CFOB Management indicated that they are confident that the required actions will be completed on time.

CFOB and TISMB are on track to meet the targeted completion date for the recommendation pertaining to data integrity between the Departmental Accounts Receivable System and program systems

CFOB and TISMB are on track to meet the targeted completion date for the recommendation pertaining to data integrity between the Departmental Accounts Receivable System and program systems continued

During the ARMSC meeting held on October 7, 2016, CFOB presented the DARS data clean-up strategy which was endorsed by the Committee and subsequently approved by the National Write-Off and Remission Review Committee on October 20, 2016. The strategy is led and will be implemented by CFOB with the exception of CPP and OAS data, which is led and implemented by TISMB in coordination with CFOB. The strategy is defined in three phases with the objective to remove accounts with a low to no probability of recovery in order to allocate resources on accounts that have a higher probability of recovery (see Figure 1).

Description of figure 1

DARS Clean-Up (Phase I) started in October 2016, and ended in April 2017, this phase included holding the Accounts Receivable Information Sessions.

Phase II took place from April to July 2017, to review accounts with medium probability of recovery.

Phase III started in July 2017, and will continue past April 2018 to review accounts with high probability of recovery.

• Phase I will recommend writing-off accounts meeting certain criteria such as deceased status older than two years, accounts greater than seven years with no activity and accounts with a balance less than $100 and older than two years. The completion of Phase I would reduce DARS value by $68M (1.8% of total DARS value) and reduce the number of accounts by 48,462 (5.3% of all accounts).
• Phase II will review accounts by status code to find common issues that could be remediated in volume. The number of accounts to review is 99,678 (11% of all accounts). The value of these accounts is $301.7M (7.9% of total DARS value).
• Phase III will focus on the accounts younger than two years with high probability of recovery. This represents 152,390 accounts (16.8% of all accounts). The value of these accounts is $983.7M (25.6% of total DARS value).

The completion of the three phases of the DARS clean-up strategy would impact 33% of the accounts currently in DARS.

For the part carried out by CFOB, Internal Audit has been informed that all actions should be completed on time. For CPP and OAS, an action plan update was presented on January 31, 2017 to the ADM of Benefits Delivery Services within TISMB and the Chief Financial Officer. TISMB is planning to complete the following activities on CPP and OAS accounts by September 2017:

• Clean up accounts that have low to no probability of recovery;
• Transfer cleaned up data to DARS;
• Develop a communication strategy prior to sending out the Monthly Statement of Accounts (MSA) to clients;
• Send out the MSAs to clients.

Internal Audit was informed that work is currently underway and assistance has been obtained from Innovation, Information and Technology Branch to automate the clean-up as much as possible.

To date, no concerns have been reported and TISMB expects to be in a position to meet the established deadline of September 2017.

CFOB standardized and documented the key controls for all processes except the high risk credit refunds which should be completed by August 1, 2017

Supporting documents provided to Internal Audit confirmed that the standardization and the documentation for cash handling, bank reconciliations, low risk credit refunds and suspense accounts were completed by CFOB. CFOB anticipates the remaining high risk credit refund process to be completed by August 1, 2017. CFOB informed Internal Audit that they have worked collaboratively with the regional sites to develop standardized processes and that training has taken place and the processes have been implemented.

Audit of Accounts Receivable Phase I – Governance, establishment, monitoring and reporting

CFOB, over the last few years, has advanced and moved forward on many aspects concerning the Employment and Social Development Canada (ESDC) Accounts Receivable recorded in the Public Accounts. As an example, following an internal review of the departmental write-off and remission process in 2011, the National Write-off and Remission Review Committee was established. This committee is comprised of Directors General from all programs and is responsible for ensuring that effective management controls and practices are in place in relation to all departmental write-off and remission activities.

In addition, the umbrella Memorandum of Understanding (MOU) on collection services with the CRA was finalized and approved November 27, 2015. The new MOU replaces the 4 supporting MOUs that existed and clearly outlines the roles and responsibilities of ESDC and CRA along with the legal and administrative framework under which CRA is authorized to collect ESDC’s debt.

Furthermore, since the centralization of Accounts Receivable functions in three sites in 2013, the NAR team has been reviewing, adapting and implementing various business processes with the goal of standardizing across all sites. Most program systems have automated interfaces with DARS and manual workarounds exist for the remainder until we replace DARS with a new Information Technology (IT) solution. A departmental project was approved in December 2015 to modernize our accounts receivable, including the implementation of a new IT solution with a two-way interface with all systems. This will enhance the quality and integrity of our Accounts Receivable information and enable program branches to work jointly with the CFOB in the success of this project. In the interim, management judges the residual risk of inaccuracy to be very low.