Core Control Audit

June 2014
Office of the Comptroller General
Treasury Board Secretariat

Why This Is Important

Canadians expect the federal government to be well managed and to be accountable for the prudent stewardship of public funds, the safeguarding of public assets, and the effective, efficient and economical use of public resources. They also expect reliable and transparent reporting on how the government spends public funds to achieve results for Canadians.

The Financial Administration Act designates deputy heads as accounting officers for their department or agency. As accounting officers, deputy heads are accountable for ensuring that resources are organized to deliver departmental objectives in compliance with government policy and procedures; ensuring that there are effective systems of internal control; signing departmental accounts; and performing other specific duties assigned by law or regulation to the administration of their department or agency.

Core control audits are important as they provide deputy heads with assurance regarding the effectiveness of core controls over financial management in their respective organizations. By doing so, core control audits inform deputy heads of their organizations’ level of compliance with key requirements contained in selected financial legislation, policies and directives.

About the Canadian Environmental Assessment Agency

The Canadian Environmental Assessment Agency (CEAA) plays a key role in carrying out Environmental Assessments of major projects under the Canadian Environment Assessment Act (updated in 2012). Under the new Act, CEAA has assumed a more central role in environmental assessments, as the Agency is one of only a few entities in Canada permitted to conduct environmental assessments. The Agency conducts comprehensive environmental studies on behalf of the Government of Canada. The Agency advises and assists the Minister of the Environment in establishing review panels and supports panels in their work. The Agency also integrates the Government of Canada's Aboriginal consultation activities into the environmental assessment process to the greatest extent possible, for review panels and environmental assessments for which it is responsible.

According to its Departmental Performance Report, CEAA had spending of approximately $27.9 million and human resources of 221 full-time equivalents during fiscal year 2012–13.

Core Control Audit Objective and Scope

The objective of this audit was to ensure that core controls over financial management[1] within CEAA result in compliance with key requirements contained in the selected financial legislation, policies and directives.

The scope of this audit included financial transactions, records and processes conducted by CEAA. Transactions were selected from the fiscal year 2012–13. The audit examined a sample of transactions for each of the selected policies and directives. The Appendix provides a complete list of policies and directives included in the scope of the audit and the overall compliance in the areas tested.

Conformance with Professional Standards

This audit engagement conforms with the Internal Auditing Standards for the Government of Canada, as supported by the results of the quality assurance and improvement program.

Anthea English, CA
Assistant Comptroller General
Internal Audit Sector, Office of the Comptroller General

Audit Findings and Conclusion

Core controls over financial management regarding the transactions tested within CEAA resulted in compliance with the key requirements contained in one of the fourteen policies, directives[2] and corresponding legislation tested. CEAA was not in compliance with key requirements contained in the remaining thirteen policies and directives tested.

Weaknesses were identified in the Delegation of Financial Signing Authorities Instrument and related controls. Active financial signing authority delegations were not reviewed annually and managers did not always have the requisite financial management and human resources training.

It was noted that the documentation on file was insufficient to support contracting decisions. Adequate due diligence was not exercised for most contribution agreements to ensure the stacking limit was not exceeded when determining funding amounts.  

Weaknesses were also identified in expenditure initiation. Approval was not always provided before the expense was incurred. Controls pertaining to the commitment of expenditures were insufficient in some areas. Account verification was not always properly exercised and proof of execution to corroborate expenditures was often not documented. For performance pay transactions, evidence to support the timely establishment of pre-set performance objectives was not on file.

Recommendations

The Deputy Head of the Canadian Environmental Assessment Agency should ensure that:

  1. The Delegation of Financial Signing Authorities Instrument is reviewed annually, including updating signature specimen cards to reflect the authorities granted in the Delegation of Financial Signing Authorities Instrument and that financial signing authorities delegated to OGDs are properly approved.
  2. All managers receive mandatory training before they exercise their delegation of authority.
  3. Proper documentation is retained on file for all acquisition cards to substantiate their issuance, approval and conditions of use.
  4. Accountable advances are reconciled and reported upon on a monthly basis.
  5. Business processes are improved to ensure that controls pertaining to the Directive on Payables at Year-End are implemented and supported by appropriate supporting documentation.
  6. The contracting business processes are improved, consistently performed in compliance with the Treasury Board Contracting Policy and that documentation is retained on file.
  7. Documentation supporting the hospitality events is retained on file. It should also ensure that justification is documented and on file in cases where the cost per person exceeds the standard cost up to the maximum identified in the Directive on the Management of Expenditures on Travel, Hospitality and Conferences.
  8. Employee leave is approved in a timely manner.
  9. Key terms and conditions for casual employees are administered correctly.
  10. Annual performance reviews (and subsequent performance pay) are based on pre-set performance objectives which are completed and documented at the start of the performance period.
  11. Credit assessments of private sector debtors are considered in order to minimize credit risk.
  12. Supporting documents are on file for all contribution payments made, in accordance with the documentation requirements of the funding agreement.
  13. Proper due diligence is exercised when confirming that transfer payment amounts do not exceed the stacking limit.
  14. Funds commitment availability is certified by someone with appropriate delegated authority, dated and that expenses are recorded at the value expected to be incurred.
  15. The performance of account verification is done by someone with the delegated authority to do so, is accomplished on a timely basis and verifies the correctness of the payment requested.

Management Response

The Canadian Environmental Assessment Agency, the Agency, has reviewed the findings and recommendations of the Core Control Audit conducted for the fiscal year 2012-2013 and, as far as the scope of this audit is concerned, is of the view that these statements accurately reflect the Agency’s state of control over financial management, contracting, travel & hospitality and human resources.

The Agency takes the findings of this report very seriously and welcomes the recommendations. It is important to note that strengthened financial control measures and changes in processes were implemented for identified areas of improvement since early Fall 2013. In order to address fully the Report’s recommendations, the Agency has planned a robust set of follow up actions in 2014-15 and subsequent years, as outlined in the Management Action Plan. It is expected that the Management Action Plan will be fully implemented by March 31, 2015. The Agency thanks the Office of the Comptroller General for its professional audit and report.

The results of the audit and the Management Action Plan have been discussed with the Deputy Head of CEAA and with the Small Departments Audit Committee. The Office of the Comptroller General will follow up on the Management Action Plan until all findings are resolved.

Appendix A: Policies and Directives Tested

Policies and Directives Tested
Policies and Directives Tested Compliance Rating for Transactions Tested
Directive on Delegation of Financial Authorities for Disbursements Not Met
Policy on Financial Management Governance Met
Directive on Acquisition Cards Not Met
Directive on Accountable Advances Not Met
Directive on Payables at Year-End (PAYE) Not Met
Contracting Policy Not Met
National Joint Council Travel Directive and the Directive on Travel Cards and Travellers Cheques Not Met
Directive on the Management of Expenditures of Travel, Hospitality and Conferences Not Met
Directive on Leave and Special Working Arrangements Not Met
Directive on Financial Management of Pay Administration Not Met
Directive on Receivables Management Not Met
Directive on Transfer Payments Not Met
Directive on Expenditure Initiation and Commitment Control Not Met
Directive on Account Verification Not Met
Legend of Compliance Thresholds [3]
Rating Definition
Met Greater than or equal to 98% compliance
Partially Met Greater than or equal to 80% and less than 98% compliance
Not Met Less than 80% compliance

[1] See appendix for a complete list of policies and directives included in the scope of this audit.

[2] See appendix for CEAA’s compliance in the areas tested.

[3] Compliance thresholds for the transactions tested.

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