2006-2007 Annual Report
Corporate Audit and Evaluation Branch
July 2007
Introduction
Internal Audit and Program Evaluation policies require the head of the Corporate Audit and Evaluation Branch (CAEB) to periodically report to senior management and the audit committee on authority, responsibility and performance relative to an established plan. This is met through in-year reports as well as this annual report that provides an overview of the performance and development of CAEB over the 2006-2007 fiscal year. Information is presented on how allocated financial resources have been used to achieve program delivery results as measured against the objectives set out in the 2006-2007 portion of the CAEB 2006-2009 Business Plan.
Governance
Corporate Audit and Evaluation Branch is headed by a Director General (DG) who is accountable to both the Canada Revenue Agency (CRA) Commissioner and the Audit Committee of the Board of Management (BoM). The DG is responsible for the Branch's Internal Audit, Program Evaluation, Professional Practices and Corporate Services, and Office of the Auditor General (OAG) Liaison functions.
CAEB operates within a well-defined governance framework that includes; an active Internal Audit Management Committee (IAMC) chaired by the Commissioner and made up of CRA executives; the Audit Committee of the BoM comprised of external members totally independent of the Agency; DG participation as a member of the Agency Management Committee (AMC) and recently of the Resource and Investment Management Committee (RIMC); as well as linkages to other CRA senior management and BoM committees.
During the fiscal year there were changes to the reporting of CAEB's products to CRA's committees. Previously, both Internal Audit and Program Evaluation products were reported through the former Internal Audit and Program Evaluation Committee (IAPEC). With the new structure IAMC became the key reporting committee for Internal Audit and AMC has the responsibility for providing strategic direction for the Program Evaluation function.
Appendix A provides a list of CAEB contacts.
Mandate
The mandate of CAEB is to support the achievement of the Canada Revenue Agency's strategic goals by providing the Commissioner, Deputy Commissioner and Agency Senior Management with independent and objective information, advice and assurance on the soundness of the Agency's management framework and on the effectiveness, efficiency and economy of its strategies, programs and practices.
The work of the branch facilitates the oversight role played by the Board of Management, through its Audit Committee, for those Agency activities falling within the Board's sphere of responsibility in accordance with the Canada Revenue Agency Act. CAEB provides BoM with regular and timely assurance and information on Agency activities through presentations of IAMC and AMC approved reports in addition to progress-to-plan status reports and briefings on work being conducted in key risk areas.
The Internal Audit function provides independent, objective assurance designed to add value and improve CRA operations. Internal Audit contributes to improving the management and cost effectiveness of program delivery, and to strengthening accountability by providing information on the adequacy and effectiveness of the Agency's internal control systems and the quality of performance.
The Program Evaluation function provides strategic, timely, relevant, and factual information about program, policy, and corporate initiative performance. Information provided by Program Evaluation is used to support decision-making related to program relevance, design, resourcing and performance and, in addition, supports improved management accountability. It is also used to inform the Agency about the effectiveness of CRA programs. Program Evaluation also serves as a centre of expertise providing advice and guidance to program areas on evaluation methodologies, results-based management and accountability frameworks and performance measurement.
Internal Audits and Program Evaluations are identified in the Branch's three-year plan that is updated annually. Audits and evaluations were identified using a risk-based approach that included consideration of Agency-wide risks and Corporate Business Plan priorities as well as CAEB's risk assessment of the audit universe. The risk assessment entailed environmental scanning and consultation in regions and headquarters. Consultation with the Commissioner, senior management, Audit Committee of the BoM, and the OAG allowed the identification of key stakeholder needs when developing the business plan. Risks are examined through an analysis of the Agency Risk Inventory, Corporate Business Plan, and the Branch's understanding of CRA risks.
Under the CRA Act, the Auditor General (AG) annually provides an opinion on CRA financial statements and assesses the fairness and reliability of CRA performance information included in the Agency's Annual Report to Parliament. The OAG also tables reports to Parliament on performance audits. The CAEB OAG Liaison function provides ongoing support and guidance to Agency management and staff regarding OAG audit activity including: working with branches and OAG representatives to ensure that CRA results are fairly and accurately reported; ensuring CRA responds appropriately to recommendations; preparing material for CRA executive and ministerial briefings on AG reports; and providing CRA senior management with assistance with Public Accounts Committee appearances pertaining to AG reports, observations and recommendations.
Financial Resources
CAEB delivered its mandate in 2006-2007 with less than a 2% variance from an operating budget of approximately $9.7 million representing 125 full-time equivalents (FTE). Program Evaluators and OAG Liaison staff are located in the National Capital Region (NCR) while Internal Auditors are located in NCR and the regions.
Branch Performance
The Corporate Audit and Evaluation Branch 2006-2009 Business Plan identified a focus that reflects the Agency's three themes to enhance CRA's national presence; to maintain a strong and modern core business; to mature the governance model; and to expand business opportunities.
The Agency's core business capacity relies on a robust financial infrastructure as well as responsible tax administration.
Internal Audit performed transaction flow-through audits this fiscal year for T1, T2 and T4, to provide assurance on the accuracy and appropriateness of the flow of tax information through CRA's financial reporting systems.
In order to assess the functions responsible for tax administration Internal Audit also conducted audits of the Use of Legislative Enforcement Provisions, Large Business Audit Program and of the Benefits Programs.
To support a governance model that blends delegated authorities and accountability, Internal Audit conducted a review of the Governance of Value and Ethics as well as an extensive audit of the Internal Staffing Process.
Internal Audit also completed five separate Memoranda of Understanding (MOU) audits with various provinces to provide assurance that the CRA is compliant with the terms and conditions governing the use, communication to others and security of information received with other government departments and agencies as well as with other levels of government.
The Institute of Internal Audit (IIA) published new/upgraded standards that require an external assessment to be performed at least once every five years to obtain an objective appraisal of the Internal Audit activities. These activities must be compliant with IIA standards.
Overall, CAEB's Internal Audit activity “generally conforms” to the Professional Standards as set by the IIA. This is the highest rating achievable and supports the views of peers in other Canadian government organizations that the CRA Internal Audit activity is a leader in its field.
In 2006-2007, Program Evaluation Division received approval of a new Program Evaluation Policy, presented and received approval of the GST/HST Registration Compliance Evaluation Framework, and commenced work on the corresponding evaluation study, along with other evaluation frameworks and studies. The new policy has provided transparency with respect to the governing framework, in particular, enhanced clarity around the purpose of CRA's Program Evaluation function vis à vis the rest of the Agency.
The Program Evaluation Division also completed its study on the Impacts of the Government's Secure Channel on CRA program delivery. This study provided information to guide the CRA with respect to its relationship with this Government of Canada initiative.
Further information on final CAEB audits, reviews and studies is available at this link:http://www.cra-arc.gc.ca/agency/internal/menu-e.html
OAG Liaison continued to work closely with the OAG and with the branches/regions of the CRA to facilitate the fulfilment of the Auditor General's responsibility as Parliament's auditor. As such, CAEB contributed to the dissemination of performance information on the CRA by ensuring that, in the reports made by the Auditor General of Canada to Parliament, the information concerning the CRA was presented fairly and accurately.
OAG Liaison was involved in a number of key 2006-2007 OAG reports such as Collection of Tax Debts (May 2006 - Chapter 8), Large Information Technology Projects (November 2006 - Chapter 3) and Old Age Security - Human Resources and Social Development Canada and Service Canada ((November 2006 - Chapter 6) as well as a few follow-ups included in the February 2007 OAG Status Report.
Further information on OAG Reports reported to Parliament is available at this link: http://www.oag-bvg.gc.ca/domino/other.nsf/html/00ccra_e.html
The Branch developed performance indicators during 2006-2007 to form part of the Board of Management Oversight Framework that helps guide Board members in evaluating management issues. An overview of these performance indicators is provided in Appendix B Tables 1 and 2.
Appendix C provides a rationale for each audit or evaluation planned for 2006-2007 that was deferred or cancelled.
Highlights of Key Individual Reviews Completed
The objective of the Contracting Processes Follow-up Audit was to assess progress of the implementation of the action plans developed from the National Internal Audit of Contracting Processes reported in September 2004 and to report on the level of compliance with the Agency's procurement policies, procedures, regulations, and legislation. Overall, the progress made on the implementation of the recommended 4-Point Action Plan has been satisfactory. The capacity in the Agency to manage the contracting process has been enhanced, delegated authorities are no longer decentralized, and communications to contracting officers and budget managers to support them in carrying out their responsibilities have improved. Progress has been slow with some aspects of quality assurance and monitoring.
The Administration Directorate (AD) and the Financial Administration Directorate (FAD) of the Finance and Administration Branch (F&A) agree with the recommendations and have provided action plans to address the findings of the audit and to further strengthen the contracting process in the Agency.
The audit of the Internal Staffing Process was conducted to assess the adequacy of the management of the CRA internal staffing program, assess whether internal staffing activities were responsive to program objectives and business needs and determine whether internal staffing actions were in compliance with Agency staffing policies. While certain elements required for the adequate management of the staffing program are in place and working, others are not yet fully functional, including program planning, performance measurement and reporting, and the monitoring of staffing activities.
In many respects, the CRA has a good infrastructure in place to support the management of internal staffing activities. However, progress has been slow on the implementation of Pre-Qualification Processes (PQPs) for internal staffing activities and no comprehensive implementation plans were in place to guide the implementation of competency based internal staffing activities. In order to fully implement competency based staffing, job competency profiles are still required to be completed and employee-assessed competencies need to be assessed on a broader basis.
Formal selection processes were in compliance with staffing policies and principles. However, in the case of staffing actions without selection processes, the same level of compliance could not be assured due to lack of documentation in the Staffing file. Performance measures and reporting mechanisms are limited.
The Agency's senior management accepted the findings, and reiterated their commitment to a human resources system based on competencies and to building a strong action plan to ensure accomplishment.
The purpose of the review of the Impacts of the Government's Secure Channel on CRA Program Delivery was to assess whether aspects of Secure Channel Common Registration Services (SC-CRS) may be negatively impacting delivery of the CRA program, and to provide information to guide the CRA with respect to its relationship with this Government of Canada initiative.
From a technical perspective, the review concluded that SC-CRS is operating effectively in terms of system stability, availability to users, and response times for processing user transactions. The SC-CRS was providing an appropriate level of security for the transmission and retrieval of private information. As a result, the review found no significant threat to the delivery of the CRA program in terms of either on-going service to taxpayers or to revenue collection.
However, the review identified a number of areas requiring further attention. The complexity of registration-authentication processes for first time users of My Account resulted in more than 50% of potential users abandoning their efforts to access the service. Concerns were raised around the lack of influence that CRA has in the Secure Channel decision-making process and about the new funding model not being appropriate to ensure clarity and equity in cost allocation.
The focus of the audit of the Use of Legislative Enforcement Provisions was whether the enforcement measures available to the CRA were appropriately applied to deter non-compliance in support of our strategic goal of responsible enforcement. Overall, further improvements in the guidance, monitoring, and impact research was required for most enforcement measures. Although enforcement measures are relevant to a minority of audit files, these files represent a critical group for the Agency.
In response to the audit, the Compliance Programs Branch planned to clarify its guidance on the use of informal requests and requirements to maintain proper books and records. The Branch will also advise auditors of the policy to communicate to taxpayers the ramifications of the Repeated Failures to Report Income Penalty.
The Benefits Programs Audit was conducted to examine and assess the effectiveness, efficiency and adequacy of management of the Canada Child Tax Benefit (CCTB) and GST/HST credit programs. The audit found that the management of the Benefit Programs Directorate program was highly effective in meeting service goals, primarily timely and accurate processing of applications, adjustments and related benefit payments. However, the compliance controls in place for both CCTB and GST/HST credit needed to be improved to more adequately manage the risk of erroneous payments.
The objectives of the T1, T2 and T4 Transaction Flow-Through Audits were to provide assurance with respect to the accuracy and appropriateness of the automated flow of transaction data, from source documents to the relevant CRA processing systems through to CRA's corporate accounting system, the Revenue Ledger (RL). The results of the audits indicate that tax information flowed accurately and appropriately through CRA's automated systems, from the T1, T2 and T4 return line items used on the source documents of the selected returns through to the RL accounts.
The audit of the Large Business Audit Program was conducted to determine if the Large Business Audit Program was being effectively managed and supported. The audit concluded that the Program featured a sound approach in that all returns of large corporations were being reviewed and that a complete and clear set of communiqués provided direction for auditors.
Internal Audit also identified areas for management attention including the implementation and monitoring of policies and procedures, enhancements to strategic analysis, efforts to ensure local management challenge of issues selected for audit and improvements to the retention of documentation.
The review of the Governance of Values & Ethics Environment was conducted to determine whether the governance framework in place to manage the CRA's values and ethics was comprehensive. The review confirmed that the fundamental elements of the Agency's V&E governance framework were established and most of the intermediate elements were being developed. The CRA has a foundation in place to govern values and ethics, and strong leadership on the part of individual executives and managers was noteworthy. The CRA had also designated a senior level V&E Champion to develop a 3-year action plan to further advance the maturity of the governance framework for V & E at CRA.
Branch Development
Program Evaluation
During 2006-2007, the Branch took further steps to strengthen the Program Evaluation function. AMC became responsible for providing strategic direction for the function, and a new Program Evaluation Policy was presented and accepted by the Audit Committee of the BoM. Work began on developing the in-house capacity and infrastructure needed to implement the new policy, for example, broadening the portfolio of program evaluation products and services and strengthening evaluation processes and procedures.
The focus of evaluation work during the past year has been on issues related to program effectiveness. In addition to making progress on a number of evaluations (including three GST-related evaluations as well as evaluations of the Charities Partnership and Outreach Program and the Managers Exchange Program), the Program Evaluation Division focused on providing advice and guidance to Branches on issues related to evaluation and performance measurement (e.g. development of Results-based Management and Accountability Frameworks (RMAFs)). This has contributed to developing stronger relationships with other areas of the CRA.
Within the past year, a significant effort has been made to build evaluation capacity through the recruitment and training of evaluation staff. Recruitment and retention of evaluation staff remains a challenge since many federal departments are looking to hire evaluators, in light of the Treasury Board Secretariat's (TBS) renewed emphasis on evaluation across government.
Another challenge faced by the Program Evaluation Division will be to maintain the breadth and depth of evaluations while finding ways to improve timeliness. There has also been an increased demand on the Division to provide advice and guidance to program areas, particularly for RMAFs that are required by TBS or RIMC. The challenge will be to find the right balance in order to support program areas in their evaluation activities while effectively delivering core evaluations.
Internal Audit
CAEB realigned the portfolio responsibilities within the IA teams to be more responsive to the Agency business lines. This portfolio approach allows the Branch to develop subject matter experts, increase our knowledge of the business, better identify key risks, and continue to build on our relationships with CRA's other branches. This approach also allows the teams to have a primary focus while continuing to participate in reviews that have a horizontal flavour.
There is a continued focus on the training and development of IA staff to ensure they have the necessary skills to carry out the work of the Division. The focus on professionalism includes accreditations such as the Certified Internal Auditor (CIA) designation and professional accounting designations. During the fiscal year all internal auditors located in the NCR attended in-house CIA preparatory seminars and 90% of the staff that attempted the exams were successful. Over the coming year in-house CIA preparatory seminars will be delivered to the internal auditors located in the regions. The Branch continues to offer support to all staff pursuing their designations by providing them with the necessary materials, allowing them time to study, and providing them with access to any relevant training.
CAEB recently received approval to establish Financial Management (FI) positions in the Finance Audit team for auditors conducting financial audits. This is another step in our plan to have an organization that is competitive, recognizes the professional nature of our work and offers opportunities for growth. The next step will be to staff the FI positions and continue to seek opportunities to establish an appropriate range of classifications for internal auditors to better reflect the professional nature of their work. In this way, we provide tangible evidence of our commitment to provide independent oversight by qualified professionals.
The Branch continues to prepare for the launch of TeamMate™, an audit management system that reduces the time internal audit teams spend on administrative processes and allows teams to focus on value added activities. TeamMate™ was piloted in the 2006-2007 fiscal year and plans are under way to have the electronic working paper module implemented in 2007-2008.
Professional Practices and Corporate Services
CAEB recently created a new division that is comprised of two sections namely Professional Practices and Corporate Services. All positions in this Division were classified and a majority of the positions have been staffed.
The Professional Practices section ensures that CAEB's internal audit methodology is current and effective; provides auditors with guidance and support; facilitates internal auditors' professional development; promotes the use of the Institute of Internal Auditors Professional Practices Framework; and performs quality assurance reviews on internal audit products. As well, this section is responsible for the implementation of automated audits tools including TeamMate. Staffing of key positions such as Manager of Professional Practices remains a priority for the Branch. Progress has been made on several fronts including quality reviews, training sessions for CIA examinations, guidance and advice to auditors and the launching of TeamMate for the fall of 2007.
The Corporate Services section focuses on providing service in the areas of human resources, finance administration, administrative services including accommodation, physical security and heath & safety. Establishing service levels and clarifying the roles and responsibilities will set the foundation to better align the section's activities in meeting clients' needs and expectations. All positions in the human resources area have recently been classified and are now staffed.
One key 2007-2008 initiative for this section is the creation of CAEB's Human Resources Committee. The goals of this committee will be:
- to take a horizontal approach to CAEB staffing and CAEB's corporate obligations on key HR initiatives;
- to increase awareness and understanding of key HR initiatives;
- to develop, approve and monitor the application of a Staffing Approval Process to ensure a consistent and fair approach to staffing across the Corporate Audit and Evaluation Branch; and
- to address other miscellaneous HR issues such as recruitment, acting assignments and succession plans.
Another key initiative involves the management of information within CAEB. The introduction of strict guidelines and procedures combined with clear roles and responsibilities will enhance CAEB's ability in managing and protecting sensitive information.
Conclusion
The audits and evaluations completed over 2006-2007 demonstrate that the 2006-2007 CAEB Business Plan objectives have been met. Support for the achievement of the Agency's strategic goals was provided through the collective provision of independent and objective information, advice and assurance related to the reviews completed.
APPENDIX B - Board of Management Oversight Framework
Table 1
Effective Internal Audit Function
| Management Expectations: | CRA has an effective internal audit function that is founded on rigorous planning, robust reporting and appropriate governance. |
|---|---|
| Questions |
Evidence |
| a) Planning. Is Internal Audit planning appropriate (risk-based, appropriate approvals, methodology, continuity with previous years)? |
|
| b) Reporting. Are internal audit reports objective, reliable, accurate, and of high quality? |
|
| c) Resources. Does Internal Audit have appropriate resources (staff qualifications, mix and level of experience of professional staff)? |
|
| d) Governance. To what extent has the CRA internal audit policy been successfully implemented? |
|
Table 2
Effective Program Evaluation Function
| Management Expectations: | Evaluation is valued by the Commissioner and is used to inform expenditure and policy decision-making. |
|---|---|
| Questions |
Evidence |
| a) Governance. Does the CRA have an appropriate and effective oversight framework for the evaluation function? |
|
| b) Planning. Does the evaluation function have an effective planning process (risk based, appropriate approvals, continuity with previous years)? |
|
| c) Reporting and Use. Are program evaluation reports seen to be objective and of high quality? Does the CRA value and make effective use of evaluation information? |
|
Appendix C - 2006-2007 Planned Audits / Evaluations Deferred or Cancelled
| Title | Action Taken (Deferred or Cancelled) | Rationale |
|---|---|---|
| Business Integration Systems Support Infrastructure (BISSI) – Pre- Implementation Audit |
Deferred |
This system under development audit was delayed so that the audit effort would occur when the project was sufficiently developed. The project has been renamed as the Compliance Program System Redesign. |
| Staff integration in new business |
Deferred |
This audit is deferred to provide priority to high-risk audits. |
| Tax Auditor Training and Learning |
Deferred |
Organizational changes within the Headquarters area responsible for this function dictate that the audit would add more value if conducted once the changes are fully implemented. |
| Privileged User Risk Management (PURM) Project |
Deferred |
Due to scheduling changes this audit is deferred to first quarter of fiscal year 2007/08. |
| Canada Pension Plan / Employment Insurance Administrative Costing Survey |
Deferred |
Timing was dependant on a Treasury Board Decision obtained in April 2007. This audit is deferred to first quarter of fiscal year 2007/08. |
| Financial Administration Act Accountabilities & Compliance (Department 130 Payments) Audit |
Deferred |
Due to scheduling changes this audit is deferred to second quarter of fiscal year 2007/08. |
| Compensation Service Delivery Evaluation Framework Study |
Cancelled |
Internal Audit initiated an audit of Compensation Management in the fourth quarter of fiscal year 2006/07. |
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