Regional Development Agencies Audit of the Management Control Framework over the Recipient Selection Process for Selected Grants and Contributions Programs

Regional Development Agencies

Office of the Comptroller General

Table of Contents

Executive Summary

The objective of this audit was to provide reasonable assurance that selected Regional Development Agencies (RDAs) have designed and implemented an effective management control framework over the recipient selection process that supports compliance with the Treasury Board Policy on Transfer Payments.

Why This Is Important

Grants and contributions programs are designed to provide assistance to local governments, non-profit organizations and businesses in order to advance technologies, develop products and stimulate local economies.

Successfully delivering grants and contributions programs is a key priority for RDAs, whose main objectives are to support successful, diversified and participative local economies to benefit all Canadians.

Selecting recipients is essential to the transfer payment program process. RDAs need an effective management control framework to ensure that eligible recipients are identified, assessed and ultimately funded in support of program objectives.

Given the management of grants and contributions programs is subject to public scrutiny, it is essential that governance, risk management and internal control processes are in place to support decision making and to provide transparency on managing and delivering these programs. Funding recipients without thorough due diligence may result in projects that do not support the achievement of program objectives and give rise to concerns regarding the financial stewardship, performance and accountability of these programs.

Key Findings

Although RDAs share a common mandate of supporting economic development within their respective regions, their approaches to managing and delivering grants and contributions programs vary.

The scope of this audit examined Western Economic Diversification Canada (WD) which was created in 1987 and the Canadian Northern Economic Development Agency (CanNor) which was created in 2009 and is in transition from Aboriginal Affairs and Northern Development Canada (AANDC). Each RDA delivers several transfer payment programs. One transfer payment program from each RDA was selected for the audit: the WD Western Diversification Program (WDP) and the CanNor Strategic Investments in Northern Economic Development (SINED) Program. For these selected programs, the audit examined the governance processes over the recipient selection process, program design, funding applications and funding agreements.

Overall, CanNor and WD have established governance structures to manage the recipient selection process for their contribution programs. The SINED Program and WDP terms and conditions are aligned with their RDA’s legislative mandates and with the objectives and expected results of the Treasury Board Policy on Transfer Payments. Standard program policies, procedures and tools related to contribution program management (including processes for managing recipient selection risks) and performance expectations have been established for both programs. For CanNor, how these are communicated to and used by program staff is an area for improvement. Program performance measurement strategies to measure the effectiveness of the process for selecting recipients are in place within both RDAs.

The two RDAs have implemented elements of program design to varying degrees. They have communicated program eligibility requirements to potential applicants, have established processes to receive feedback from program stakeholders, and are working toward standardizing application requirements and harmonizing recipient information. Both RDAs have established program delivery service standards; however, their transparency and communication to program applicants and recipients varies. RDA funding decisions are proactively disclosed as required. The timeliness of funding decisions in relation to established service standards varies between the two RDAs.

Regarding funding applications, assessments of WDP applications against approved terms and conditions are performed in consideration of overall program objectives; whereas SINED Program applications would benefit from improvements to the project assessment process.

The two RDAs have developed program funding agreements for the WDP and SINED Program in consideration of risk, and consistency with applicable policies and legislation. Exceptions were noted for CanNor regarding the consistent alignment of funding agreements with SINED Program terms and conditions, establishing standard business processes and controls related to commitment authority.

Conclusion

Overall, the management control frameworks over the recipient selection and approval processes established and implemented by WD and CanNor vary in how they support compliance with the Policy on Transfer Payments.

WD’s management control framework over the WDP recipient selection and approval process supports compliance with the Policy on Transfer Payments.

CanNor’s management control framework over the SINED Program recipient selection and approval process is designed to support compliance with the Policy on Transfer Payments; however, opportunities for improvement were noted in its implementation.

A number of good practices being used by WD and/or CanNor have been identified, including: having the same program representative work with applicants and recipients throughout the project life cycle to maintain continuity; quarterly performance reporting to executive management on service standards and investment results; online submission of project applications; use of client satisfaction surveys to obtain applicant and recipient feedback; and guidance on assessing the reasonableness of proposed project costs.

An opportunity for improvement has been noted for WD regarding compliance with WDP funding decision service standards.

For CanNor, opportunities for improvement have been identified regarding: the understanding and performance of program delivery roles, responsibilities and processes; the approach for promoting the SINED Program; the assessment of project applications against SINED Program terms and conditions and other selection criteria; consistently aligning SINED Program funding agreements with program terms and conditions; establishing business processes and controls related to commitment authority.

Conformance with Professional Standards

This audit engagement was conducted in accordance with the Internal Auditing Standards for the Government of Canada based on the Institute of Internal Auditors’ International Standards for the Professional Practice of Internal Auditing. A practice inspection has not yet been conducted; however, one is planned in 2013–14.

Anthea English, CA

Assistant Comptroller General and Chief Audit Executive

Internal Audit Sector, Office of the Comptroller General

Background

The Audit of the Management Control Framework over the Recipient Selection Process for Selected Grants and Contributions Programs1 was identified and approved in the Regional Development Agencies’ (RDAs) 2012–13 Risk-Based Internal Audit Plan.

The Treasury Board Policy on Transfer Payments and its related Directive set the expectations for managing grants and contributions programs in the federal government. The objective of the Policy is to ensure that transfer payment programs are managed with integrity, transparency and accountability, and in a manner that is sensitive to risks; are citizen and recipient-focused; and are designed and delivered to address government priorities in achieving results for Canadians.

The Government of Canada has five RDAs: the Atlantic Canada Opportunities Agency (ACOA); the Economic Development Agency of Canada for the Regions of Quebec, the Canadian Northern Economic Development Agency (CanNor); the Federal Economic Development Agency for Southern Ontario; and Western Economic Diversification Canada (WD). These organizations are responsible for delivering policies and programs to support economic, community and infrastructure development within their regions.

Two RDA transfer payment programs were selected for the audit: the WD Western Diversification Program (WDP) and the CanNor Strategic Investments in Northern Economic Development (SINED) Program.

Founded in 1987, the WDP makes strategic investments in initiatives that enhance and strengthen the economy of Western Canada.2 Investments are normally non-repayable contributions provided to not-for-profit organizations to support projects that lead to commercialization of technology, enhanced trade and investment, improved business productivity and competitiveness, and increases in rural diversification. Planned spending for WD WDP in fiscal year 2012–13 was $89 million.3

The CanNor SINED Program focuses on strengthening territorial economies, economic diversification and encouraging Northerners’ participation in the economy.4 Investments are normally non-repayable contributions to territorial governments and non-government organizations to build the knowledge base, enhance the economic infrastructure base, develop the economic capacity of individuals and organizations, and diversify the local economy. Planned spending for the SINED Program in fiscal year 2012–13 was $18 million.5 Until August 2009, the SINED Program was delivered by Aboriginal Affairs and Northern Development Canada (AANDC). The SINED Program was transferred to CanNor following its creation in August 2009.

Audit Objective and Scope

The objective of this audit was to provide reasonable assurance that WD and CanNor have designed and implemented an effective management control framework over the recipient selection process that supports compliance with the Treasury Board Policy on Transfer Payments.

The scope of the audit examined the extent to which each of the two RDAs have respectively: established effective governance processes over for the recipient selection process; designed programs that are recipient-focused, accessible and understandable; assessed funding applications against program objectives; and developed funding agreements that are considerate of risk and compliance with the Treasury Board Policy on Transfer Payments, its Directive and the Financial Administration Act (FAA).

The audit file review included selected approved projects under the WDP and SINED Program between fiscal years 2010–11 and 2011–12. The file review included projects from British Columbia and Alberta for WD and from Nunavut and Yukon for CanNor.

The lines of enquiry and audit criteria are provided in Appendix A.

Detailed Findings and Recommendations

Finding 1: Program Governance

Program governance is a structural regime of processes through which organizations set strategic directions, define and assign responsibilities, assess risks, and implement measures to achieve outcomes consistent with established objectives. Having a defined and clearly communicated program governance regime is essential for managing and delivering programs. When governance expectations are clearly defined and communicated, the likelihood increases that managing and delivering program objectives, including selecting recipients, will be successful and achieved in a way that considers accountability for performance, results and risks.

The audit examined the extent to which the RDAs have implemented governance processes over the recipient selection process. Specifically, the audit examined the extent to which:

  • Program terms and conditions are aligned with the Treasury Board Policy on Transfer Payments, its related Directive, and applicable legislation;
  • Policies, procedures, controls, and clear roles and responsibilities are in place to govern the recipient selection process;
  • A performance management plan was in place to measure the effectiveness of the recipient selection process; and
  • Recipient selection risks are identified and mitigated.

The two RDAs’ program terms and conditions are aligned with their respective legislative mandates and with the objectives and expected results of the Policy on Transfer Payments.

The terms and conditions of the WDP are aligned with the objectives and expected results of the Policy on Transfer Payments and its related Directive regarding the management and delivery of contribution programs. The terms and conditions were updated in June 2010 and reflect the mandate of WD as outlined in the Western Economic Diversification Act.

At the time of the audit, the SINED Program was being reviewed to support the renewal of its funding. In support of program renewal, CanNor conducted a review of the SINED Program’s terms and conditions, which confirmed that they are consistent with the objectives and expected results of the Policy and Directive. In addition, an evaluation of the SINED Program is currently being undertaken by AANDC on behalf of CanNor.

The two RDAs have established standard program policies, procedures and tools related to contribution program management and performance expectations; however, the way in which they are communicated and used by staff varies.

WD and CanNor have established standard policies, procedures, tools and guidance to assist program staff assess applications, select projects for funding, and manage project life cycles. Both RDAs have adopted a good project life cycle management practice in which the same program staff member works with the applicant or recipient throughout the project—from the application stage until project completion—with a view to maintaining continuity for applicants and recipients.

Both RDAs hold internal project status meetings regularly, either monthly (WD) or weekly (CanNor). Staff from each RDA noted that these meetings are useful for discussing existing and planned projects, budget forecasting, general issues, and lessons learned. Both RDAs support developing staff through formal and informal training.

WD has required training for program staff relevant to managing contribution programs and for developing staff competency profiles.

CanNor has focused on developing internal capacity by providing staff with training in contribution program management and with job shadowing and mentoring opportunities for role development. CanNor has continued to use AANDC contribution program management tools and job descriptions. Although CanNor’s grants and contributions management control framework was approved in March 20126 to document the Agency’s expectations for managing and delivering programs, the audit found that there were inconsistencies in the understanding and performance of program management roles, responsibilities, processes, and controls. For example, the results of interviews with CanNor staff noted that there is not a consistent awareness of program management roles and responsibilities throughout the Agency. In addition, the file review results found inconsistencies in applying established project and risk assessment guidance and tools for reviewing funding applications.

These inconsistencies may be attributable to the transition from AANDC and a need for improved communication and training on the expectations and the requirements of the grants and contributions management control framework.

The two RDAs have established program performance measurement strategies to measure the effectiveness of the recipient selection process.

WD and CanNor have developed performance measurement strategies for the WDP and SINED Program that are aligned with program terms and conditions, along with program-specific and RDA performance indicators and measures. Both WD and CanNor regularly track, monitor and report program results.

A good practice was noted in which WD regional offices prepare a performance report for the WD Executive Committee on the achievement of WDP client service standards, strategic investment priorities and targets. This program-level data is tracked for approved and non-approved WDP projects to provide a complete statistical summary of intake results.

For the SINED Program, performance management is performed through the assessment of territorial-specific investment plan results. On a weekly basis, CanNor program staff from the Nunavut, Yukon and the Northwest Territories offices discuss planned and actual project funding allocations results for each SINED Program investment sub-component. CanNor does not track statistics on declined applications, which may limit data completeness and recipient selection performance reporting. In tracking only approved applications, CanNor may be missing opportunities to receive feedback for improving the effectiveness of its recipient selection process.

The extent to which recipient selection risks are identified, documented, communicated and mitigated varies between the two RDAs.

WD uses an integrated approach to assess both applicant and project risk concurrently at the due diligence report (DDR) stage. To prepare the DDR, program staff use the Project Gateway online Project Assessment Tool (PAT), which includes a five-point rating scale to provide guidance on how to assess applicant and project risk in relation to project complexity, organizational capacity, project funding, project outcomes, and applicable special approval conditions.

The review of sampled WDP files indicates that the level of analysis and rationale for the project risk assessment rating is well documented in the DDR. The DDR includes a summary of the inherent risks of the project, as well as the funding agreement special condition(s) that act as the risk mitigation measure(s) to help ensure recipient compliance with terms and conditions. At the time of project approval, decision makers are provided the DDR so that they are aware of the funding agreement special conditions / risk mitigation measures.

CanNor program staff use the Project Assessment Report (PAR) to assess the project’s residual risk in consideration of the SINED Program’s terms and conditions including: project management capacity, eligibility, feasibility, and alignment with objectives and expected results. At the project approval stage, the Project Synopsis Report (PSR) summarizes the PAR and includes the overall project risk rating (low, medium, or high). The review of selected CanNor files found that there is currently not a defined methodology to assist program staff in the assessment of low, medium or high risk ratings on the PAR or PSR. The file review also revealed that project risk assessments were not always documented in accordance with the guidance provided on the PAR and PSR forms, and did not sufficiently detail the assessment of residual project risk or the rationale for the risk rating.

As noted previously, these results may be attributable to a need for improved communication and training on the performance expectations and the information requirements of the grants and contributions management control framework (MCF), PAR and PSR. With a more rigorous approach to assessing project risks, CanNor could more effectively manage its recipient selection and approval process. Management has noted that contribution program funding is inherently risky in the northern territories, which further supports the need for improving the assessment of recipient risks.

Overall, WD and CanNor have established governance processes to manage the recipient selection process for the WDP and the SINED Program. Good practices have been identified in both RDAs with regard to having the same program staff work with applicants and recipients throughout the project life cycle to maintain continuity. Additional good practices were identified at WD in reporting on service standards performance and investment results, and in facilitating applicant access to the WDP through online application submissions.

There are specified opportunities for CanNor to improve the understanding and performance of roles, responsibilities and processes throughout the agency.

Recommendation 1:

CanNor management should implement measures to improve program staff understanding and performance of roles, responsibilities and processes, including those related to the performance requirements of the grants and contributions management control framework, PAR and PSR.

Finding 2: Program Design

Program design consists of developing the objectives of a program in relation to those of the organization and helping intended recipients access the program in order to realize benefits and achieve results.

The Treasury Board Policy on Transfer Payments and its related Directive require federal organizations responsible for transfer payment programs to improve the client focus of their programs. In addition, the Report of the Independent Blue Ribbon Panel on Grant and Contribution Programs7 made recommendations on how to improve the client focus of grants and contributions programs. These requirements and recommendations have focused on improving the ability of applicants and recipients to understand program requirements and access program funding in a more transparent and timely manner, and to reduce the time and costs of doing so. Although strategies to implement these recommendations vary, when they are successful, an organization’s ability to engage with client needs in a more accessible, transparent and timely manner encourages greater innovation and cost efficiency in program design, promotion and delivery.

The audit examined the extent to which the WDP and SINED Program are recipient-focused and help applicants and recipients access, understand and use the programs.

Specifically, the audit examined the extent to which:

  • A program promotion strategy is in place that communicates program eligibility requirements to potential applicants;
  • A process is in place to receive feedback from applicants and recipients in support of continuous program improvement;
  • RDAs harmonize recipient information and standardize application requirements;
  • Service standards are in place and communicated to applicants and recipients; and
  • Funding decisions are communicated in a timely manner and disclosed as required.

The two RDAs communicate program eligibility requirements to potential applicants.

CanNor and WD engage in program promotion and outreach activities with their regional and territorial stakeholders through economic development conferences, trade shows, industry association meetings and liaison with provincial and/or territorial governments. WD and CanNor management noted that the WDP and the SINED Program are in high demand to the extent that both programs are oversubscribed, i.e., applications for funding exceed available program funds.

WD’s WDP website outlines the program’s terms and conditions, eligibility and application requirements, and program service standards. WD has also established a communications strategy which identifies a framework for departmental program communications and promotion. A good practice was noted whereby WD’s WDP website enables online submission of project applications.

The SINED Program’s website describes the objectives of the program and the type of projects that could be funded under the four SINED Program sub-components. However, the website does not outline program terms and conditions, eligibility and application requirements, and program service standards, nor does it allow applications to be made online. As a result, CanNor may not be fully utilizing its website as a cost-effective tool to help potential applicants access and understand the SINED Program.

The promotion of the SINED Program is not based on a strategic approach or plan that is linked to the achievement of specific results, or considers the costs of promotion activities. Such costs can be significant given that they involve northern travel. CanNor, therefore, may not be ensuring value for money of its promotional activities.

The two RDAs have established processes to receive feedback from their program stakeholders.

WD and CanNor receive regular feedback from their stakeholders throughout the project life cycle. A good practice was noted in which WD collects feedback from approved applicants, non-approved applicants and recipients through a client satisfaction survey conducted every three years by an external party. The objectives of the most recent survey (2010) were to measure satisfaction with service delivery among clients across the WD program portfolio as well as the Economic Action Plan suite of programs that WD delivered. Although no specific management action plan was developed by WD in response to the survey, its results were incorporated into various initiatives, including a review of WD service standards.

In accordance with the SINED Program terms and conditions, CanNor has developed territorial-specific investment plans in consultation with territorial stakeholders to reduce duplication in setting investment priorities, targets and expected outcomes. These consultations remain the principal way in which CanNor engages with its stakeholders to discuss and receive feedback on program delivery, strategic plans and priorities. Management has noted that client satisfaction surveys may be used in the future to solicit feedback on CanNor programming.

WD and CanNor are working with the other RDAs toward initiatives to standardize application requirements and harmonize recipient information.

Regarding the standardization of application requirements, both RDAs have developed standard applications for funding. Both RDAs have also maintained their requirement that all applicants, including repeat recipients, complete the standard application and provide required documents for each application. They rationalize this practice by noting that every application for funding is unique and that providing documents and other information is essential for project assessments.

Regarding harmonizing recipient information, WD and CanNor are both using online systems to enter and store applicant and recipient information; however, the ability to retrieve this information efficiently varies between the two RDAs.

WD has used Project Gateway since 2003 as a project management life-cycle tool to enter, store and retrieve such information. This tool enables program staff to effectively retrieve information and facilitates funding requests from past applicants and recipients.

Since its inception, CanNor has used the AANDC First Nations and Inuit Transfer Payments (FNITP) System to store and archive recipient project life-cycle documents and other information. The use of the FNITP System varies throughout the Agency, as not all offices use it for project life-cycle information storage. It was noted that although the FNITP System currently meets CanNor’s needs, it has functional limitations, whereby it is not an information database such as Project Gateway, and retrieving information is somewhat cumbersome because it requires opening recipient documents and searching for the desired information.

WD and CanNor are currently collaborating with RDA-wide working groups that meet monthly to share good practices in managing contribution programs. For example, RDAs have formed a committee to discuss information management and technology systems for grants and contributions, as well as to discuss how program risks are defined and assessed for likelihood of occurring and impact.

Service standards are established by both RDAs; however, their transparency and communication to program applicants and recipients varies.

CanNor and WD have developed service standards on managing applications and recipient selection. These standards, which acknowledge application submissions and indicate the amount of time to render a decision to approve funding, are the same for CanNor and WD. Both are monitoring how well these service standards are met. However, as noted previously, SINED Program service standards are not easily accessible to CanNor program applicants and recipients.

RDA funding decisions are disclosed proactively as required. The timeliness of funding decisions in relation to established service standards varies between the two RDAs.

The audit found that all sampled projects for CanNor and WD were appropriately disclosed on the WD and CanNor proactive disclosure web pages.

Based on the review of a sample of WD files, service standards for funding decisions were not met in almost half of the files reviewed. WD often accepts additional documentation from applicants to support their submissions up to and beyond the service standard decision date. While applicants are offered more time to improve the strength of their submissions and WD can provide additional due diligence on the applications, this additional time can result in the service standard not being met. The file review also found that WD did not consistently close some sampled project files following six months of inactivity according to its policy requirements. The observed exceptions applied to both approved and non-approved projects (i.e., the project may or may not have proceeded to the DDR stage). By not meeting its service standards, WD may not meet the expectations and needs of its stakeholders.

The review of sampled CanNor files found that all projects that were approved following the establishment of funding decision service standards in July 2011 were made within the required timelines.

Overall, WD and CanNor have implemented elements of program design to varying degrees. A good practice was noted at WD in which a client satisfaction survey was conducted to obtain applicant and recipient feedback and improve departmental program service delivery.

Improvements in the area of compliance with established WDP funding decision service standards have been noted for WD, along with improvements to CanNor’s approach for SINED Program promotion.

Recommendation 2:

CanNor management should establish a strategic approach to program communication and promotion to ensure value for money.

Recommendation 3:

WD management should take steps to ensure that it meets funding decision service standards and the requirement to close inactive projects within specified timelines.

Finding 3: Program Applications

The assessment of applications for funding requires balancing the need and merit of the proposed project with limited resources available to meet the demand. With many federal contribution programs, demand exceeds available funding. Assessing applications for funding eligibility against a set of criteria linked to program terms and conditions helps to ensure that the proposed project merits selection and that its planned objectives are aligned with and are consistent with those of the program. Likewise, decisions to approve these projects must be based on a thorough due diligence review of the information presented.

Performing funding application due diligence requires guidance that is aligned to program terms and conditions, along with clearly defined criteria that will enable a thorough and consistent assessment of the capacity and capabilities of the applicant, the merit of the project to achieve results, as well as the cost and risk considerations of the proposed project.

Failure to effectively do so may result in committing funds to projects that are not the best fit to help achieve program objectives and results which could negatively affect the public’s perception of RDAs as effective stewards of public funds.

The audit examined the extent to which the applications to the WDP and SINED Program are assessed against approved program terms and conditions and in consideration of overall program objectives. Specifically, the audit examined the extent to which:

  • Applications are assessed consistently for eligibility against criteria based on program terms and conditions; and
  • Funding decisions are made in accordance with program terms and conditions and were prioritized based on the recipient’s ability to contribute to the programs.

The assessment of funding applications against program terms and conditions and established guidance varies between the two RDAs.

As noted, WD and CanNor have developed standard program tools and guidance to assist the assessment of applications for funding against program terms and conditions and other required assessment considerations.

Based on the results of a sample of WD files examined, the DDR and the PAR were completed consistently and took into account WDP terms and conditions and required assessment elements, including eligibility, viability, benefits and costs. The file review also revealed a good practice in which WD has developed guidelines to assist project staff in assessing the reasonableness of proposed project costs.

Based on the results of a sample of CanNor files reviewed, assessment elements related to the project, i.e., reasonableness of costs and source of funds, feasibility, and objectives and expected results, were not sufficiently documented in relation to the guidance and information requirements provided in the PAR and PSR. Without sufficient documentation on project eligibility, feasibility, costs, risks and other important decision making considerations, there is a risk that project recommendations and approvals may not be based on a complete and thorough assessment. With a more rigorous approach to assessing project eligibility considerations, CanNor could more effectively manage its recipient selection and approval process.

Recommendation 1 addresses the above finding through the improvement of program staff understanding and performance of roles, responsibilities and processes.

Overall, assessments of WDP applications against approved terms and conditions were performed in consideration of overall program objectives. A good practice was noted at WD with regard to the guidance available to staff on how to assess the reasonableness of proposed project costs.

CanNor would benefit from improvements to the assessment of project applications against SINED Program terms and conditions and other selection criteria.

Finding 4: Program Funding Agreements

Funding agreements establish the accountability relationship between the sponsoring entity and the recipient to financially support a project to achieve a specified mutually beneficial outcome.

Establishing standard funding agreements along with financial and business processes helps to ensure alignment, consistency and compliance with program terms and conditions and applicable legislation.

The Policy on Transfer Payments sets out general guidelines for developing funding agreements, and Appendix G of the related Directive identifies the required elements to help ensure that the agreement balances the organization’s accountability and control requirements with the level of risk specific to the transfer payment program, the value of the funding, and the risk profile of the recipient.

Similarly, the FAA, the Policy and the Directive specify the financial requirements that federal organizations must meet and put in place prior to committing project funds.

The audit examined the extent to which the WDP and SINED Program recipient funding agreements are developed in consideration of risk, the Policy on Transfer Payments, its related Directive and RDA legislation. Specifically, the audit examined the extent to which:

  • Standard funding agreements were: used; aligned with the WDP and SINED Program terms and conditions; were compliant with the Policy on Transfer Payments and the related Directive;
  • Funding agreements address recipient risk in relation to the program’s risk management strategy; and
  • Availability of funds was authorized (FAA Section 32) before funding agreement approval.

The two RDAs use standard funding agreements that align with the requirements of the Policy on Transfer Payments and its related Directive. However, the extent to which the funding agreements align with program terms and conditions varies between the two RDAs.

The standard WD and CanNor funding agreements comply with the expectations of the Policy and Directive regarding the essential requirements and considerations for establishing contribution program funding agreements, as outlined in Appendix G of the Directive.

Sampled WDP recipient funding agreements contained the required WDP terms and conditions.

Sampled SINED Program funding agreements reflect the essential requirements of the standard CanNor funding agreement; however, they did not consistently include some specific program terms and conditions, such as the purpose of the contribution, the expected outputs or outcomes, and federal stacking limits. The impact of omitting these requirements may lead to the inability to obtain the required levels of assurance that the recipient maintains its compliance with terms and conditions throughout the duration of the funding agreement.

The funding agreement design of the two RDAs considers the results of the recipient risk assessment.

As noted previously, WD funding agreements include the special conditions identified in the DDR and PAR. These special conditions include the type and frequency of monitoring and reporting activities. They are established based on the project risk assessment to act as risk mitigation measures to help ensure recipient compliance with the funding agreement.

CanNor considers the recipient’s risk rating when determining the term of the funding agreement. The risk rating also influences the agreement in determining the level of financial reporting required, for example, full audited financial statements, an audited statement of revenue and expenditure, or a statement of revenue and expenditure. Recipient risk was incorporated into the PSR during fiscal year 2011–12. The results of the file review observed that all applicable sampled funding agreements approved during and following this time included the appropriate level of reporting requirements based on the risk rating.

All sampled projects were approved in accordance with established RDA delegated financial signing authorities. However, the documentation of the performance of the FAA Section 32 varies between the RDAs.

All sampled approved WD project files included certification of the availability of funds (Section 32 of the FAA) on the PAR before the funding agreements were signed. In all cases, evidence of FAA Section 32 was verified to ensure that PAR approvals were undertaken by an appropriately delegated authority.

Based on the review of sampled CanNor approved project files, it was noted that projects described in PSRs were verified by an appropriate delegated authority. The results of the file review and interviews with CanNor staff indicated that there was variance in the understanding of when FAA Section 32 is undertaken, and who has the responsibility for confirming that funds are available in the FNITP System before project approval via the PSR.

The file review found that the PAR does not include certification that funds are available at the time of project approval. As a result, there is a risk that CanNor’s project approval and funding commitment process does not comply with the expectations of FAA Section 32 which requires a formal certification that the funds are available for commitment at the time of project approval. Management has noted that non-standard business processes, combined with the need to update delegation of authority matrix and resource constraints across CanNor regional offices, have led to challenges in implementing consistent processes for key program management and financial controls. Management also noted that there is a desire to standardize business processes throughout the CanNor regional offices.

Overall, the two RDAs developed program funding agreements for the WDP and SINED Program in consideration of risk, consistency, applicable policies and legislation.

Exceptions were noted for CanNor with respect to aligning SINED Program funding agreements with program terms and conditions, and establishing business processes and controls related to commitment authority.

Recommendation 4:

CanNor management should ensure that all required SINED Program terms and conditions are included in recipient funding agreements.

Recommendation 5:

CanNor management should improve and implement processes for certifying that program funds are available prior to project approval.

Conclusion

Overall, the management control frameworks over the recipient selection and approval processes that have been established and implemented by WD and CanNor vary in how they support compliance with the Policy on Transfer Payments.

WD’s management control framework over the WDP recipient selection and approval process supports compliance with the Policy on Transfer Payments.

CanNor’s management control framework over the SINED Program recipient selection and approval process is designed to support compliance with the Policy on Transfer Payments; however, opportunities for improvement were noted in its implementation.

A number of good practices being used by WD and CanNor have been identified including: having the same representative work with applicants and recipients throughout the project life cycle to maintain continuity; quarterly performance reporting to executive management on service standards and investment results; online submission of project applications; use of client satisfaction surveys to obtain applicant and recipient feedback; and, guidance on assessing the reasonableness of proposed project costs.

An opportunity for improvement has been noted for WD in the area of compliance with established WDP funding decision service standards.

For CanNor, opportunities for improvements have been identified with respect to improving: the understanding of roles, responsibilities and processes; the approach for promoting the SINED Program; the assessment of project applications against SINED Program terms and conditions and other selection criteria; aligning SINED Program funding agreements with program terms and conditions; and establishing business processes and controls related to commitment authority.

Management Response

The findings and recommendations of this audit were presented to WD and CanNor management.

Management has agreed with the findings included in this report and will take action to address all recommendations applicable to their RDA.

Appendix A: Lines of Enquiry and Audit Criteria

Line of Enquiry Criteria
1. The Agency has effective governance processes over the program’s recipient selection process. 1.1: The Terms and Conditions of the program including any amendments are aligned with its Treasury Board Submission, the requirements of the Policy on Transfer Payments, the Directive, and applicable legislation.
1.2: There are appropriate policies, procedures, and controls and clear roles and responsibilities that govern the recipient selection process.
1.3: There are processes in place to measure the effectiveness of the recipient selection process in contributing to program objectives and are implemented in accordance with the overall program performance management strategy.
1.4: Risks to the recipient selection process are identified and there is a strategy for mitigations.
2. The design of the program is recipient focused and helps to enable applicants and recipients to access, understand and use the program. 2.1: There is a promotional strategy that communicates program eligibility requirements to potential applicants.
2.2: There is a process to receive and follow-up on applicant and recipient feedback in support of continuous improvement, and the establishment of fair, transparent and positive relations with them.
2.3: There is harmonization of recipient information and standardization of intake requirements internally and externally.
2.4: There are service standards in place that are communicated to applicants and recipients.
2.5: Funding decisions are communicated in a timely manner and proactively disclosed as required.
3. Program applications are assessed against approved terms and conditions and in consideration of overall program objectives. 3.1: Applications are assessed consistently for eligibility against established criteria which are based on the program’s terms and conditions.
3.2: Funding decisions are made in accordance with approved terms and conditions and are prioritized based on the recipient’s ability to contribute to program objectives.
4. Program funding agreements are developed in consideration of risk, consistency, and applicable policies and legislation. 4.1: Standard funding agreements are used that are aligned to the approved Terms and Conditions and comply with the Policyand Directive on Transfer Payments.
4.2: Funding agreements address recipient risk in accordance with the program’s risk management strategy.
4.3: There is an approved FAA Section 32 prior to the signing of the funding agreement.

Appendix B: Recommendations by Regional Development Agency and Priority Ranking

Recommendations WD CanNor Priority Ranking (High, Medium or Low)
Recommendation 1: CanNor management should implement measures to improve program staff understanding and performance of roles, responsibilities and processes, including those related to the performance requirements of the grants and contributions management control framework, PAR and PSR. Not Applicable Applicable High
Recommendation 2: CanNor management should establish a strategic approach to program communication and promotion to ensure value for money. Not Applicable Applicable Medium
Recommendation 3: WD management should take steps to ensure that it meets funding decision service standards and the requirement to close inactive projects within specified timelines. Applicable Not Applicable Medium
Recommendation 4: CanNor management should ensure that all required SINED Program terms and conditions are included in recipient funding agreements. Not Applicable Applicable High
Recommendation 5: CanNor management should improve and implement processes for certifying that program funds are available prior to project approval. Not Applicable Applicable High

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