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It is government policy to pay on time, neither early nor late, amounts that represent a legitimate obligation and are correct. Account verification processes are to be designed and operated in a way that will maintain probity while taking into consideration the varying degrees of risk associated with each payment.
- All payments and settlements must be verified and certified pursuant to section 34 of the FAA.
- Primary responsibility for verifying individual accounts rests with officers who have the authority to confirm and certify entitlement pursuant to FAA section 34. Persons with this authority are responsible for the correctness of the payment requested and the account verification procedures performed.
- Responsibility for the system of account verification and related financial controls rests ultimately with those officers who are delegated payment authority pursuant to FAA section 33.
- Financial officers with payment authority pursuant to FAA section 33, must provide assurance of the adequacy of the section 34 account verification and be in a position to state that the process is in place and is being properly and conscientiously followed.
- No person shall exercise signing authority pursuant to both sections 33 and 34 of the Financial Administration Act with respect to a particular payment.
- No person shall exercise spending authority (section 34) with respect to a payment from which he or she personally can benefit, directly or indirectly.
- The account verification process must provide for auditable evidence of verification including identifying the various individuals who performed the verification.
- When assignments of Crown debts or power of attorney that the Receiver General has recognized are in force, the departmental account verification process must include procedures relating to assigned Crown debts and payments subject to powers of attorney.
- Departments must establish and document internal policies outlining the extent
of verification required, based on risk considerations, to certify that the
following have been complied with:
- the work has been performed, the goods supplied or the services rendered or in the case of other payments, the payee is entitled to or eligible for the payment;
- relevant contract or agreement terms and conditions have been met including price, quantity and quality. If in exceptional circumstances, the price is not specified by the contract, that it is reasonable;
- where a payment is made before the completion of work, delivery of goods or rendering of services, as the case may be, that such advance payment is required by the contractual terms of the contract;
- the transaction is accurate and the financial coding has been provided; and
- all relevant statutes, regulations, orders in council and Treasury Board policies have been complied with (e.g. travel policy, etc.).
- Departments must identify the risk level for various types of transactions
processed by the department if they wish to implement variations in the extent
of the verification, as outlined in Appendices A and B.
Criteria used to identify the risk level (high, medium or low) of the various types of transactions could include some or all of the following: type of transaction, the dollar value, and the supplier or payee. See Appendix A for definitions of risk. Appendix B provides an example of a matrix that can be used to clearly identify and document the risk levels of various types of transactions.
Although account verification is normally performed prior to payment, pursuant
to Section 34(1)(a)(iii) of the FAA, in the following circumstances, account
verification may be completed after the payment has been made, providing the
claim for payment is considered reasonable. Criteria for determining reasonableness
- the claim for payment is from an established supplier where there is a continuing business relationship and a consistent record for performance;
- there is an ability to effect adjustments or recovery from the supplier after payment; and
- it can be determined, by inspection, whether an invoice is "out of line".
Departments must identify and document the specific payments that will be paid subject to this provision as well as the post-payment verification procedures.
- Quality assurance processes used to assess the adequacy of the account verification system must be tailored to reflect the risk level of the transactions under review.
- All high risk transactions must be subjected to a review of all relevant aspects of the transaction. For low and medium risk transactions, it is normally sufficient to select a sample of the transactions and to review only the most relevant aspects of each selected transaction.
- Departments must ensure that sampling methodology is consistent with sound sampling theory and practice.
- The preferred approach to sampling is statistical sampling. Where statistical sampling is not implemented, departments must implement alternative processes, that will give adequate assurance as to the effectiveness of the account verification process performed at FAA section 34.
The account verification process should be audited by the departmental internal audit group. Of particular interest is the implementation of the departmental criteria established for each category of risk and the types of payments identified for payment before completion of the detailed verification.
This policy which is issued under the authority of the Financial Administration Act supersedes T.B. Circular 1989-15, the Use of Statistical Sampling in Account Verification at the Payment Requisitioning Stage, August 1989 and should be read in conjunction with the following:
- Financial Administration Act (R.S.C., 1985, Chapter F-11) sections 2, 26, 32, 33, and 34; paragraphs 76(1)(c) and 80(d);
- Payment Requisitioning Regulations, SOR/85-999, as amended by SOR/86-68 and 93-258;
- FMS Handbook: Expenditure Management Module, Financial Management and Information Systems, OCG, 1990.
- Statistical Sampling Software, Financial Management and Information Systems, OCG, June 1991
- This chapter cancels chapter 3-6 of the "Financial Management" volume dated December 1, 1991; and
- This policy also supersedes Chapter 9.1 and 9.3, related to account verification, sections 220.127.116.11 and 18.104.22.168 and Appendix 9G of the Treasury Board "Guide on Financial Administration" consolidated revision, April 1991.
Inquiries concerning this policy should be directed to your departmental headquarters. For interpretation of this policy, departmental headquarters should contact:Financial Management Policy Sector
Financial Management Standards Division
Treasury Board Secretariat
Telephone: (613) 957-7233
Facsimile: (613) 952-9613
Departments should develop and publish specific policies and procedures for staff to follow for the verification of accounts pursuant to section 34 and for the quality assurance review of the adequacy of section 34 account verification. These departmental policies and procedures should take into consideration the departmental environment, including factors such as level of decentralization and use of automated expenditure management systems.
Departments should ensure that the responsibilities of each officer related to the account verification and quality assurance processes are clearly documented and understood.
As part of the account verification process, transactions should be reviewed for accuracy such as ensuring that the payment is not a duplicate, that discounts have been deducted, that any charges not payable have been removed and that the amount has been calculated correctly.
Payments that may be made in advance of the completion of the verification process may include for example the following:
- regular utility invoices such as telephone, heat and hydro where the invoice amount may vary from month to month;
- invoices covering numerous small value items, with regular suppliers where the individual transaction amounts are considered low risk such as taxis, enRoute billing, SSC printing invoices; and
- periodic invoices with established suppliers for services such as maintenance, computer rental, equipment rental, where the periodic invoice is normally the same amount each month.
Documentation may include information relating to: contracts, leases, purchase orders/requisitions, staffing requests, program terms and conditions and the like. Any other documentation that provides evidence of the extent of the commitments involved, the agreed prices for the services and supplies, the precise specifications and requirements, and the agreed payment terms should be maintained as required.
Each department should determine the appropriate documentation or information required to support the verification process for each type of payment in order to ensure an adequate audit trail is maintained.
Departments and agencies are required to prepare T4-A Supplementary slips reporting the amounts paid for service contracts and mixed goods and services contracts. All service and mixed goods and services contracts are covered by this requirement, however the following categories of payments are excepted:
- acquisition card purchases;
- local purchase orders;
- grants and contributions; and
- rentals, which includes utility payments and the rental or leasing of office space and equipment and other goods.
T4-A supplementary slips must be prepared for all annual contract payments exceeding $500. The amount of the payment to be reported on each information slip is the total of payments made to the contractor in the calendar year, including any goods portion, expenses, indirect costs, etc. but excluding GST/HST or provincial sales taxes.
For more information, departments may consult the Information Letter of April 30, 1998, on the implementation of the T4-A Supplementary reporting requirement.
The quality assurance review performed by payment officers is in addition to requirements related to payment requisitioning as outlined in Chapter 2-6 and can be achieved by using sound sampling techniques.
The department's Senior Financial Officer should approve the sampling plan and periodic updates of the plan. Appendix D provides additional information regarding the implementation of sampling.
Where sound statistical sampling is implemented in compliance with an approved sampling plan, officers exercising payment authority under section 33 will not be held accountable for account verification errors, before payment requisitioning, in those transactions not included in the sample about which they have no personal knowledge.
Sampling techniques chosen should be sufficiently precise to allow conclusions to be drawn about the overall adequacy and reliability of the account verification process.
Criteria to identify risk level of transactions should include consideration of the type of transaction, the dollar value, and where appropriate, the current error rate from particular organizations. That is, if the payment officer is not confident about the adequacy of verification, transactions may be classified at a higher level of risk for a period of time.
If the errors discovered through the quality assurance review of the section 34 account verification are frequent and serious, a complete review of the particular organization's account processing practices should be carried out and the findings reported to the responsibility centre manager for corrective action.
When the account verification and certification pursuant to FAA section 34 are continually inadequate or otherwise unsatisfactory, withdrawing section 34 authority is preferable to duplicate checking because the latter leaves no one ultimately responsible.
High Risk: Transactions with the following criteria would be considered high risk: highly sensitive transactions, for example where an error in payment is non-recoverable, or payments which are largely judgemental or subject to interpretation. This category could also include payments of very large dollar amounts or payments that are considered highly error prone.
Low Risk: Transactions with the following characteristics would be considered low risk: transactions that are not sensitive in nature, have little or no potential financial loss associated with them, or a low error rate with a low dollar value impact of error (typically low to medium dollar value and recoverable).
Medium Risk: Transactions not considered either high risk or low risk will be considered medium risk.
|Type of Transaction||Low Risk||Medium Risk||High Risk|
|General accounts payable||< $$$||$$$ - $$$||> $$$|
|Grants and contributions||< $$$||$$$ - $$$||> $$$|
|Social assistance payments||< $$$||$$$ - $$$||> $$$|
|Travel expense claims||< $$$||$$$ - $$$||> $$$|
|Hospitality||< $$$||$$$ - $$$||> $$$|
|Conferences/training||< $$$||$$$ - $$$||> $$$|
|Relocation claims||< $$$||$$$ - $$$||> $$$|
|Payments to employees||< $$$||$$$ - $$$||> $$$|
|Interdepartmental settlements||< $$$||$$$ - $$$||> $$$|
This is an example of the type of matrix that should be developed in order to identify risk levels for transactions.
This policy supports the use of sound statistical sampling which determines the sample size objectively according to the desired degree of confidence. Samples are selected in an unbiased and representative fashion. Sampling which is intentionally biased toward certain sources of transactions, those suspected of being error prone, for example, is judgemental sampling. Sound statistical sampling is recommended over judgemental sampling because it ensures that the conclusion to be drawn from the sample results will be reliable and statistically supportable.
The first step in implementing sampling is the completion of a feasibility study to determine the current state of the account verification process. Once it has been determined that sampling is feasible, the key to successful implementation of sampling within a department is the development of a sampling plan. A sampling plan sets out departmental policy and procedure statements and related data gathering and reporting requirements.
The sampling plan should be approved by the Senior Financial Officer who will ensure the sampling plan is documented in the departmental financial manual and understood by all staff involved in its implementation. The plan should be updated and approved on a regular basis.
The sampling plan should include information such as the following: sampling populations and transaction streams, sampling review period, point of testing (pre or post payment), the sampling approach (statistical or other), the critical errors, the maximum tolerable error rate, and the method of sample selection (manual or computerized), methodology assumptions to determine sample sizes for transaction streams. The sampling plan should also identify the evaluation and reporting that will follow the sample period as well as the approaches to corrective action.
- Date Modified: