Archived [2009-07-01] - Directive on Departmental Audit Committees
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1.1 This document provides direction to deputy heads on the responsibilities, membership and operations of departmental audit committees.
2.1 The departmental audit committee is an essential part of the audit regime established by the Policy on Internal Audit. The Policy calls for the deputy head of each department, other than small departments and agencies (SDAs), to establish an independent departmental audit committee that includes experienced, competent external members. Deputy heads of SDAs may also choose to establish a departmental audit committee when their departments are undertaking internal audits.
3. Effective Date
3.1 This directive will take effect on April 1, 2006. (See Policy 1.1)
4.1 Role of Departmental Audit Committees
The audit committee shall ensure that the deputy head has independent, objective advice, guidance, and assurance on the adequacy of the department's control and accountability processes. In order to give this support to the deputy head, the audit committee should exercise active oversight of core areas of departmental control and accountability in an integrated and systematic way.
4.2 Responsibilities of Departmental Audit Committees
The key areas of responsibility that shall be addressed by the departmental audit committee are:
4.2.1 Values and Ethics: The audit committee shall review, at least annually, the arrangements established by management to exemplify and promote public service values and to ensure compliance with laws, regulations, policies, and standards of ethical conduct.
4.2.2 Risk Management: The audit committee shall review, at least annually, the corporate risk profile and departmental risk management arrangements.
4.2.3 Management Control Framework: The audit committee shall review, at least annually, departmental internal control arrangements, including the adequacy of management-led audit.
4.2.4 Internal Audit Function
The audit committee shall:
- Recommend, and regularly review, a departmental internal audit charter or internal audit policy for approval by the deputy head;
- Regularly review the adequacy of resources of the internal audit function;
- Review and recommend for approval the risk assessment and the internal audit plan prepared by the chief audit executive;
- Regularly review the performance of the internal audit function;
- Advise the deputy head on the appointment and performance appraisal of the chief audit executive;
- Receive and recommend for approval internal auditing reports and management action plans to address recommendations; and
- Be aware of audit engagements or tasks that do not result in a report to the committee, and be informed of all matters of significance arising from such work.
4.2.5 Office of the Auditor General and Central Agencies
The audit committee shall:
- Ensure that management has adequate arrangements to support the Office of the Auditor General (OAG) and central agencies in doing audit work in the department;
- Be fully briefed on all audit work relating to the department to be undertaken by the OAG, other agents of Parliament or central agencies;
- Review the audit reports of the OAG and central agencies that have departmental or government-wide implications and recommend for approval departmental responses and action plans;
- Periodically meet with the OAG and seek its comments and advice on matters of departmental risk, control, and governance;
- Be briefed on audit-related issues and priorities raised by central agencies and advise the deputy head on required action; and
- Be briefed on, and advise the deputy head on, the impact of government-wide initiatives to improve management practices.
4.2.6 Follow-up on Management Action Plans
126.96.36.199 The audit committee shall:
- Ensure that there are effective arrangements in place to monitor and follow-up on management action plans responding to recommendations from internal audits, the OAG, or other sources; and
- Periodically receive reports from management on actions taken.
188.8.131.52 The chief audit executive shall report periodically to the audit committee on whether management's action plans have been implemented and whether the actions taken have been effective. The chief audit executive's report shall identify any areas where he or she believes management has accepted a level of risk that is unacceptable to the department or to the government.
4.2.7 Financial Statements and Public Accounts Reporting
184.108.40.206 The audit committee shall review the departmental financial statements with management and all significant accounting estimates and judgments therein and recommend to the deputy head whether they should be accepted.
220.127.116.11 When the departmental financial statements are audited, the audit committee shall review:
- The audited financial statements with the external auditor and senior management, discuss any significant adjustments to the statements required as a result of the audit, and any difficulties or disputes with management encountered in the course of the audit;
- Management letters arising from the external audit of the department's financial statements or the Public Accounts;
- The auditor's findings and recommendations relating to the internal controls in place for financial statement reporting; and
- The performance of the external auditor.
4.2.8 Risk and Accountability Reporting
The audit committee shall review the departmental Corporate Risk profile and the Report on Plans and Priorities, the Departmental Performance Report and other significant accountability reports, to ensure that, to the best of their knowledge, there are no material misstatements or omissions.
4.3 Membership of the Departmental Audit Committee
4.3.1 Audit committees must include independent, external members who are not currently in the federal public service. By April 1, 2009, all audit committees must have a majority of external members. Members from the federal public service shall be limited to the deputy heads, and associate deputy ministers and assistant deputy ministers from other departments. The deputy head would be the only internal representative on the audit committee if he or she elects to chair the committee. The preferred model would be a committee comprised entirely of external members with the deputy head as an ex-officio member.
4.3.2 Deputy heads are responsible for establishing an independent departmental audit committee that includes a majority of external members who are not currently in the federal public service. Deputy heads and the Comptroller General shall jointly select audit committee members for approval by the Treasury Board.
4.3.3 The Comptroller General shall also establish competency profiles for external audit committee members and standards for tenure, terms of service, conditions for removal, conflict of interest, liability indemnification, security clearance, remuneration, and protocols to address disagreements.
4.3.4 Members of an audit committee shall be selected so that their collective skills, knowledge, and experience will allow the committee to competently and efficiently undertake its duties. Members of the audit committee should be free of any real or perceived conflict of interest.
4.3.5 The audit committee shall have three to five members. External members shall be engaged by the deputy head for a term of four years.
4.3.6 A member shall serve no more than two terms. To ensure adequate continuity, engagements can be staggered and initial terms may be for less than four years.
4.3.7 All members of the audit committee shall be familiar with private or public sector financial reporting, or undertake to become familiar within the first year after appointment. At least one member shall be a financial expert who possesses:
- An understanding of generally accepted accounting principles and financial statements;
- Experience preparing, auditing, analyzing or evaluating financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of issues that can reasonably be expected to be raised by the department's financial statements, or experience actively supervising one or more persons engaged in such activities;
- An understanding of internal controls and procedures for financial reporting; and
- An understanding of audit committee functions.
4.3.8 The deputy head or an external member shall chair the audit committee. If the deputy head is chair, an external member shall be vice-chair. The preferred model is for the chair to be an external member.
4.3.9 The quorum for the committee shall be a majority of the members. No alternates shall be permitted.
4.3.10 The deputy head, the senior financial officer, and the chief audit executive shall be expected to attend all meetings of the audit committee. The chair may request the attendance of other departmental officials.
4.3.11 The chair shall, as necessary, ask a senior representative of the OAG to attend the audit committee meeting to discuss the OAG's plans, findings and other matters of mutual concern.
4.3.12 The chair may, as necessary, ask Treasury Board Secretariat officials to attend the audit committee meeting.
4.3.13 Audit committee members shall receive formal orientation and training on the committee's responsibilities and objectives, and on the business of the department.
4.4 Operations of the Departmental Audit Committee
4.4.1 The role, responsibilities, and operations of the audit committee shall be documented in an audit committee terms of reference or charter, approved by the deputy head. The document shall be reviewed periodically by the audit committee and reaffirmed by the deputy head.
4.4.2 The chair of the audit committee shall prepare a plan to ensure that the annual and ongoing responsibilities are scheduled and fully addressed. The plan shall be presented to the committee for its approval.
4.4.3 The audit committee shall meet at least four times a year. Audit committees are encouraged to schedule their meetings one year in advance so that departmental management and auditors can prepare the information and reports required to support the committee's work. Rescheduling of audit committee meetings would be by exception only.
4.4.4 As part of each meeting of the audit committee, the committee shall meet individually in camera with each of the deputy head (if not a committee member), the departmental senior financial officer, the chief audit executive, the representative of the OAG when in attendance, and any other officials the committee may determine.
4.4.5 The audit committee shall prepare an annual report to the deputy head that shall:
- Summarize the committee's activities undertaken and the results of its reviews;
- Provide the committee's assessment of the department's system of internal controls;
- Document any significant concerns the committee may have in relation to the department's risk management, controls and accountability processes;
- Provide the committee's assessment of the capacity and performance of the internal audit function; and
Provide, as needed, recommendations for the improvement of risk management, controls and accountability processes, including recommendations for the improvement of the departmental internal audit function.
Please send any questions about this directive to:
Office of the Assistant Comptroller General, Internal Audit
Treasury Board of Canada Secretariat
300 Laurier Avenue West
Fax: (613) 952-3698