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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.
3.1 This directive will take effect on April 1, 2006. (See Policy 1.1)
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.
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:
4.2.5 Office of the Auditor General and Central Agencies
The audit committee shall:
4.2.6 Follow-up on Management Action Plans
18.104.22.168 The audit committee shall:
22.214.171.124 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
126.96.36.199 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.
188.8.131.52 When the departmental financial statements are audited, the audit committee shall review:
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.
4.3.1 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:
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.
4.4.1 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:
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