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ARCHIVED - Horizontal Internal Audit: Delegation of Financial Authorities in Large Departments and Agencies
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DETAILED OBSERVATIONS AND DISCUSSION
Background
The effective management of government departments and agencies has been entrusted to ministers and deputy ministers to delegate authority in order to accomplish the business of their organizations. In turn, departments and agencies must manage the delegation and exercise of authorities responsibly. In fiscal year 2005/2006, the Government of Canada spent $175.2 billion carrying out its day-to-day business[1]. Tens of thousands of public servants across Government exercised delegated authorities to carry out government operations.
Delegation of authority is thus an important enabler. It enables managers to administer programs under their jurisdiction and contributes to the accomplishment of the organization's mandate. At the same time, delegation of authority is a control. It provides one of the foundation pieces that allow organizations to hold managers accountable for the lawful utilization of resources to achieve established objectives.
There are three key policy requirements pertaining to delegation of authority:
2. Controls: Departments must establish policies and procedures to ensure an adequate level of control over delegated authorities and that persons are well informed of their responsibilities. A process must be in place to authenticate the signature of individuals exercising delegated authorities; and,
3. Principle: Authorities must be delegated to positions identified by title. No incumbent shall be permitted to exercise authorities unless so designated by the person to whom the position reports. Delegated authorities cannot be re-delegated.
Audit Project Charter
Treasury Board has assigned specific responsibilities to the Comptroller General, including responsibility for horizontal audit across large departments and agencies. The audit of the Delegation of Financial Authorities was the first horizontal internal audit led by the Office of the Comptroller General and has been managed as a pilot project. A specific sub-objective was to develop protocols and, particularly, approaches to reporting on internal audits.
Rationale: Following a risk analysis process in early 2006 involving the participation of Chief Audit Executives, the management of the delegation of financial authorities was identified as a potential topic for a horizontal internal audit. The topic figures prominently in discussions pertaining to core internal controls across government and fits the criteria of being: a significant management process; broad-based in relevance; and, auditable. The topic is also directly relevant to the Federal Accountability Act and to the Management Accountability Framework. Effective management of the delegation of authorities represents an opportunity to contribute to good governance and risk management within departments and agencies. It constitutes a fundamental vehicle for ensuring an appropriate balance between operational flexibility and purposeful control through the escalation of higher-risk decisions/transactions for consideration by successive levels of management.
Governance: The audit was conducted under the direction of the Executive Director, Forensic, Systems and Horizontal Audits, within the Internal Audit Sector of the Office of the Comptroller General. The audit engagement also benefited from the advice of a Project Advisory Committee, chaired by the Director of Horizontal Audits and included the participation of Chief Audit Executives from six of the participating Large Departments and Agencies (LDAs). The Committee's membership and mandate can be found at Annex D.
Timeframe: The Comptroller General approved the proposed audit in August 2006. The formal launch of the audit occurred when the Comptroller General wrote to selected deputy heads on August 25th, 2006. Phase I, involving a document review of 24 LDAs, began immediately and was completed by mid-December 2006. Phase II, which took a more in-depth look at selected LDAs, began early in 2007, following an analysis of the results of Phase I.
Audit Objectives: This first horizontal internal audit was intended to provide assurance on the effectiveness of delegated financial authority instruments as a control and enabler, contributing to sound risk management and governance. The audit was also intended to assist in the development of protocols for conducting future horizontal internal audit work.
A further objective was to identify and promote best practices in the design and communication of delegated financial signing authorities.
Audit Scope
The scope of the audit was limited to financial authorities as per the Treasury Board Policy on Delegation of Authorities. For a more detailed view of the financial authorities, please refer to the link at Annex B.
The audit was structured in two phases. Phase I addressed 24 LDAs having planned spending of $1 billion or more, and consisted of a review of key documents such as the delegation instruments, organization charts, applicable financial policies and procedures, and monitoring activities. At the time of the audit, the 24 participating departments and agencies accounted for more than 90% of the Government's total planned spending. The engagement considered delegation of financial authority and how the delegation instruments align with organizational structures in place at June 30, 2006.
It was decided at the outset to limit the number of departments and agencies to be examined in Phase II. The selection departments and agencies for Phase II was balanced between organizations that exhibited indicators of relatively higher risk (based on the results of Phase I), as well as those for which indications of best practices were noted. Five departments were selected for inclusion in Phase II.