ARCHIVED - Horizontal Internal Audit: Travel and Hospitality in Small Departments and Agencies

• Previous Page
• Table of Contents
• Next Page

This page has been archived.

Detailed Findings and Recommendations

Introduction

This section presents detailed findings for the horizontal audit of the management of SDA travel and hospitality expenditures. Findings are based on the evidence and analysis from both our initial analysis of risk and the subsequent detailed transaction testing.

The detailed findings and recommendations pertaining to travel and to hospitality are presented separately.

Governance of Travel and Hospitality Expenditures

Finding 1: Travel For Governor-in-Council (GIC) Appointees

The audit found significant differences across SDAs in the practices and processes followed for travel by GIC appointees. Entitlements and requirements regarding travel expenditures for both full-time and part-time GIC appointees were not clearly communicated, understood and applied within SDAs.

A characteristic of the SDA community is its employment of GIC appointees to assist in the fulfillment of core mandates and activities. Many SDAs have a board or council composed of GIC appointees – a senior decision-making body with provincial, regional or sectoral representation. GIC appointees are active in conducting the business of the organization and, in a number of instances, hold the position of Chairperson or Deputy Head of the organization. It was important to examine expenditure transactions for these individuals as they are an integral part of the SDA community. Travel expenditures for GIC appointees are governed by the following four documents:

• Treasury Board Travel Directive
• Treasury Board Special Travel Authorities (for Deputy Heads, GIC appointees, the Executive Group, and persons on contract);
• Treasury Board Supplementary Travel Policy (for Executive and Excluded Groups); and
• Terms and Conditions of Employment for Full-Time Governor in Council Appointees as set by the Privy Council Office.

In assessing compliance with the requirements stated in these documents, the auditors undertook interviews with selected SDA management and staff, and examined the supporting documentation for a sample of travel events. The auditors considered audit test results against the:

• Nature of the SDA roles and responsibilities;
• Coordination of travel-related activities;
• Communication of risk and control information; and,
• Promotion of ethics and values.

Business travel in the Government of Canada normally falls under the Travel Directive. However, SDAs that are separate employers have the authority to set their own specific travel rules that are not necessarily fully consistent with the Travel Directive, Special Travel Authorities and Supplementary Travel Policy. Separate employers that have established their own rules need to clearly communicate the intended application of such travel rules (i.e. declare formally in the annual Departmental Performance Report).

While the Special Travel Authorities provide for heads of all departments and agencies to have discretion over certain travel expenditures, they also require Deputy Heads and senior GIC appointees to make bookings through the Government Travel Service (GTS). Notwithstanding, the auditors found that business travel arrangements for executive and excluded groups varied considerably among SDAs in terms of the interpretation and application of the various directives and other authorities. For example, some GIC appointees booked commercial flights without using GTS. In addition, explanations for apparent exceptions to established policies and directives were not available on file.

Travel administrators indicated some confusion stemming from a combination of the number of travel rules that apply, as well as difficulties in interpreting and applying these rules to actual travel events. For example:

• The Special Travel Authorities states that, "Deputy Ministers (1-4) and GC 8-11 and GCQ 8-11 (GIC classification levels) may use business class travel at their discretion, but must book through the government travel service."
• The Terms and Conditions of Employment for Full-Time Governor in Council Appointees states that, "The standards and conditions governing travel on government business are prescribed in the TB Travel Directive, Special Travel Authorities and Travel Administration Guide. The provisions in these documents apply to all Governor-in-Council appointees except those employed in organizations which have the authority to establish their own. The provisions are mandatory and represent reimbursement of reasonable expenses…"
• The Terms and Conditions of Employment for Full-Time Governor in Council Appointees also indicates that DM1-4 and GC/GCQ 8-10 must use the Government Travel Service.
• The Terms and Conditions documentalso states those appointees at the GC/GCQ-3 level or higher – who occupy positions outside the National Capital Region – and all appointees at the GC/GCQ-4 or higher, may be authorized to use business class when distance and circumstances warrant.

For those SDAs that have the authority to set their own travel rules, the requirements must be clear and understood by all employees. Unclear rules make it difficult to ensure compliance.

Recommendation

SDAs ensure that the requirements applicable to travel expenditures for all classes of GIC appointees within their respective organizations are clearly communicated, understood and consistently applied. In addition, every department or agency should ensure that a clear and specific statement of allowable travel expenditures (reconciled to applicable policies and directives) is established and provided to potential claimants and to those responsible for the administration and payment of claims.

Internal Control over Travel Expenditures

Finding 2: Pre-Authorization of Travel Expenditures

The audit found that travel was frequently not pre-authorized or that signatures were undated so as to preclude assurance that the authorization actually took place in advance of the travel. Thirty-three percent (33%) of the 401 travel claims tested did not have a pre-authorization signature. SDA Deputy Heads' travel was not pre-authorized for 62% of travel claims tested. A further 9% showed a signature that was not dated.

The Travel Directive requires SDAs to authorize and determine when business travel is necessary and to ensure that all such travel is consistent with the provisions of the Directive. Business travel must be authorized in advance, in writing, to ensure that all travel arrangements are in compliance with the provisions of the Directive. Only in special circumstances will travel be authorized after-the-fact.

The examination of SDA travel claims included an assessment of pre-authorization systems and practices. It was found that, in many cases, travellers did not receive pre-authorization for travel – that is, the document did not include signatures, dates or both. At times, travel authorization was provided after the event date.Travel in these instances was undertaken without authority in keeping with the Directive to ensure that the travel was necessary or that the traveler's needs were met.

The Travel directive requires that travel be pre-authorized. The absence of pre-authorization may result in uninsured travel, in unplanned expenditures, or travel expenditures without due regard for prudence and probity. We recognize that circumstances will arise whereby it may be difficult for Deputy Heads to obtain pre-authorization of travel. However, where travel is planned well in advance, it would be prudent for Deputy Heads to seek pre-authorization from an appropriate officer.

Recommendation

Travel be pre-authorized (and dated) by an appropriately delegated authority. Those responsible for processing travel claims for payment should monitor and flag circumstances where travel has not been pre-authorized. To the extent practicable, Deputy Heads ensure that their travel is pre-authorized by an appropriate officer.

Finding 3: Authorization of Deputy-Head Travel

In a few instances, the claimant Deputy Heads signed to approve their own claims.

The examination of travel claims included consideration of pre-authorization and claim reimbursement. Auditors found 6% of Deputy-Head travel claims tested was approved by the claimant for payment. Under the Account Verification Policy, the segregation of duties is a requirement and fundamental control – having different people requesting versus approving an expenditure – that must be respected to promote transparency and ensure that government officials are not approving expenditures from which they can personally benefit, directly or indirectly. The senior officer responsible for financial administration could be an appropriate authority to approve these types of expenditures.

Although travel expenditures will be disclosed on the organization's web site, Deputy Heads should not approve their own claims.

Recommendation

Deputy Heads ensure that their travel claims are approved by an appropriate officer who can demonstrate accountability for assuring that travel is in accordance with applicable directives.

Finding 4: Support for Reimbursement of Travel Claims

The audit found that there was insufficientdocumentation on file to support approved expenses for 14% of travel claims examined.

To meet the expectations of the Travel Directive, travellers are required to complete and submit travel expense claims with necessary supporting documentation as soon as possible after the completion of travel. For travel situations exceeding one month, the traveller may submit interim expense claims prior to the completion of the trip.

The auditors examined travel claims to determine if there was adequate information on file to support the expenses claimed. In a number of instances, it was found that insufficient evidence was on file and the auditors were unable to reconcile amounts claimed to expenses incurred. For example, in a number of instances, hotel rates claimed exceeded the posted government rate but were approved without supplementary explanation.

While the total value of such claims was not high, the absence of supporting documentation or explanation for decisions taken makes it difficult for SDAs to demonstrate that claims are compliant with the Travel Directive or other government requirements. For example, an occurrence was noted whereby an individual used a personal vehicle to travel over 3,200 kilometres (return) to attend a conference. No supporting documentation or explanation was provided about the relative cost and reasonable justification as to why this method of transportation was approved in place of commercial air travel.

Given the high visibility of government travel, payment of unsupported travel claims may affect the ability of SDAs to monitor their expenditures and may reflect on organizational reputation.

Recommendation:

All documents and justification supporting travel claims be included in the expense claim file and payments not be authorized in the absence of reasonable supporting documents.

Finding 5: Travel Claim Payments

The audit found that 13% of travel claims examined had not been formally certified pursuant to FAA Section 34 to attest that the travel costs were incurred on government business and that the amounts claimed were in accordance with entitlement (4% were not certified/signed; 6% were certified electronically; and, 3% were certified by the claimant). It was also found that 10% of FAA Section 34 certifications, and 12% of FAA Section 33 certifications to requisition payment, were not dated. It is difficult to authenticate the delegated authority so exercised.

The Travel Directive requires SDAs to establish an appropriate delegation framework to comply with the Directive and to verify and approve travel expense claims before reimbursement. The Financial Administration Act requires claims to be certified pursuant to Section 34 (i.e. demonstrating that the travel represented a legitimate business requirement and that the amounts claimed for reimbursement were in accordance with entitlements) and certified pursuant to Section 33 to requisition payment. Both certifications are to be provided by appropriate and separate delegated authorities.

Auditors examined the systems and practices used by SDAs to ensure that travel claims are approved for payment and subsequently paid in keeping with the FAA. The audit noted that, in a number of instances, the Table of Delegations, identifying who is authorized to approve and request payment, had either not been updated to reflect organizational changes, was in draft form (i.e. not signed by the Minister), or that persons lacking the necessary delegated authority provided certifications pursuant to FAA Sections 34 and/or 33. For example, one SDA was using a delegation of authorities table that was approved and dated in 1991.

Again, while the total value of such claims was not high, this represents non-compliance with the Travel Directive, the FAA, and/or the Special Travel Authorities.

In some instances, expense management services are shared between an SDA and a portfolio department. In these circumstances, inconsistencies were noted in the application of FAA signing authorities or related practices. To ensure appropriate expenditure oversight between SDAs and portfolio departments, financial accountabilities and responsibilities must be specified in the form of a Memorandum of Understanding respecting the timing and details of the approval of claims (FAA Section 34) and the requisitioning of payment (FAA Section 33).

Recommendation:

Travel expenditures must be appropriately certified by a delegated officer pursuant to the applicable sections of the Financial Administration Act. Further, in support of due diligence and good administrative practice, authorizing signatures should be dated.

Internal Control of Hospitality Expenditures

Finding 6: Pre-Authorization and Approval of Hospitality Claims

The Hospitality Policy, the Policy on Delegation of Authorities and the FAA require approval to initiate expenditures (Section 32). The FAA also covers the legislative expectations for certifying expenditures (Section 34) and for requisitioning payment (Section 33). The FAA requires formally delegated authorities to certify that legitimate hospitality expenditures have been incurred and that those expenditures are to be reimbursed.

The examination of SDA hospitality claims included an assessment of pre-authorization and post-event payment practices. The auditors found that, in many cases, hospitality functions were not pre-authorized. At times, hospitality was authorized after the event. There were several instances where hospitality claims over $1,000 were missing appropriate approval.

These instances represent non-compliance with the Hospitality Policy, the FAA, the Policy on Account Verification and the Payments and Settlements Requisitioning Regulations 1997.

Recommendations:

When reasonable and required, hospitality expenditures should be pre-authorized and the authorizing signature dated. Hospitality claims that are not pre-authorized should include the justification for payment on file.

A delegated officer should properly authorize all hospitality expenditures, in writing.

Finding 7: Hospitality Event Documentation

The audit found that for 10% of the hospitality claims examined, the circumstances of the event were not recorded, and that for 18% of the claims, the number and category of persons attending had not been recorded.

The Hospitality Policy requires that specific information be recorded including the circumstances (breakfast, lunch, dinner, reception, refreshment, or beverages), form or purpose, cost, location, number of attendees listed by category, and approvals by delegated officials.

Hospitality claims were examined to determine whether SDAs had recorded the essential information required under the Hospitality Policy. A number of instances were noted across several SDAs where the required information was not recorded on the documents considered for the claim. In a number of instances, the auditors were unable to determine the circumstances of the hospitality event or who had participated. Without an indication of the number of attendees, it was impossible to determine the average cost per person of the hospitality and if maximums were exceeded. In many cases, it was also difficult to identify the number of public servants and others in attendance. A hospitality claim without an indication of circumstance or purpose makes it difficult to reliably determine if the hospitality was related to government business.

A number of SDAs have amended their hospitality process to formally record both event pre-authorization and expense approval. Authority for initiating hospitality is specifically provided through financial delegation instruments. Pre-authorization of hospitality events offers an opportunity to demonstrate spending transparency that supports early planning and performance benefits in addition to strengthening overall accountability and due diligence.

Recommendation:

The circumstances and details concerning the nature, and the number of recipients of hospitality should be included as part of the hospitality expense claim as this information forms part of the basis for approval.

Finding 8: Uncertainty When Implementing the Hospitality Policy

Administrators within a majority of small departments and agencies were uncertain in their understanding and application of the Hospitality Policy.

Administrators in a majority of small departments and agencies visited expressed uncertainty about the correctness of their understanding and application of the Hospitality Policy. The issues varied from whether entire events constituted hospitality under the Policy, whether meals in certain circumstances represented hospitality, whether non-food and beverage offerings fell under the definition of hospitality, what portions of events represented hospitality and should be treated accordingly, and how elements of the Policy are to be interpreted with respect to GIC appointees.

While the materiality of hospitality spending is relatively small, the events represent key SDA interactions with representatives in their respective industries/sectors and are significant in respective SDA mandates and service delivery, such as product reviews, information sessions or hearings.

The auditors also noted instances where the provisions of alcoholic beverages were not in keeping with the Hospitality Policy. The Policy states that non-alcoholic beverages may be offered to employees required to work through “breaks” otherwise called “coffee breaks”, when justified by management. The policy does not address situations where alcoholic beverages are acceptable specifically but does states that “Functions that are exceptions to the policy outlined above must have the prior approval of the minister or deputy head.” Inclusion of alcohol as part of the hospitality event, and the rationale for its inclusion, should be clearly stated.

Recommendation:

SDAs are responsible for ensuring that applicable requirements are clearly communicated and understood within the organization and that clarification be sought as required.

SDAs should ensure that sufficient training is provided for applicable employees that addresses, with appropriate focus and emphasis, the FAA, Travel Directive and Hospitality Policy, the Special Travel Authorities, Terms and Conditions of Employment for Full Time Governor in Council Appointees, Payments and Settlements Requisitioning Regulations 1997, and SDA-specific authorities and delegation instruments.

Risk Management of Travel and Hospitality Expenditures

Overall, evidence was found that a good foundation of processes and systems was in place to manage risk with respect to travel and hospitality expenditures. However, the consistent observance of these existing systems and processes could be strengthened in terms of the consistency of their day-to-day application. This is particularly so in the case of travel by the most senior personnel.

Publicized events over the past few years have raised awareness of the importance of managing risks and ensuring oversight of expenditures incurred by the most senior people working in small departments and agencies. As noted earlier, the audit did not observe any obvious instances or patterns of abuse, but did find that the quality and rigour of challenge and verification requires strengthening. The consequences of problems with respect to travel and/or hospitality expenditures for Governor-in-Council appointees and Deputy Heads are simply too important in terms of reputation, and demonstrated integrity of the public service.

Similarly, with respect to travel and hospitality in general, the difficulties observed tended to be concentrated in a limited number of organizations, and, on the whole, did not point to any major breakdowns. Instead, they involved relatively smaller lapses that risk becoming common practice. Accordingly, there is room to build on the existing base of risk management and internal control to ensure that this does not occur.

Good Practices

Good Governance

Training and Orientation: SDAs generally provide new employees with on-the-job training or orientation regarding travel and hospitality. A range of practices for sharing knowledge with administrative assistants and expense claim verifiers exists including annual half-day presentations or refreshers, one-on-one training and detailed on-the-job training. Comprehensive in-house training documentation also exists covering many aspects of financial administration including signing authorities, coding, commitments, expense vouchers and related policies.

Communication: Communication of changes regarding the Travel Directive and Hospitality Policy and other related items is normally provided via e-mail. Many SDAs formally post and update their intranets with pertinent information such as changes in the Directive or the Policy, travel rates and the SDA process for completing expense claims.

Values and Ethics: The auditors observed that several organizations have developed their own document based on the TB Values and Ethics Code for the Public Service, with information specific to their mandate and industry.

SDA-Specific Policies: Some SDAs have developed agency-specific travel and/or hospitality policies. These documents, while reflecting TB policies, also accommodate the particular needs of their organizations.

Improving Internal Control

Travel Related Checklists: When completing an expense claim, travelers use such checklists for quick reference. The completed checklist is then appended to the claim and acts as a reference for those approving, verifying and requisitioning payment on the claim. Several SDAs have established a practice for review of completed travel claims that includes a one-page 'Payment Checklist FAA 33' and a post-payment account verification process to optimize internal controls. The control process is based on compliance with the Travel Directive and the Account Verification Policy.

Electronic Authorization: Several SDAs use automated travel systems. Authorizations pursuant to FAA Sections 32, 33 and 34 are usually provided electronically with documents initialled to reflect Section 33 certification. Some SDAs have systems that issue Travel Authorization Numbers (TAN), while others allow users to verify specimen signature cards, delegated authorities, and acting authorities for vacation/leave from their desktop. Certifications under FAA Sections 34 and 33 require undisputable authorizations (the Government of Canada accepts only those electronic authorizations processed by digital signature) and in some instances, SDAs are progressing towards meeting these requirements.

SDAs currently using automated systems should include a 'wet' or ink signature and date as formal FAA Section 34 and 33 certification until a digital signature is implemented. Consultation with the Chief Information Officer Branch and the Office of the Comptroller General on how best to comply with this requirement is advised.

Deputy Head Authorization: Several SDAs ensure that all Deputy Head travel activities are pre-authorized by the Senior Financial Officer (or other senior officer). While Deputy Heads are allowed to pre-authorize their own travel activity, they must not also authorize FAA Section 34. To support due diligence and prudent action, it is a good practice to have an SFO or other senior officer pre-authorize Deputy Head travel activity.

Quick Reference to Current Financial Authorities: Several SDA in-house electronic systems track and verify financial authorities. This allows users to quickly and accurately verify delegated authorities, acting authorities and signatures. Many SDAs have added separate acting authority pages to their financial authority instruments that clearly identify the period and limitation of each acting authority.

Verification of Claims: SDAs use a variety of methods to record that (independent) verification of expense claims has been applied, including: complete of the verification section of the travel or hospitality expense form, sign and date a 'Verification Completed' stamp marked on the claim, or sign and date that the claim has been verified.

Managing Known Risks

Taking Action on Audit Findings: For SDAs that had conducted audits of travel and hospitality (or other audits that covered expense management of travel and hospitality) in the past 3 years (9 SDAs in total), it was found that related action plans were implemented and that these SDAs generally had fewer compliance issues than other SDAs. These audited SDAs also noted an overall reduction in the level of effort regarding the processing of travel and hospitality claims.

• Previous Page
• Table of Contents
• Next Page