ARCHIVED - Horizontal Internal Audit of the Grants and Contributions Management Control Framework in Small Departments and Agencies

• Previous Page
• Table of Contents
• Next Page

This page has been archived.

Executive Summary

The objective of this audit was to provide assurance that the governance, risk management, and control processes over grant and contribution programs are being executed in compliance with the Treasury Board Policy on Transfer Payments (2008).

Why This Is Important

The Government of Canada spends approximately $29 billion^[1] a year on non-statutory grants and contributions. "Their tangible results touch the lives of Canadians and others every day, and cover all sectors of society…Grants and contributions enable and engage a wide diversity of skills and resources outside the federal government that are well placed to further Canadian aims, contribute to building a strong society and a competitive nation that is inclusive and respectful of Canadian values and Canada's linguistic duality."^[2]

The management and the execution of grant and contribution programs are subject to intense public scrutiny. Canadians expect these programs to be managed so that recipients are appropriately funded and that program spending achieves its intended results. It is therefore essential that governance, risk management, and control processes exist to support decision making and provide for transparency over key decisions in the administration of grants and contributions.

Key Findings

Grant and contribution programs across small departments and agencies (SDAs) vary both in size and in scope. Some SDAs use grants and contributions as the main vehicle for delivering their mandate. These SDAs must transparently assess and approve multiple applications in determining their grant and contribution recipients, and actively monitor recipients to ensure that they continue to meet their funding agreements. Other SDAs have limited grant and contribution programs, and some of these have only a single recipient of their funding. The requirements of the Policy on Transfer Payments are applicable to all transfer payment programs.

It is management's responsibility to establish systems and processes (either formally or informally) that enable managers to be involved in critical decision making, to ensure that control systems are in place to mitigate risks, and to monitor program results. For SDAs with multiple recipients, these systems and processes are especially important for ensuring that decision making is consistent and transparent. These SDAs are making efforts to strengthen their approval structures, but they will require more clearly defined roles to ensure the independence of recipient review committees that propose and approve funding decisions. SDAs with multiple recipients need to make more progress toward standardizing their administrative control processes for delivering grants and contributions to ensure that all requirements are consistently followed and that adequate documentation exists to support decisions and provide reliable guidance for staff. Finally, formal monitoring and reporting processes have not been established in SDAs with multiple recipients, hindering the ability to measure program performance.

SDAs with multiple recipients must make a description of the program and eligibility requirements publicly available. However, we found that the criteria against which applications are assessed are not made publicly available by all SDAs. Decisions on funding for grants and contributions are not well documented by SDAs with multiple recipients, resulting in a lack of transparency in decision making. For all SDAs, program financial controls are working effectively.

We found that SDAs with multiple recipients are not applying a risk-based approach to recipient monitoring and reporting. Some of these SDAs do not have a recipient risk assessment strategy. SDAs monitor recipients' progress through reports, site visits, phone calls, and other informal monitoring processes but do not vary recipient monitoring and reporting requirements based on risk. Greater efficiencies could be achieved, including a reduction in the reporting burden for recipients, by focussing resources and requirements on high-risk recipients.

We found that SDAs have taken initial steps to meet the reform requirements of the Policy on Transfer Payments (2008). One SDA included in our audit is working with the Treasury Board of Canada Secretariat's Centre of Expertise on achieving reform objectives. Some SDAs are beginning to implement internal service standards to meet the requirements of the policy when their programs terms and conditions are continued. SDAs are engaging recipients for feedback on the ongoing delivery of their grant and contribution programs.

Conclusion

Overall, governance and control processes in SDAs address the requirements of the Policy for Transfer Payments, while risk management strategies have not been developed or implemented.

The requirements established by the Policy for Transfer Payments for the management of grants and contributions are appropriate for SDAs, whether they have multiple recipients or a single recipient. Management control frameworks within SDAs are in place but are not fully developed. For SDAs with multiple recipients, monitoring and reporting requirements are not based on risk assessments, and control processes do not provide for transparency in decision making. However, for all SDAs, financial claims are managed with due diligence.

Conformance With Professional Standards

The conduct of this engagement conforms to the Internal Auditing Standards for the Government of Canada, which incorporate The Institute of Internal Auditors' International Standards for the Professional Practice of Internal Auditing.^[3]

Background

Grants and contributions are funds dispersed by the Government of Canada to further a policy or priority for which it does not receive goods, services, or assets in return.

Grants and contributions offer a cost-effective way for the Government of Canada to pursue its objectives through non-governmental resources, such as not-for-profit organizations and private research facilities, and support investments in research, innovation, social and community development, health care, and international initiatives.

The Government of Canada's grant and contribution programs are governed by the Treasury Board Policy on Transfer Payments and the supporting Directive on Transfer Payments. Under the policy, grant and contribution programs must be managed with integrity, transparency and accountability, and in a manner that is sensitive to risks. They must also be citizen-focused, and designed and delivered to address government priorities in achieving results for Canadians.^[4]

The appropriate balance of regulation and freedom of administration in grant and contribution programs has historically been difficult to achieve. In 2006, the President of the Treasury Board commissioned an independent blue ribbon panel "to recommend measures to make the delivery of grant and contribution programs more efficient while ensuring greater accountability." The panel's report, From Red Tape to Clear Results, identified a fundamental need for change in the way the government understands, designs, manages, and accounts for grant and contribution programs. The report also highlighted that the simplification of administrative requirements for recipients and program administration could strengthen accountability in the management of grant and contribution programs.

In 2008, in response to the Blue Ribbon Panel's recommendations, and as part of the Government of Canada Action Plan to Reform the Administration of Grant and Contribution Programs, new requirements were added to the Policy on Transfer Payments. Notably, the policy requires departments and agencies to work together to simplify program requirements, making them easier to use and understand by both the government and potential recipients. It also requires the establishment of departmental service standards and for the government to reach out to applicants for feedback on how to improve grant and contribution programs. Most of the program terms and conditions reviewed during this audit were approved before the Policy on Transfer Payments (2008) came into effect.

Some grants and contributions are mandated by statutory requirements, legislation or determined by formula. These grants and contributions, defined in the policy as "other transfer payments," were not covered by the audit.

Audit Objectives, Scope and Approach

Objectives and Scope

The objective of this audit was to provide assurance that the governance, risk management, and control processes over grant and contribution programs are being executed in compliance with the Policy on Transfer Payments (2008).

The scope of the audit included the review of a sample of grant and contribution programs delivered by SDAs in 2009–10.

The audit criteria and findings are presented in accordance with the administrative life-cycle of the grants and contributions process in four key areas:

• Governance. This area covers management's role in decision making and oversight of grant and contribution programs; performance monitoring against the objectives of a grant or contribution program; and the design of systems and practices to ensure that administrative processes are appropriately controlled to provide for accountability and transparency.
• Program administration. This area covers program promotion, project evaluation and approval processes, proactive disclosure, and the payment of recipient claims.
• Risk Assessment. After recipients are selected to receive funding under a contribution program, SDAs need to determine an appropriate level of monitoring and reporting requirements that will be required for each recipient based on risk. The monitoring and reporting requirements are often aligned to future payments to be made. Grants are unconditional transfer payments; once a project has been approved for funding, there should be no further monitoring or reporting requirements.
• Reform. This area relates to progress against the new reform requirements of the Policy on Transfer Payments (2008). As more SDA grant and contribution program terms and conditions are continued under the terms of the new policy, SDAs will explore ways to address the new requirements and how their business processes will be affected.

There were a total of seven SDAs that managed grant and contribution programs in 2010–11. One SDA (the National Film Board) was not reviewed as part of the audit, as it had recently completed an extensive program evaluation of its grant and contribution programs.

Six SDAs were reviewed during the horizontal audit of grants and contributions. (Appendix A contains a list of the SDAs examined.) The transfer payments for these SDAs accounted for approximately $25 million of non-statutory grants and contributions in 2009–10 and $470 million in 2010–11, including additional funds for Canada's Economic Action Plan.

Of the six SDAs examined in this audit, four have multiple recipients of their grant and contribution programs, and two have single recipients.

For three of the four SDAs with multiple recipients, grant and contribution programs are the main vehicle for delivering their mandate. For these SDAs, grants and contributions represent the overwhelming majority of funds spent annually. These SDAs are the Canadian Northern Economic Development Agency, the Federal Economic Development Agency for Southern Ontario, and Status of Women Canada.

The Canadian Environmental Assessment Agency uses grants and contributions to help inform their main business line, but grants and contributions do not represent a significant portion of its annual budget.

The Canadian Polar Commission and the Financial Transactions and Reports Analysis Centre of Canada have identified a single recipient for each of their limited contribution programs. Much of the life cycle of grants and contributions included in the program administration section above do not apply to SDAs that have only one recipient for their program.

Audit Approach

Planning

As part of the planning phase of this audit, we conducted an environmental scan of the management of grant and contribution programs to develop comprehensive criteria. The scan consisted of the following: discussions with policy experts within Treasury Board of Canada Secretariat; a review of Treasury Board policies and directives related to transfer payments; a review of the Independent Blue Ribbon Panel report on grant and contribution programs, From Red Tape to Clear Results; and a review of The Government of Canada Action Plan to Reform the Administration of Grant and Contribution Programs. We also met with departments and agencies that have conducted audits in this area to leverage their experience. Appendix B contains a list of legislation, frameworks, policies, directives and guidance used for this audit.

Examination

We conducted a detailed examination phase using the audit criteria outlined in Appendix C. Our examination consisted of interviews, documentation review, program and recipient file reviews, and financial transaction verification.

Reporting

Following the validation of audit findings with the participating SDAs, we developed horizontal findings from the results of the detailed examination. A draft report and a summary of applicable recommendations were sent to the SDAs that participated in the audit. Management Action Plans to address the findings and recommendations were requested. Appendix D contains a list of the recommendations. Appendix E contains a risk ranking of the recommendations.

• Previous Page
• Table of Contents
• Next Page