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

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Detailed Findings and Recommendations

Finding 1: Governance

We examined governance structures and oversight over grant and contribution programs across government and within SDAs. We assessed roles and responsibilities identified in the Treasury Board Directive on Transfer Payments and how they were applied by SDAs to the administration of grants and contributions. We examined whether SDAs had determined appropriate approval structures for determining recipients of grant and contribution programs. We examined the control framework designed to meet applicable Treasury Board policy requirements, including the standardization of program administration. Finally, we examined the sufficiency of monitoring and reporting processes used to evaluate the grant and contribution programs as a whole and how these provided feedback to management.

It is management's responsibility to define 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, approval processes ensure that recipient selection and project funding levels are determined in a fair and transparent manner and that ultimate approval is done by those groups or individuals with delegated authority to do so. Standardized administration frameworks help ensure that controls are in place to respect government-wide policy requirements, to provide for accountability and transparency, and to mitigate other defined risks, especially when multiple recipients are involved.

For all SDAs that deliver grant and contribution programs, whether they have a single recipient or multiple recipients, monitoring and reporting processes provide information to enable oversight by management to ensure that the program is on track to achieve its objectives in a timely manner.

Government-wide policy requirements are appropriate in the SDA environment.

We found that the requirements of the Treasury Board Policy on Transfer Payments and the Directive on Transfer Payments were appropriate given the size and scope of grant and contribution programs in SDAs. The policy is principles-based and provides a reasonable framework for roles and responsibilities between central agencies and individual departments and agencies. The policy and its associated directive require a minimum set of controls that should be standardized to ensure that grants and contributions are managed with integrity and transparency and in a manner that is fair and sensitive to risks. The policy is consistent with the Federal Accountability Act in ensuring that senior management has accountability for critical decision making and oversight over the results of programs.

More specifically, the policy is appropriate for those SDAs that have identified a single recipient for their grant and contribution programs, provided the recipient is identified in the approved terms and conditions of the program. If the recipient is identified in the terms and conditions, the SDA may be exempt, with Treasury Board approval, from many of the policy requirements, specifically the need to publicly promote programs, to have standardized control processes, and to put in place risk assessment strategies for recipient monitoring and reporting requirements.

For SDAs that encounter challenges in implementing the Policy on Transfer Payments, TBS's Centre of Expertise on Grants and Contributions facilitates collaboration between departments and agencies to share good practices and provide guidance where needed.

SDAs with multiple recipients are making efforts to strengthen their approval structures.

Although not required by the Policy on Transfer Payments, some SDAs with multiple recipients have implemented recipient review committees composed of subject-matter experts to help make funding decisions. This activity is noted as a good practice when subject-matter expertise is required to assess the merits of potential recipients. Recipient review committees recommend recipients to senior management for approval.

The committees did not have documented guidance formally outlining their role in the assessment process or specifying requirements for independence to ensure that members would be free of any bias or conflict of interest. Because the roles of the recipient review committees are not defined, there is a risk that they may not ensure independence or lack of conflict of interest with potential recipients.

SDAs have not standardized their administrative control processes for the delivery of grants and contributions.

It is imperative that management understand the control framework used within their organizations to ensure that they are designed to mitigate risks and allow for appropriate oversight where warranted. Standardized administrative processes enable more efficiency and greater control to ensure that risks and opportunities are identified and that oversight processes can be applied in a consistent and transparent manner. These processes are especially important for SDAs that have multiple recipients, even if grants and contributions are not a main business line, as turnover of key individuals can make program administration difficult when processes are not well understood or documented. Some SDAs have taken the initiative to collaborate with other departments and agencies that deliver grants and contributions to share good practices when developing their administrative processes.

Most SDAs have not identified common processes and controls to support standardized administration of their grant and contribution programs. Some tools, such as printed checklists, have been developed to assist in recording information in recipient paper files, but because such tools are not required, they are inconsistently used. Although the roles and responsibilities for program officers are generally well defined, the roles and responsibilities for senior management are not as clear. Checklists and other tools to ensure consistent and complete documentation would help ensure that the decision making process is open, fair, and transparent and can be repeated in the event of employee turnover.

Formal monitoring and reporting processes have not been established.

Most SDAs have not yet developed monitoring and reporting processes for the achievement of objectives in their grant and contribution programs. Although most SDAs have developed program performance indicators, there was no evidence of formal reporting to management on actual performance against these indicators. Program monitoring and reporting on program performance is not well understood. SDAs cannot be sure that grant and contribution programs are meeting their objectives because they do not monitor and report on performance using their established performance indicators.

Recommendations

• 1. SDAs delivering grant and contribution programs to a single recipient should ensure that the recipient is identified in the terms and conditions of the program.
• 2. SDAs should develop guidance for recipient review committees to ensure independence in their recommendations for recipient funding.
• 3. SDAs should develop checklists and other tools to support standardized processes.
• 4. SDAs should periodically report to management on program performance, based on established performance indicators.

Finding 2: Program Administration

For SDAs with multiple recipients, we examined how programs were publicly promoted, and the extent to which the program information was published. We reviewed recipient files to ensure that assessments and approvals were documented. For all SDAs with grant and contribution programs, we verified whether they proactively disclosed all grants and contributions valued at $25,000 or greater. Finally, we reviewed recipient financial files to ensure that financial controls were applied effectively.

For grant and contribution programs with multiple recipients, departments and agencies publicly promote program descriptions, eligibility requirements, and assessment criteria to give potential recipients the information needed to apply to the program. Assessments and approvals are documented for consistency and quality review, as well as to add greater transparency to the process. To ensure greater transparency, all departments and agencies are required to proactively disclose on their websites all grants and contributions valued at $25,000 or greater. Financial controls are used to ensure that recipient claims are eligible and that authorizations for payments are performed by the delegated authority.

Most project assessment criteria are not publicly available.

While most SDAs with multiple recipients make descriptions of their programs publicly available on their website along with program eligibility requirements, the assessment criteria used to rate potential recipients were not consistently published. Strategies used were appropriate to ensure that most potential recipients are aware of the grant and contribution program; however, potential recipients do not have access to the standards against which their applications will be evaluated. Publishing assessment criteria would enable potential recipients to demonstrate in their application how they meet program requirements.

Some SDAs with multiple recipients do not assess potential recipients based on pre-established assessment criteria. For these applications, the methodology used to approve projects is unclear and does not provide for transparency in recipient funding decisions.

Project assessments and approvals were not well documented.

Project assessment and approval signatures were not consistently documented in program files by most SDAs with multiple recipients. The rationale and processes behind funding decisions could not always be clearly determined from the information in recipient files. It is important that SDAs maximize the use of available funding by choosing recipients that best meet the objectives of the program. Some SDAs do not document any assessment of project applications, including formal project approval. While it can be impractical for management to sign off individual approvals, batch or group approvals are an acceptable alternative. The lack of documentation of decisions based on established criteria does not meet policy requirements of transparency in decision making that ensures that program objectives are considered in a fair and open manner when assessments are made.

SDAs are proactively disclosing their grants and contributions.

Most SDAs, whether they have multiple recipients or a single recipient, proactively disclose their grants and contributions on their public websites, in line with federal government requirements. This disclosure ensures transparency regarding which recipients are provided funding by federal departments and agencies and what government programs they are contributing to.

Recipient claims are managed effectively and with due diligence.

Most financial controls reviewed were working effectively as designed. Most recipient claims paid were accurate, supported by appropriate documentation, and paid in a timely manner. Commitments are recorded in the financial system once funding is awarded to recipients. Commitment totals are tracked against the overall program budget. In most SDAs, the financial files reviewed were well maintained, and financial approvals were documented on file.

Most SDAs manually administer their grant and contribution programs and often do not effectively use checklists to ensure that recipient files have all the required documentation. For those SDAs with multiple recipients of their grant and contribution programs, this limits the ability to ensure that standardized practices and controls are consistently followed. Some large departments and agencies have automated grant and contribution systems that support the standardization of the administration process. Given the size and scope of operations in SDAs, the cost of designing and implementing an electronic system is disproportionately large.

Recommendations

• 5. SDAs should ensure that descriptions of the program assessment criteria are publicly available in order to provide greater clarity for those applying to a grant or contribution program to be able to demonstrate how they meet these criteria.
• 6. SDAs should assess applications from potential recipients based on pre-established assessment criteria.
• 7. SDAs should document their assessment of recipient applications and formal recipient approvals to provide greater transparency in the approval process.

Finding 3: Risk Assessment

We examined strategies and processes used by SDAs to assess recipient risk to determine monitoring and reporting requirements. We examined what information SDAs were collecting to assess the risk profiles of the recipients and the strategies used to classify recipients as high, medium, and low risk. Finally, we examined the monitoring processes used to report on recipients' continued eligibility and performance.

Performing risk assessments of recipients of contributions provides a basis for determining the amount and frequency of monitoring activity and reporting requirements that may be necessary to ensure that recipients are meeting the terms and conditions of their funding; if these terms and conditions are not met, SDAs may withhold future payments until the requirements are satisfied. Using risk assessment information to inform recipient monitoring requirements helps focus limited resources on high-risk areas to achieve greater efficiency and ease monitoring and reporting burdens for lower-risk recipients. Recipient monitoring and reporting are essential to ensure that recipients are continuing to meet eligibility requirements and fulfill the program objectives.

SDAs with multiple recipients of contributions are expected to determine risk categories (i.e., high- or low-risk), and place each recipient in one of the categories. SDAs with a single contribution recipient are not expected to define risk levels, as the monitoring and reporting process is tailored to one contribution agreement.

Recipient risk assessment strategies have not been developed.

Most SDAs with contribution programs do not have strategies to assess recipient risk to help determine appropriate levels of monitoring and reporting requirements of a recipient. Most SDAs do not collect information in recipient applications that would enable them to assess recipient risk. Finally, most SDAs have not developed criteria or thresholds to guide program officers in assessing recipient risk.

Recipient monitoring and reporting is not based on recipient risk.

Most SDAs with multiple recipients of contributions treat all recipients as high-risk and therefore do not vary monitoring and reporting requirements. Low- and medium-risk recipients face high administrative and reporting burdens. SDAs could achieve greater efficiencies in recipient monitoring by applying risk-based requirements to monitoring. SDAs could also reduce the reporting burden on recipients by ensuring that all requested reports provide sufficient information to program officers to ensure value in program delivery. Assessing recipient risk to enable flexibility in monitoring and reporting requirements can contribute to streamlining and greater efficiency of administrative practices.

SDAs with a single recipient are sufficiently monitoring their recipients and are informed of progress in advance of making payments.

Recommendations

• 8. SDAs should develop and implement recipient risk assessment strategies to enable more efficient use of resources in monitoring and reporting on recipients. SDAs should collaborate with other departments and agencies to share tools and guidance for risk assessment.

Finding 4: Reform

We examined the progress that SDAs have made in meeting the requirements of the Policy on Transfer Payments (2008). Notably, we reviewed any efforts made to collaborate across departments and agencies, to implement recipient service standards, and to engage recipients in making improvements to grant and contribution programs. At the time of the audit, none of the terms and conditions of the SDA programs examined had yet been continued under the 2008 policy, so that any effort in meeting these requirements would be proactive in nature.

Collaboration across organizations helps SDAs to share good practices and identify common recipients, with the goal of reducing the reporting burden and adopting a more citizen-focused approach to the administration of grants and contributions. Service standards, once established, can be used as measurable performance indicators to improve efficiency and program delivery. The engagement of stakeholders helps ensure the continued relevance of grant and contribution programs and facilitates improvements in efficiency and effectiveness.

Most SDAs do not collaborate with other departments and agencies.

Most SDAs are not working with other departments and agencies to share best practices and identify common recipients. Many SDAs reference the unique nature of their programs relative to the programs of other organizations. We did find some progress in individual SDAs, such as working with TBS's Centre of Expertise on Grants and Contributions toward transfer payment reform objectives and adopting tools and best practice processes developed by other organizations. Duplication of effort was commonly observed across SDAs in reaching target recipients and delivering programs. We expect that as program terms and conditions are continued under the Policy on Transfer Payments (2008), TBS's Centre of Expertise will engage SDAs in this process.

SDAs are beginning to implement internal service standards.

Most SDAs expressed plans to implement service standards within the next year, but no formal implementation strategies are currently in place. SDAs are preparing to meet the new requirements of the Policy on Transfer Payments by implementing service standards when their program terms and conditions are continued. In the interim, some SDAs have identified internal processing times for application assessment and the processing of recipient claims; however, these standards are not being actively monitored. For SDAs with single recipients, collaboration with their recipient needs to be done to ensure that the needs of both parties are being met.

SDAs are engaging recipients for feedback to make program improvements.

Most SDAs seek feedback from recipients on grant and contribution programs to make improvements to program delivery. Much of this feedback is received informally, but one SDA formally solicited feedback through a voluntary recipient survey. Some SDAs have ongoing relationships with program recipients, making informal feedback part of a regular dialogue.

Management Action Plans

The findings and recommendations of this audit were presented to the six SDAs included in the scope of the audit. The Internal Audit Sector of the Office of the Comptroller General (OCG) has asked each SDA that participated in the audit to prepare a detailed Management Action Plan.

The OCG will perform follow-up activities on SDAs' Management Action Plans, and the Small Departments and Agencies Audit Committee will periodically receive reports from the OCG on the actions taken where Management Action Plans are in place.

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