Report on the State of Comptrollership in the Government of Canada
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The strategic environment
A number of environmental factors will shape OCG’s work throughout 2011–2012.
Although there have been signs of an economic recovery, global economic instability is expected to continue. While keeping strong economic and fiscal policies and actions in place, the government has pledged to restore Canada’s fiscal balance, in part by freezing departmental operating budgets and reviewing departmental spending and efficiency.
The economic situation has also sharpened parliamentary attention on the government’s management and reporting of public sector resources, necessitating the provision of more timely and more comprehensive financial information to Parliament and to Canadians. Efforts to improve departmental and government-wide financial reporting will be instrumental in this regard.
The comptrollership function will also be expected to continue to make direct and significant contributions to several government initiatives that address a range of management and related issues. Although significant progress has been made in contributing to policy renewal and the Web of Rules Action Plan in recent years, a few key policies pertaining to the management of assets and acquired services remain to be finalized and approved by the Treasury Board. In addition, over the next few years, the comptrollership function across the government will have to implement the results of the government’s administrative services and strategic and operating reviews.
The government has also committed to continuing its public service renewal program. The OCG has strongly supported these efforts over the past few years through its recruitment, community development and leadership activities in the financial management, internal audit and procurement, real property and materiel management communities. As these communities mature, continued efforts in these areas will be crucial to continued ongoing success. Although much progress has been made in building the capacity and expertise needed to prudently manage public resources, more work is required to consolidate these gains to ensure durable and sustainable communities. More and better-trained officers are needed, and the professionalization of these functions is not yet complete. Moreover, additional effort will be required to ensure that the government has sufficient numbers of trained CFOs, CAEs and other senior officials to support deputy heads in these increasingly important functions.
There are also a number of risks that will shape our activities in the coming year. Most notably, sustainability risks and other weaknesses among several critical information systems and technology platforms across the federal government could undermine the quality and timeliness of financial information available to decision makers. Moreover, there is an ongoing risk that departments may not have the required capacity and resources to fully implement some or all of the revised financial management and internal audit policies. There are also signals that departments are experiencing "fatigue" with the management agenda. This, coupled with spending restraint, poses a risk that departments could scale back on investments in these areas.
Priorities for action
In the coming years, the comptrollership function will have to build on the significant progress made to date. The different policy areas and their communities are at different stages of maturity, with each having a unique set of priorities. Table 3 summarizes key priorities for the areas of internal audit, financial management, and assets and acquired services.
|Area||Internal Audit||Financial Management||Assets and Acquired Services|
Revise the Policy on Internal Audit to respond to results of the evaluation (June 2011).
Develop guidance for internal auditors in respect of their role vis-à-vis internal control over financial reporting.
Standards and guidance:
Develop a performance measurement framework for the financial management policy suite.
Renew the Policy on Decision Making in Limiting Contractor Liability in Crown Procurement Contracts.
Amend the Policy on Management of Real Property to transition to capacity-based transaction approval limits.
Renew the Procurement Review Policy.
Amend the Government Contracts Regulations.
Undertake core control audits in small departments and agencies in the areas of human resources, financial management, contracting, travel and hospitality, and payroll.
Perform horizontal audits in small and large departments and agencies (SDAs and LDAs) to address areas of government-wide risk, including governance (for SDAs), common services (for LDAs) and information management (for SDAs and LDAs).
Improve internal audit intelligence through analysis of audit-related information, and identify best practices.
Make financial information more open.
Reduce reporting burden by eliminating duplication in the Public Accounts of Canada.
Improve departmental knowledge of accounting and reporting requirements.
Complete implementation of the Policy on Internal Control.
Implement the Federal Contaminated Sites Action Plan (Phase II).
Implement the Policy on Managing Procurement and the two related directives.
Implement the Policy on Investment Planning and the Policy on the Management of Projects.
Revise core training courses and delivery mechanisms for departmental audit committees.
With the Institute of Internal Auditors and the Canada School of Public Service, develop new learning delivery models for internal audit training.
Support succession planning for departmental audit committees and update the terms and conditions of appointment.
Support increased professionalism in internal audit, including setting requirements for certification for chief audit executives (CAEs).
With the Office of the Chief Human Resources Officer, research the establishment of Internal Auditor classification, group or stream.
Support talent management for CAEs and internal auditors, including core competencies, training, and promotion and retention from entry to the CAE level.
Support the development of future chief financial officers through talent and community management and by addressing competency gaps.
Advance the community-based program on capacity within the financial management community.
Enhance the Certification Program for the Federal Government Procurement and Materiel Management Community.
Develop Level 2 assessments for the Certification Program for the Federal Government Procurement and Materiel Management Community.
Conduct a mandated five-year review of the Canadian General Standards Board’s Standard for Competencies of the procurement, materiel management and real property communities.
Priorities of the Office of the Comptroller General
Implement the response to the evaluation of the Policy on Internal Audit
The evaluation’s objective has been to examine four main issues: the policy’s relevance, achievement of expected outcomes, cost-effectiveness, and design and implementation. The final report of the evaluation was presented to the Treasury Board of Canada Secretariat Evaluation Committee in March 2011 and was approved by the Secretary . It will be reported to the Treasury Board in fall 2011. The Management Response and Action Plan that is based on the recommendations of the evaluation, will form the core of the policy renewal process, along with the results of the Office of the Auditor General’s Audit of Internal Audit ( June 2011) and a number of residual issues from the review of the policy in 2009. The renewal process will involve research, policy analysis and options development—internal to the Secretariat and government-wide consultations—and will result in a Treasury Board submission proposing amendments to the Policy on Internal Audit in the fourth quarter of fiscal year 2011–12. The amendments to the policy, once approved, will be followed by an implementation process of approximately 12 months that will include internal audit community engagement through implementation workshops, and the amendment and development of guidance documents from the OCG Internal Audit Reference Centre and engagement of the broader Government of Canada community on the role and potential contributions of internal audit. Amendments to the Policy on Internal Audit as a result of the evaluation will support government priorities, federal responsibilities and the Web of Rules Action Plan, and will further develop risk management practices across government.
Looking Ahead: The Future of Internal Audit
The 2006 Policy on Internal Audit fundamentally changed the governance framework of the Government of Canada. It recognized the designation of deputy ministers as accounting officers, within the framework of ministerial responsibility, and established two key structures to assist deputy ministers in discharging this responsibility: an internal audit function and an independent departmental audit committee that has a majority of external members. The policy also requires internal audit to provide a report to the deputy head that addresses the state of the governance, risk management and controls processes in the organization.
But the world does not stand still. Recent trends in both the public and private sectors demonstrate that auditors will increasingly be asked to provide assurance that departments are doing what they are supposed to be doing; support decision making and improvement through independent assessment of programs, policies and operations; and identify trends and emerging challenges. Most internal audit organizations have embraced these concepts and are providing a valuable service to their department. In addition, internal audit must continue to work toward having a risk-based focus rather than a control-based focus. This requires auditors to have a strong knowledge of the operations of a department.
The future will also demand an increased emphasis on auditing standards and an evaluation of their effectiveness and contribution to the improvement of governance and risk management processes—this will demand more of auditors. To do this, internal auditors must move beyond cyclical auditing and adopt a continuous, comprehensive approach to audit and risk assessment. Auditors must have a broad spectrum of competencies that extend beyond knowledge of auditing standards and practices to a solid understanding of the operations, risks and challenges of the department. Further, they must maximize their use of technology, moving from cyclic audits every few years to real-time assessments of emerging risks and testing of key controls. This calls for a continued investment in the internal audit function in order to provide a sufficient pool of highly skilled audit professionals who are capable of producing quality products and services.
The Office of the Comptroller General will continue to support and encourage the professionalization of the internal audit community and the ability to audit smarter, thus strengthening the internal audit community and making it more efficient and effective. However, we must be cognizant of the fact that the internal audit profession is evolving: standards are changing, demand for audit services is increasing, and the operating environment is becoming more complex. The Office of the Comptroller General understands these challenges and is conducting an evaluation of the continued relevancy of the Policy on Internal Audit. It is also developing the skills and competencies necessary to ensure it can continue to serve the internal audit community and, through this community, the government and the people of Canada.
Core control audits in small departments and agencies
As a result of the most recent Risk-Based Audit Plan for Small Departments and Agencies, the need for audits in individual SDAs on core controls was identified. These will be done on a five-year rotational basis, resulting in about 12 core control audits per year. The objective of these audits is to ensure that core controls over administration in financial management, contracting, travel and hospitality, and human resources are effective and result in compliance with corresponding legislation, policies and directives.
Horizontal audits in large and small departments and agencies
As a result of the most recent Risk-Based Horizontal Audit Plans for Large Departments and Agencies (LDAs) and for Small Departments and Agencies (SDAs), the strategic and operational environment across all LDAs and SDAs was systematically examined. The resulting internal audit plans identified horizontal audits that focus on common risks or systemic issues that need to be addressed government-wide. Horizontal audits will be conducted in LDAs and SDAs based on the level of risk in the departments and agencies related to specific audit objectives. The objectives of these audits will include identifying and sharing best practices, and improving governance, risk management and control processes.
Audit intelligence is an area where significant growth and importance is anticipated. We have access to vast amounts of information: a multitude of audit plans and reports, CAE and Departmental and Agency Audit Committee (DAAC) reports, external studies, and information gained from our monitoring and liaison activities. The objective of this activity is to ensure that processes are in place to efficiently and effectively collect, analyze and disseminate information that is critical to the internal audit function. As a result, audit intelligence will be a key focus in the coming years, helping to understand the issues and provide better guidance and support to the internal audit community, the OCG and the Treasury Board of Canada Secretariat.
Guidance on audit’s role with respect to the assessment of internal controls
As a result of the requirements of the Policy on Internal Control, there is a need to provide guidance to internal auditors on their role pertaining to the assessment of internal controls. The objective of this guidance will be to ensure that internal audit is providing adequate support to the deputy head with respect to the adequacy and effectiveness of the internal control framework.
Departmental and Agency Audit Committee appointments and engagement
The objective of this ongoing activity is to support the appointment, tenure management and engagement of external DAAC members. It also includes providing advice and tools to assist departments in supporting their DAACs. In addition, options for the external delivery of the DAAC core body of knowledge and ways to streamline the appointment process will be explored.
Internal audit capacity building and community development
There is an ongoing requirement to support the overall development and professionalization of the internal audit function. The OCG secured funding until March 2012 to develop an internal audit human resources framework; however, additional work will be required to implement this framework. The aim is to support and enable a self-sufficient, quality internal audit function.
Development of standards and guidance documents:
Support CFO sign-off/attestation role
With the approval of the Policy on Financial Management Governance and the implementation of the chief financial officer (CFO) model, there are increased expectations of the finance function in departments. The first involves the CFO and his or her staff providing supporting financial analysis to the designers of new proposals. The second involves being in a position to challenge the assertions of the designers and offering independent advice to the deputy head when required. As implementation of these new financial management policies proceeds, the OCG is assessing the need for detailed guidance related to CFO sign-off requirements, including those for Memoranda to Cabinet and Treasury Board submissions. This will be done through completing research, analysis and consultations; developing options; and selecting the most appropriate policy instrument to address needs.
Initiate the development of guidance on user fee management
In spring 2009, the 10th Report of the Public Accounts Committee recommended that Treasury Board of Canada Secretariat develop and issue a new comprehensive policy on the management of user fees. As a result, the government responded that the Secretariat would conduct a review of the existing policy and guidance on user fee management by April 2010. That initiative was completed on time. The Secretariat and the OCG also committed to initiate the development of guidance directed to departments and agencies on user fee management. This new guidance will seek to clarify responsibilities and establish mandatory requirements in the following key financial management areas: costing, service standards, consultation with stakeholders, fee level analysis, fees by contract, and regular review of these practices and reporting. In order to initiate the development of guidance and complete this phase of policy development by the end of fiscal year 2011–2012, the following four sub-activities will be undertaken: 1) analyze the rescinded policy and guidance in light of current context, 2) analyze options and drafting of potential requirements for future guidance on user fee management, 3) align guidance with the User Fees Act and other relevant existing policies, and 4) recommend appropriate policy instruments for guidance on user fee management.
Improve efficiencies in the financial legislative framework
The OCG will seek amendments to the Financial Administration Act to give statutory authority for departments to provide internal support services to other departments, or collaborate with one another to provide such services, in order to increase internal efficiencies and reduce duplication across departments. Legislative authority to provide these services would also create a legal basis for charging for the services. Re-spending of revenues would be authorized through existing net voting arrangements.
Implement the Directive on the Management of Expenditures on Travel, Hospitality and Conferences
As a next step to the 2009 and 2010 budget caps on travel, hospitality and conferences, the OCG developed a new Directive on the Management of Expenditures on Travel, Hospitality and Conferences, effective January 1, 2011. This directive emphasizes the importance of managing these activities in a way that demonstrates value for money and uses the most economical options to minimize costs wherever possible. It also strengthens accountabilities by introducing a new reporting regime to annually disclose departmental expenditures in these areas. As the directive is being implemented, the OCG is providing policy interpretation assistance to departments and is developing templates and guidelines for the first wave of departmental reports in fall 2011.
Standardize financial business processes and common financial information
This initiative will enable the implementation of the guidelines for the top 10 financial management business processes and create straw models and standards on common financial information through initiatives such as working groups, directing sessions, information bulletins, sample reports and frequently asked questions to guide departments with the new policy requirements.
The current Policy on Electronic Authorization and Authentication, in place since 1994, is restrictive and costly to implement and operate. As a result, it has not been widely implemented in government, and departments are missing opportunities to increase efficiencies by minimizing paper-based systems and optimizing the use of approval processes in an electronic environment. To address this, the OCG has developed a new directive that will provide departments with more flexibility to better leverage the new technology while ensuring there are effective controls in place aligned with the risks they aim to mitigate. To assist departments in assessing risks and establishing effective systems of internal controls in support of electronic authorization and authentication of financial transactions, the OCG is developing guidance with the Chief Information Officer Branch. It is expected that the new directive be approved for implementation in 2011–2012.
Develop a performance measurement framework for the financial management policy suite
With the completion of the renewal of the Treasury Board financial management policies, the OCG’s efforts shifted progressively from policy development to implementation and performance monitoring. Over the next two fiscal years, a performance measurement framework will be formalized to assist the OCG and departments in assessing how well this new policy suite is achieving its objectives and expected results. Results from such an assessment will inform the government on the performance achieved, support continuous improvement, and guide the adjustments that may be needed.
Reduce reporting burden by eliminating duplication in the Public Accounts of Canada
In an effort to reduce the reporting burden currently facing departments, the OCG will review the information currently included in the Public Accounts of Canada. This will identify areas of potential duplication between these accounts and other required disclosure and areas where gathering the information is particularly onerous for departments and the costs of gathering such information may exceed the benefits. Based on the identification of such information, the OCG will research the source of the information requirement and develop action plans to reduce the reporting burden where possible.
Improve departmental knowledge of accounting and reporting requirements
The OCG will enable the departmental implementation of financial accounting reporting requirements by providing advice and initiatives such as information bulletins, example reports and frequently asked questions to guide departments with the new legislative and policy requirements.
In addition, implementation guidance and support will be provided to departments and agencies on the new quarterly financial reporting required under recent amendments to the Financial Administration Act and the new Policy on Financial Resource Management, Information and Reporting.
Profile: Quarterly Financial Reporting in the Government of Canada
The timeliness of financial information is integral to good decision making. In the private sector, publicly traded companies have been required to publish quarterly financial reports for several years, and these are considered essential to timely and informed decision making. In an effort to further strengthen federal reporting practices and facilitate more timely parliamentary oversight of departmental expenditures, the government introduced legislation making quarterly financial reporting mandatory for departments, agencies and Crown corporations, starting in April 2011.
The Policy on Financial Resource Management, Information and Reporting supports this legislation by establishing a clear policy requirement for quarterly reports and by supporting the requirement with detailed policy instruments. The Treasury Board’s Accounting Standards provide the form and content of quarterly reports for departments and agencies. A separate standard has been issued that provides the form and content of the reports for Crown corporations.
The form and content of quarterly reports has been designed to provide useful information to their users. Departmental and agency reports will provide information on how money has been spent over the period and how that spending compares with the plan and with prior periods. Crown corporation reports will provide information similar to that provided by public companies under international reporting standards. All reports will include a discussion of results, risks and significant changes in relation to operations, personnel and programs.
The OCG is enabling the implementation of quarterly reporting through several initiatives, including information sessions to explain the requirements and establishing working groups to develop and disseminate sample reports.
Completing the implementation of the Policy on Internal Control
Overseeing and strengthening effectiveness of internal controls is a core priority for the OCG. In doing so, the continued implementation of the Policy on Internal Control, in place since April 1, 2009, is foundational to strengthening accountability, transparency and financial management capacities at all levels within departments. A three-year, phased-in approach has been taken to the implementation of this policy, which requires departments to conduct annual risk-based assessments of the effectiveness of their systems of internal controls over financial reporting, and to report publicly on the results and action plan arising from such assessments. Given the importance of the new policy requirements, and the level of effort required from federal organizations, the OCG continues to enable departments and the financial management community by reaffirming policy expectations and providing assistance through policy advice, sharing of best practices, and engagement and communications activities, as well as providing tools and guidelines. The OCG will also continue to monitor departmental progress in implementing the policy and related departmental action plans. In fall 2010, a first group of departments, representing over 90 per cent of the government’s budget, made public their assessment results and related action plans covering 2009–2010. Implementation of the policy for the remaining departments (which includes a large portion of small departments and agencies) will be spread over 2010–2011 and 2011–2012.
Support the development of future CFOs through talent and community management, and by addressing competency gaps
Concerns about public service demographics at the senior level and conversations with senior executives indicate a need to further understand perceived issues regarding CFO succession capacity in large and small departments and agencies.
The CFO Suite Succession Planning and Talent Management Strategies Project has been established to work with departments and communities on two fronts: first, to identify immediate pressures and develop workable short-term responses, and second, to explore a business model for sustainable CFO capacity that will propose succession planning and talent management strategies that are right for the Government of Canada, and explore how those strategies will be governed, deployed, managed and resourced over time.
The objective is to be in a position to provide CFO successors and the senior financial management cadre with the learning and development experiences they require to be successful as a senior financial leader, and to provide deputy heads with a solid reserve of senior financial management talent.
Advance the community-based program on capacity within the financial management community
The OCG will continue to:
- Build and develop the capacity of the financial community by revising the Financial Officer Recruitment and Development / Internal Auditor Recruitment and Development (FORD/IARD) campaigns and expanding the Chartered Accountant Student Training (CAST) program to include CA students from the Ordre des comptables agréés du Québec (OCAQ) after approval by the OCAQ of articling in non-traditional CA training offices such as the OCG and aligning them with the requirements of the financial community;
- Conduct outreach events;
- Consult with the community;
- Develop mid-career learning and development programs and aligning them to the "FI to CFO Career Path" and the CFO talent management program;
- Develop generic statements of qualifications representative of FI levels; and
- Conduct collective staffing processes.
Efforts will be made to continue to build and develop sustainable learning programs by expanding the development of the core curriculum and strategic series with the Canada School of Public Service, aligning the FI functional competencies with the "FI to CFO Career Path" and developing tools to collect information from both the DCFO and CFO communities. The OCG will continue to build and develop assessment tools by improving financial capacity measurement tools as part of the MAF and by revising community surveys and scans.
Assets and acquired services
Review, renew and implement a series of policies related to procurement
Once the new Policy on Managing Procurement and the two accompanying directives have secured Treasury Board approval, efforts will focus on moving forward with various implementation activities, e.g., promulgation of guidance material and outreach. Attention will then be directed to the many other procurement-related policies that have yet to be renewed. The following policies will be reviewed during the next three years: the Policy on Decision Making in Limiting Contractor Liability in Crown Procurement Contracts and the Procurement Review Policy. In addition, amendments to the Government Contracts Regulations will be proposed further to the Federal Accountability Act Action Plan.
Review and amendment of the policies related to materiel management and real property, as applicable
The Policy on Management of Real Property and the Policy on Management of Materiel and their associated five directives and three (out of four) standards will reach the five-year mark of their implementation on October 31, 2011. The sector is planning to conduct a two-phase review of these policies, directives and standards. Once the amendment related to the transition to capacity-based transaction approval limits for real property obtains Treasury Board approval, the Policy on Management of Real Property and the Reporting Standard on Real Property will also be amended to incorporate these changes.
Implement the Federal Contaminated Sites Action Plan—Phase II
The Federal Contaminated Sites Action Plan (FCSAP) was established in 2005 as an internal-to-government program designed to assist departments in fulfilling their environmental stewardship responsibilities with respect to federal real property by providing funding to assess, manage and remediate federal contaminated sites. The objectives of this $3.5-billion, 15-year program include reducing the environmental liability and the associated human health and ecological impacts of contaminated sites held by the Crown. FCSAP is coordinated and managed by Environment Canada, with monitoring and oversight provided by the Treasury Board of Canada Secretariat to ensure compliance with Treasury Board policies on the management of real property. Fiscal year 2011–12 will mark the first year of Phase II of the FCSAP program. In preparation for its renewal, program partners have collaborated over the past year to build the framework for FCSAP Phase II to ensure efficient and effective program delivery. The primary focus for 2011 is to obtain policy and funding approval for departments, including for the Secretariat, following the tabling of the federal budget.
Complete the phased implementation of the investment planning and management of projects policies across government
All departments and agencies are required to have investment plans in place by April 1, 2012. Departmental project authority limits are to be based on organizational project management capacity and project complexity and risk. Although all four phases of implementation have now been launched, considerable work remains in transitioning departments to the new policy direction, which includes developing integrated investment plans and Organizational Project Management Capacity Assessments.
Implement the five-year capacity-building strategy for the Certification Program for the Federal Government Procurement and Materiel Management Community
This initiative will focus specifically on assessing and reviewing the Certification Program for the Federal Government Procurement and Materiel Management Community, developing Level 2 of the certification program, conducting a workforce analysis of the federal real property community, and conducting a mandated five-year review of the Canadian General Standards Board standard for competencies of this community.
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