ARCHIVED - Audit of Account Verification

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Assurance Statement

The Internal Audit and Evaluation Bureau has completed its Audit of Account Verification of Treasury Board of Canada Secretariat (the Secretariat). This audit is also relevant to the Department of Finance (Finance Canada), given that the Secretariat has been providing account verification and payment processing services to that department since February 1, 2009.

The objective of the audit was to assess the adequacy and effectiveness of the account verification control framework. The audit approach and methodology followed the Internal Auditing Standards for the Government of Canada and the Institute of Internal Auditors' International Standards for the Professional Practice of Internal Auditing.

The examination was conducted from November 2009 to February 2010 and covered Secretariat and Finance Canada's payments for goods and services for the fiscal year ending March 31, 2009. Consideration was also given to improvements made to account verification practices subsequent to the audit period.

The audit consisted of a review of applicable account verification authorities, process walk-throughs, interviews with management and staff, and an examination of departmental records supporting payments of goods and services, using a statistical sampling methodology.

We conclude with a reasonable level of assurance that, overall, internal controls regarding account verification are adequately designed and functioning effectively to meet operational requirements. A number of opportunities to further enhance the account verification control framework have been identified and are outlined in this report.

In the professional judgment of the Chief Audit Executive, sufficient and appropriate audit procedures have been conducted and evidence has been gathered to support the accuracy of the opinion provided in this report. The opinion is based on a comparison of the conditions, as they existed at the time of the audit, against pre-established audit criteria. The opinion is applicable only to payment categories examined and for the time period specified.

Executive Summary

Background

This audit is part of the Secretariat's 2008–11 Risk-Based Audit Plan that was approved by the Secretary at a Government of Canada Audit Committee meeting on April 14, 2008.

Account verification is the final step before funds for a payment request are released for payment. It is the process for ensuring that requests for payments and settlements are verified in a risk-informed manner that maintains an appropriate level of financial control, including compliance with applicable policies and legislation.

At the time of the audit, the Treasury Board Policy on Account Verification required that payment verification processes be designed and operated in a way that would maintain probity while taking into consideration the varying degrees of risk associated with each payment.

The Financial Administration Act (FAA) provides legislative requirements for the financial administration of the Government of Canada. Section 34 of the FAA provides the authority to certify that goods were received or services rendered as contracted. Section 33 provides the authority to release funds for payment after verifying that Section 34 has been properly exercised.

Objective and Scope

The objective of the audit was to assess the adequacy and effectiveness of internal controls regarding account verification.

The audit's scope focused on the operating framework, payment processes, and monitoring and reporting of account verification for Vote 1 Program and Operating expenditures for the Secretariat and Finance Canada. Interdepartmental settlements, grants and contributions, salary, and interest amounts were excluded from the audit's scope.

Key Findings and Conclusion

We conclude with a reasonable level of assurance that, overall, internal controls regarding account verification are adequately designed and functioning effectively to meet operational requirements. Specifically:

• No significant practice or process gaps were observed within the account verification function that would put the departments at risk.
• Vote 1 Goods and Services payment requests were managed in accordance with applicable legislation, policy and established procedures.
• Opportunities to enhance the function were identified and include formalizing training procedures, implementing a checklist for post-payment verification of acquisition card purchases, enhancing existing verification checklists, introducing a risk-based approach to account verification practices, and monitoring and reporting verification results.

A management action plan has been developed by the Secretariat and is presented in Appendix B.

Introduction

The Treasury Board Directive on Account Verification, formerly the Treasury Board Policy on Account Verification, requires that payment verification processes be designed and operated in a way that maintains probity while taking into consideration the varying degrees of risk associated with each payment. Further, it is government policy to pay on time—neither early nor late—amounts that represent a legitimate obligation and that are correct.

For the period under review (April 1, 2008, to March 31, 2009), the former Treasury Board Policy on Account Verification was in effect, which had the objective of ensuring that accounts for payments and settlements are verified in a cost-effective and efficient manner while maintaining the required level of control. Although a new directive has since been issued, its objectives and requirements are similar.

The FAA provides legislative requirements for the financial administration of the Government of Canada. Section 32 of the FAA provides the authority to commit funds against an appropriation before the expense is incurred. Section 34 provides the authority to certify that goods were received or services rendered as contracted. Section 33 provides the authority to release funds for payment after ensuring that the payment is a lawful and correct charge against an appropriation and that Section 34 authority has been properly exercised.

Corporate Services Sector (CSS) is ultimately responsible for ensuring compliance with authorities for account verification. This sector is responsible for policies, procedures and controls related to the account verification of payments. CSS also develops and maintains financial delegation instruments.

Finance Canada had traditionally provided shared corporate services (i.e., financial and human resources) to the Secretariat. Effective February 1, 2009, shared services for the Secretariat and Finance Canada, including the control and supervision of account verification and payment processing, were transferred to the Secretariat's CSS. In this context, CSS exercises its responsibilities in processing expenditures for both departments.

Vote 1 Program and Operating expenditures for the Secretariat and Finance Canada for the fiscal year ending March 2009 are provided in Table 1.

Table 1. Vote 1 Program and Operating Expenditures (2008–09) for Treasury Board Secretariat and Finance Canada

Measure	Secretariat	Finance Canada
Salary	$134,672,104	$75,188,485
Goods and Services	$52,489,655	$35,948,400
Grants and Contributions	$228,366	nil
Total	$187,390,125	$111,136,885

Source: Departmental Trial Balance (P12-2), Treasury Board Secretariat and Finance Canada

Audit Objective

The audit's objective was to assess the adequacy and effectiveness of internal controls regarding account verification.

The Audit of Account Verification was included in the Risk-Based Audit Plan as a result of a preliminary survey conducted in 2007 in the area of accounts payable and control weaknesses identified as part of the financial statement readiness project led by CSS.

Audit Focus and Scope

The audit focused on the operating framework, payment processes, and monitoring and reporting of account verification for Vote 1 Program and Operating expenditures, more specifically, the goods and services portion for the Secretariat and Finance Canada. It assessed compliance with financial management authorities (e.g., Treasury Board Directive on Account Verification / Treasury Board Policy on Account Verification), with a focus on areas that presented a higher residual risk. The scope included a detailed review for the following:

• Management and staff responsibilities are clearly established, communicated and understood by personnel;
• Financial management policies and directives are respected and enforced;
• Compliance with financial management policies and directives is monitored and reported; and
• Departmental procedures are followed.

Given that the Secretariat is responsible for the account verification control framework and provides shared services to Finance Canada, the audit focused on Vote 1 Goods and Services expenditures, which amounted to $52.5 million and $35.9 million in 2008–09 for the Secretariat and Finance Canada, respectively.

Table 2 provides a summary of payment amounts addressed by the audit.

Table 2. Goods and Services Expenditures for 2008-09 Subject to Audit

Type of Payments	Secretariat	Finance
Acquisition card (MasterCard)	$1,886,094	$1,781,494
Awards, conferences, hospitality, memberships, training and travel (employee payables)	$ 4,332,624	$5,712,476
Other invoices and claims (goods and services)	$33,222,807	$40,562,839
Excluded from scope	$13,048,130	($12,108,409)
Total goods and services	$52,489,655	$35,948,400

Interdepartmental settlements (receivables and payables), deposits, reversals, and interest amounts were excluded from the scope. A major component of excluded transactions was the allocation of shared services costs from Finance Canada to the Secretariat and from other government departments.

The audit scope did not include:

• Business-related internal controls within systems applications—e.g., IFMS-SAP, Standard Payment System and Specimen Signature Record;
• Full compliance with policies, directives, regulations and guidelines related to FAA Section 34 certification for each category of payments—certain types of payments such as travel and hospitality are governed by distinct and complex policies and rules, and detailed examination of travel and hospitality expenses could be the subject of separate audits;
• Pay and related benefit payments—these were subject to two internal audits completed in 2008 and 2009;
• Grants and contributions—these payments for the Secretariat are less material ($228,366) and do not form part of Vote 1 Operating Expenditures for Finance Canada; and
• Interdepartmental settlements—these were excluded because a new internal control process was launched in October 2009 to expand verification coverage to all interdepartmental settlement transactions.

Audit Criteria

Audit criteria and audit tests were developed based on the results of consultations held with CSS's Financial Management Directorate, audit research and analysis, a review of applicable authorities, the audit risk assessment exercise, and the Core Management Controls document issued by the Office of the Comptroller General that focuses on the federal government's Management Accountability Framework (MAF). This audit focuses on the elements of people, stewardship, results and performance, and accountability. As a result, the following lines of enquiry were selected for this audit:

• Management of human resources;
• Verification of certified payment requests; and
• Monitoring and reporting of results.

Detailed criteria used to assess the adequacy and effectiveness of internal controls are presented in Appendix A.

Approach and Methodology

The audit approach and methodology is risk-based and followed the Internal Auditing Standards for the Government of Canada and the Institute of Internal Auditors' International Standards for the Professional Practice of Internal Auditing. These standards require that the audit be planned and performed in such a way as to obtain reasonable assurance that audit objectives are achieved. The audit included various tests as considered necessary to provide such assurance. The approach used in carrying out the audit included the following:

• Review of applicable legislation, policies, procedures and other information related to account verification processes;
• Interviews with management and staff of Financial Management Directorate, CSS;
• Walk-throughs to observe the process and controls for verifying transactions prior to and after payments;
• Determination and selection of the processes and practices of highest residual risk for audit examination;
• Selection of three types of goods and services payments (Vote 1 expenditures) for detailed examination; and
• A statistical random sample of 67 transactions drawn for each type of goods and services payment using 90-per-cent confidence level.

Finance Canada's internal audit function was kept informed of the audit's progress. Final versions of key documents were also provided to Finance Canada as they became available.

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