ARCHIVED - Audit of the Treasury Board of Canada Secretariat Governance Framework

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Assurance Statement

The Internal Audit and Evaluation Bureau has completed an audit of the governance framework of the Treasury Board of Canada Secretariat (the Secretariat). The objective of the audit was to assess the adequacy and effectiveness of the Secretariat’s governance framework. Specifically, the audit assessed the extent to which the governance framework is aligned with the Secretariat’s mandate and priorities and supports the development of the Secretariat’s strategic direction, its decision-making processes, as well as accountability and continuous improvement.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.A comprehensive approach, encompassing a broad spectrum of governance aspects and best practices, was adopted to help provide value to the Secretariat.

The examination was conducted from January to October 2009 and covered the governance framework that was in place at the Secretariat between January 1, 2008, and June 30, 2009. Consideration was also given to changes made to the governance framework between July and October 2009. 

The audit consisted of interviews, documentation review, and a survey of all Secretariat executives who are members of a governance committee. In addition, a special working session on governance was held with members of the Executive Committee (EXCO) on September 14, 2009, to supplement the audit team’s understanding of the survey results. The observations made in this report are based on the results of the audit procedures conducted on the evidence gathered, which is sufficient to provide senior management with reasonable assurance of the audit’s results.

We conclude with a reasonable level of assurance that the Secretariat’s governance framework is well established and generally working as intended. The structures and processes in place adequately address the Secretariat’s needs for effective governance. A number of areas to further enhance governance 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 the entities examined and for the time period specified.

Executive Summary

Background

Governance refers to how an organization makes and implements decisions. In the public sector, it is about senior managers having knowledge of the internal and external environment, using this knowledge to establish an overall strategic direction for the department based on its mandate and priorities, and putting systems and controls in place that will contribute to the achievement of priorities and objectives.

The Secretariat is a central agency of the Government of Canada and the administrative arm of Treasury Board. The Secretariat’s mandate is to support Treasury Board with respect to its three main roles: management office role, budget office role and people management role.

The Secretariat has strived to take an approach to governance that is flexible and able to adapt to its internal and external environment. As such, the governance structure has been continuously assessed and modified to ensure that it remains aligned to the Secretariat’s operational and management requirements.

Objective and scope

The objective of the audit was to assess the adequacy and effectiveness of the Secretariat’s governance framework.

The audit’s scope covered all significant aspects of the Secretariat’s governance framework, including committees in place to deliver on its core mandate and priorities and to support its decision-making processes. 

The audit did not include an assessment of the following:

• The Treasury Board Strategy Committee, which reviews Treasury Board submissions before they are submitted to the Treasury Board for approval;  
• Treasury Board portfolio committees, such as the Public Service Management Advisory Committee; and
• Other Secretariat governance arrangements that are associated with the Secretariat’s work, such as interdepartmental deputy minister-level committees.

Audit results

The governance structure supports the overall execution of the Secretariat’s core mandate and priorities. Strengths include its flexibility to adapt to organizational changes and its strong support of Treasury Board’s management office role. Opportunities for improvement include:

• Greater committee strategic planning and agenda management to ensure the Secretariat provides balanced and appropriate support to each of Treasury Board’s main roles; and
• Continued integration of the Office of the Chief Human Resources Officer into the governance framework.

The governance framework supports and facilitates strategic direction setting. Strengths include the development and communication of the strategic direction as well as alignment with key implementation mechanisms. Opportunities for improvement include:

• Greater integration of sector business and human resources plans into the overall strategic direction; and
• Completion of the Integrated Business Plan.

The governance framework enables transparent, effective and efficient decision making in most respects. Strengths include effective communication and cohesiveness among Executive Committee members, which allows for a clear understanding of their roles and responsibilities. Opportunities for improvement include:

• More effective communication of decisions and decision-making processes to Secretariat staff below the executive management level;
• More effective and efficient use of the Directors Coordinating Committee; and
• Greater integration and discussion of risks across committees.

The governance framework supports accountability and continuous improvement. Opportunities for improvement include:

• More effective communication of the processes and accountabilities of key governance committees to Secretariat staff below the executive management level; and
• Incorporating self-assessments into the ongoing activities of all committees.

Overall Conclusion

Overall, the Secretariat’s governance framework is well established and generally working as intended. The structures and processes in place adequately address the Secretariat’s needs for effective governance. A number of recommendations to further enhance governance are outlined below.

Audit Recommendations

It is recommended that the Secretariat:

1. Implement mechanisms to further enhance governance committee planning, with emphasis on stakeholder engagement, forward agenda management and linkages among the various committees;
2. Improve overall communication of senior management decisions to Secretariat staff with emphasis on the following:
   • Improving Executive Committee (EXCO) members’ communication to staff of EXCO discussions and debriefs; and
   • Maintaining up-to-date records of discussion for the committees that currently have information posted on InfoSite;
3. Revisit the role of the Directors Coordinating Committee (DCC) and its relationship to the senior-level governance committees with a view to enhancing the efficiency, effectiveness and communication of DCC outcomes; and
4. Continue the integration of risk management principles into the governance framework to ensure that risk is adequately considered in the decision-making process.

A management action plan has been developed by the Secretariat and is presented in Appendix 2.

1.Background

1.1 Governance defined and internal audit’s role in governance

What is governance?

There is no single, comprehensive, universally accepted definition of organizational governance. The following definition of public sector governance from the Institute of Internal Auditors (IIA) served as the basis of the audit:

“Public sector governance encompasses the policies and procedures used to direct an organization’s activities to provide reasonable assurance that objectives are met and that operations are carried out in an ethical and accountable manner.”^[1]

While the IIA recognizes that no single governance model applies to public sector organizations, it set out certain common principles of governance that could reasonably be expected of public sector organizations. Specifically, these include setting direction, overseeing results, correcting course and reporting on accountability. In keeping with these principles, governance can be summarized as senior managers having knowledge of the internal and external environment, using this knowledge to establish an overall strategic direction for the department based on its mandate and priorities, and putting systems and controls in place that will contribute to the achievement of priorities and objectives.

What is internal audit’s role in governance?

Internal audit can provide independent, objective assessments of the appropriateness of the organization’s governance structure and the operational effectiveness of specific governance activities. As such, internal audits act as catalysts for change, helping to identify areas needing improvement to enhance the organization’s governance structures and practices.

1.2 Treasury Board of Canada Secretariat governance structure

The Secretariat is a central agency of the Government of Canada and has a broad mandate with a wide spectrum of roles and responsibilities. While the Secretariat is defined as a government department under the Financial Administration Act, its primary function is to improve whole-of-government operations. As such, the Secretariat’s mandate is to support Treasury Board with respect to its three main roles: management office role, budget office role and people management role.

The Secretariat has strived to take an approach to governance that is flexible and able to adapt to its internal and external environment. The governance structure has been continuously modified to ensure that it remains aligned to the Secretariat’s operational and management needs. The following diagram illustrates the current structure as of October 31, 2009.

Diagram 1: The Secretariat’s Governance Structure

Diagram 1: Text version

Diagram 1: Display full size graphic

(Source: Priorities and Planning)

Two main committees, the Senior Executive Committee (SEC) and the Executive Committee (EXCO), are found at the top of the current governance structure, with the following three assistant secretary–level committees directly feeding into the decision-making process: the Management Infrastructure Committee (MIC), the Policy and Oversight Committee (POC) and the Change Management Committee (CMC).

The Committee Secretariat, which is housed within the Priorities and Planning sector (P&P), manages all aspects of the Secretariat’s governance committees.

Senior Executive Committee (SEC). This committee is composed of the senior executive: the Secretary, Associate Secretary, Chief Human Resources Officer and Comptroller General. SEC serves as the point of integration for the work of the governance committees. It makes final decisions on policy recommendations from the assistant secretary–level committees and other committees as required. (4 members) 

Executive Committee (EXCO). This committee, consisting of all senior executives and assistant secretary–level executives, serves as a forum for updates on deputy minister–level committees and for the exchange of information between executives. (27 members) 

Committees directly supporting SEC and EXCO

Management Infrastructure Committee (MIC).This assistant secretary–level committee supports the Secretariat’s internal services program activity. MIC currently has two subcommittees, composed of members from the assistant secretary and director general levels, which focus on specific areas of internal services such as information management/information technology (IM/IT) and accommodations. During the period of the audit, MIC also had a human resources (HR) subcommittee; however, its function was rolled into the Directors Coordinating Committee in October 2009. (15 members)

Policy and Oversight Committee (POC). This assistant secretary–level committee supports the Secretariat’s core mandate and priorities as they relate to Treasury Board’s management office role, budget office role and people management role. (13 members)

Change Management Committee (CMC). This assistant secretary–level committee provides overall leadership, strategic direction and advice on the implementation of the Secretariat’s Change Agenda. (16 members)

Senior HR Committee (SHRC). This committee, composed of members from the assistant secretary and director general levels, is responsible for recommendations and decisions on high-risk HR transactions or on transactions having horizontal impacts on the Secretariat as a whole. (7 members) 

Evaluation Committee. This committee, composed of members from the assistant secretary and director general levels, oversees the Secretariat’s evaluation matters. The committee started out as a subcommittee of POC and has since become a committee that reports to SEC. (8 members)  

Committee supporting assistant secretary–level committees

Directors Coordinating Committee (DCC). This director general–level committee provides direction and advice on items destined for the assistant secretary–level committees. (27 members)

External committees

Government of Canada Audit Committee (GCAC). The audit committee consists of two streams: Stream 1, which functions as a departmental audit committee similar to other audit committees in government, and Stream 2, which functions as an advisory body to the Comptroller General. The committee is composed of three^[2] external members (including the chair), and the Secretary of the Treasury Board is an ex-officio member. (5 members)

Public Service Management Advisory Committee (PSMAC). This is an external deputy minister–level committee that provides advice on the advancement of the Government of Canada’s management agenda. (35 members)

Sector-specific committees

Because the committees described below are sector-specific and the Committee Secretariat does not deem them to be part of the Secretariat’s governance structure, they were not included in the governance structure diagram. Nevertheless, they were considered in the audit because their role and importance in dealing with organization-wide issues was highlighted during the audit planning phase.

Program Sector Assistant Secretaries (PSAS). This committee, consisting of the assistant secretaries from the program sectors, coordinates program sector input to the assistant secretary–level governance committees. (9 members)

Program Sector Director Generals (PDG). This director general–level committee, a subcommittee of PSAS, facilitates consultation and information sharing. (21 members)   

2.Audit Details

2.1 Authority for the audit

The audit of the Secretariat’s governance framework is part of the approved Treasury Board of Canada Secretariat Three-Year Risk-Based Audit Plan 2009–12.

2.2 Reasons for the audit

The Treasury Board Policy on Internal Audit emphasizes the important role that the internal audit function has within the federal government in terms of providing assurance on risk management, internal controls and governance processes.

Organizational governance is an important element in several key Secretariat-wide initiatives, such as the Policy Suite Renewal initiative and the Management Accountability Framework. As well, governance bodies and senior management oversight are essential components in the overall management and mitigation of the key risks identified in the Secretariat’s 2009–10 Corporate Risk Profile. Given the requirements of the Policy on Internal Audit and the significance of organizational governance to the Secretariat in fulfilling its mandate, the conduct of an audit of the governance framework was identified in the Risk-Based Audit Plan 2009–12.

2.3 Audit objective

The objective of the audit was to assess the adequacy and effectiveness of the Secretariat’s governance framework. Specifically, the audit assessed the extent to which the governance framework is aligned with the Secretariat’s mandate and priorities and supports the development of the Secretariat’s strategic direction, its decision-making processes, as well as accountability and continuous improvement.

The audit focussed on the following areas: 

1. Does the governance framework support the execution of the Secretariat’s core mandate and priorities?
2. Does the governance framework support and facilitate strategic direction setting?
3. Does the governance framework facilitate transparent, effective and efficient decision making?
4. Does the governance framework support accountability and continuous improvement?

2.4 Audit scope

The audit’s scope covered all significant aspects of the Secretariat’s governance framework, including committees in place to deliver on its core mandate and priorities and to support the decision-making process.

The following committees were fully included in the audit’s scope: SEC, EXCO, MIC (and related subcommittees), POC, CMC, DCC and SHRC. Certain committees – GCAC, the Evaluation Committee, PSAS and PDG – were partially included in the audit’s scope and their examination was limited to analyzing linkages with the other governance committees.

The audit also examined the role of champions who lead specific Secretariat-wide initiatives and the linkages between performance management agreements and the integrated planning framework.

The examination was conducted from January to October 2009 and covered the governance framework in place between January 1, 2008, and June 30, 2009. Consideration was also given to the following changes made to the governance framework between July and October 2009:

• The introduction of EXCO week-ahead meetings to provide a forum for discussing short-term priorities, issues and operational risks;
•  Integration of OCHRO business into the Secretariat’s governance structure;
•  Modifications to the chair and membership of the various committees;  
•  The performance of the POC Moving Forward self-assessment exercise;
•  Integration of MIC Human Resources committee functions into the DCC terms of reference; and
•  The introduction of the Committee Secretariat’s integrated committee planner to track agenda items.

The Management Action Plan presented in Appendix 2 outlines further changes that have been made to the governance framework since the beginning of the audit.

The audit did not include an assessment of:

• The Treasury Board Strategy Committee, which reviews Treasury Board submissions before they are submitted to the Treasury Board for approval;
• Treasury Board portfolio committees, such as PSMAC; and
• Other Secretariat governance arrangements that are associated with the Secretariat’s work, such as interdepartmental deputy minister-level committees.

2.5 Audit criteria

The risks identified during the planning phase of the audit helped determine the audit criteria, which were also based on the following sources:

• Office of the Comptroller General’s Core Management Controls
• Management Accountability Framework (MAF) elements
• IIA’s Organizational Governance: Guidance for Internal Auditors
• IIA’s The Role of Auditing in Public Sector Governance
• Open Compliance and Ethics Group (OCEG) Corporate Governance Maturity Model

The audit’s objectives and criteria, as well as an overall rating for each criterion, are presented in Appendix 1.

2.6 Approach and methodology

The audit approach and methodology follows the Internal Auditing Standards for the Government of Canada and the IIA’s 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.

Limited examples of public sector governance audits were found during the planning phase of this audit. Consequently, much of the methodology was adapted from various sources, including IIA guidance on audits of governance, audits of governance conducted by other government departments and the Office of the Auditor General of Canada (where available), and governance-related documents from international sources (e.g. Australian National Audit Office guidance on public sector governance, UK governance principles). A comprehensive approach, encompassing a broad spectrum of governance aspects and best practices, was adopted to help provide value to the Secretariat.

The approach used to carry out the audit included the following:

• Documentation review (including committee terms of reference, agendas and records of discussion; the Secretariat’s Program Activity Architecture and Corporate Risk Profile; and various accountability reports and monitoring instruments);
• Interviews with 18 of 23 EXCO members and with other key stakeholders;
• Survey of governance committee members at the senior management level and EXCO working session on governance; and
• Audit procedures based on the audit objectives and criteria outlined in Appendix 1.

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