Financial Administration Act Accountabilities – Agency Activities Audit

Final Report

Corporate Audit and Evaluation Branch
January 2011

Table of Contents

• Executive Summary
• Introduction
• Focus of the Audit
• Findings, Recommendations and Action Plans
  • 1.0 Delegation of Financial Signing Authorities - Key Controls
  • 2.0 Comprehension of Financial Signing Authority Responsibilities
    • 2.1 Consistent Comprehension of Delegation Responsibilities
    • 2.2 Design and Monitoring of Delegation Training
    • 2.3 Delivery of Delegation Training
  • 3.0 Application of Financial Signing Authorities - Accountability
    • 3.1 Communication of Accountability Consequences
• Conclusion

Executive Summary

Background: Two sets of financial statements are prepared each year by the Financial Administration Directorate (FAD) of the Finance and Administration (F&A) Branch in the Canada Revenue Agency (CRA). One set is for reporting of revenues and expenses processed by the CRA in the administration of tax laws and benefit programs (referred to as Administered Activities) and the other set of statements cover operational expenses and revenues (Agency Activities).

The Financial Administration Act (FAA) is the cornerstone of the legal framework for general financial management and accountability in the Public Service of Canada. The FAA sets out a series of fundamental principles on the manner in which government spending may be approved, expenditures made, revenues obtained and public funds borrowed. The Minister of National Revenue delegates financial signing authority to CRA managers to administer programs and manage expenditures.

Delegation of financial authority is administered through CRA’s financial authority delegation matrix - the Agency Delegation Document. The Finance and Administration Manual (FAM) conveys financial administration policies and procedures and sets out the requirements of the Treasury Board of Canada Secretariat (TBS) and the CRA for financial control and accountability. The F&A Branch is responsible for managing and maintaining the Agency Delegation Document and the FAM.

Objective: The objectives of the audit were to assess the CRA’s practices in administering and exercising delegated financial authorities under the FAA as well as to examine the level of comprehension, and assess the accountability of those possessing delegation responsibilities.

The audit was conducted in accordance with the International Standards for the Professional Practice of Internal Auditing.

Conclusion: Overall, the CRA’s practices involving the administration of delegated financial authority accomplished the requirements as prescribed under the FAA. Individuals with delegated authorities generally understood their associated responsibilities and acknowledged the existence and importance of personal accountability.

The compliance of transactions with FAA requirements (section 33, section 34) was tested during the planning phase of this audit. These transactions were found to be generally compliant with prescribed FAA requirements.

Comprehension of Financial Signing Authority Responsibilities

Training and guidance is available and accessible. It generally provides trainees the necessary knowledge required to properly assume delegation responsibilities.

Opportunities exist to improve the effectiveness of the design and delivery of delegation training. FAD should further solicit and consider user feedback with regards to the design of delegation training, while ensuring that key tools and guides which aid holders of delegation authorities are more visible and accessible.

Application of Financial Signing Authorities – Accountability

Monitoring and oversight activities are established and followed which ensure that accountability exists for CRA managers who exercise financial signing authorities. Improvements could be made pertaining to the frequency and timeliness of communication of the consequences of non-compliance with delegated responsibilities.

Action Plan

F&A recognizes the need for improvements and has action plans to address the issues found.

Introduction

Two sets of financial statements are prepared each year by the Financial Administration Directorate (FAD) of the Finance and Administration (F&A) Branch in the Canada Revenue Agency (CRA). One set is for reporting of revenues and expenses processed by the CRA in the administration of tax laws and benefit programs (referred to as Administered Activities) and the other set of statements covers operational expenses and revenues (Agency Activities).

The Financial Administration Act (FAA) is the cornerstone of the legal framework for general financial management and accountability in the Public Service of Canada. The FAA sets out a series of fundamental principles on the manner in which government spending may be approved, expenditures made, revenues obtained and public funds borrowed. The key principle is that Ministers and deputy heads delegate financial signing authorities in writing to managers in their organizations to enable them to administer programs and manage expenditures under their jurisdiction.

The specific sections of the FAA that govern the administration of financial authorities are:

• section 32 (s.32) - Spending Authority (Expenditure Initiation and Commitment of Funds), which provides the authority to commit funds against an appropriation before an expense is incurred,
• section 34 (s.34) - Certification Authority (Account Verification), which provides the authority to certify that work was performed and that goods were supplied or services were rendered as contracted, and
• section 33 (s.33) - Payment Authority, which provides the authority to pay expenditures after ensuring that the payment is a lawful charge against an appropriation and that FAA s.34 was properly exercised.

The F&A Branch has functional responsibility for administering and exercising the delegated financial signing authorities in the CRA. The FAD within F&A is responsible for managing, maintaining and providing advisory services with respect to the Agency Delegation Document and the creation and review of specimen signature cards which are electronically stored in the Corporate Administrative System (CAS).

The Finance and Administration Manual (FAM) is maintained by F&A and conveys to managers and other employees of the CRA, the financial administration policies and procedures. It also sets out the Treasury Board of Canada Secretariat (TBS) and CRA requirements for financial control and accountability.

Focus of the Audit

The audit objectives were:

• to assess the Agency’s practices in administering and exercising delegated financial authorities under the FAA. The scope of this objective involved examining the controls that exist surrounding the maintenance of the Agency Delegation Document.
• to examine the overall level of comprehension, and assess the accountability of those having delegated financial signing authority (Delegation) under the FAA.

The examination phase took place between April and August 2010. An assessment of the compliance with TBS and CRA policy requirements with respect to the FAA s.34 and s.33 authorities was performed during the planning phase of this audit. It was conducted in conjunction with the testing carried out during another internal audit, the Financial Monitoring Controls - Operating Expenses Audit, which examined financial controls other than the delegated authorities. The audit report was presented at the October 27, 2010 Management Audit and Evaluation Committee meeting.

The audit was conducted in accordance with the International Standards for the Professional Practice of Internal Auditing.

Findings, recommendations and action plans

1.0 Delegation of Financial Signing Authorities

Overall, the CRA’s practices involving the administration of delegated financial authority (including the CRA’s controls related to the Financial Signing Authority Policy and Agency Delegation Document) meet the requirements as prescribed under the FAA. Individuals with delegated authorities generally understood their associated responsibilities and acknowledged the existence and importance of personal accountability.

2.0 Comprehension of Financial Signing Authority Responsibilities

2.1 Consistent Comprehension of Delegation Responsibilities

An assessment of the compliance with TBS and CRA policy requirements with respect to the FAA s.34 and s.33 authorities was performed during the planning phase of this audit. A sample of 616 operating expense transactions related to the 2008-2009 fiscal period were tested. While these transactions were found to be generally compliant with s. 34 and s. 33 certification requirements, there were specific key concepts related to the application of delegation responsibilities which were not consistently understood.

The understanding of responsibilities by managers with delegated authorities, particularly s.34 of the FAA, was primarily examined by the use of a questionnaire, which was developed and administered by Internal Audit, and completed by over 350 CRA managers. Overall, the majority of respondents demonstrated a good understanding of key concepts. However, the following delegation notions were not consistently understood:

• Portability of delegation responsibilities – Sixty-eight per cent (68%) of questionnaire respondents understood that delegated authorities are assigned to a position, rather than to an individual. A lack of understanding of this concept could lead to the belief that when an individual changes roles within the CRA, their delegated authority is portable to their new position. This could result in unauthorized utilization of delegated responsibilities.
• Specific s.34 verification procedures – While questionnaire respondents demonstrated a sound understanding of the most routine s.34 verification responsibilities (i.e. payee is entitled to payment, goods and services have been received), approximately twenty five per cent (25%) of respondents did not correctly respond to questions regarding less common s.34 verification procedures (i.e. applicable discounts have been taken, correct financial coding of the transaction has been provided). Additionally, approximately thirty per cent (30%) of respondents did not differentiate between the level of required due diligence between “high risk/high dollar” transactions and “low risk/low dollar” transactions. It is important that managers with delegated authority understand that they are responsible for providing the same level of diligence to any transaction which they certify.
• Responsibilities of alternates – The questionnaire indicated that seventy one per cent (71%) of respondents fully understood when alternates may exercise their delegated authority.

Recommendations:

It is recommended that FAD revisit the design and delivery of training topics linked to the areas on the questionnaire where respondents experienced difficulty. Additionally, FAD should consider reviewing training content and consider altering their training plan to offer refresher courses.

Action Plan

Management will review the content of the training offered on delegated financial signing authority with the objective of ensuring that topics linked to the areas of the questionnaire where respondents experienced difficulty are adequately covered. In addition, Management will consult with Branches and Regions in order to determine if there is a need for classroom training for managers with financial signing authority.

On an annual basis, Management will provide refresher training to a sample of managers that have had financial signing authority for more than five years. The Financial Signing Authority Policy will be modified to reflect this approach.

To further strengthen managers’ awareness and understanding of their delegation responsibilities F&A will start sending e-mails to managers with delegated financial signing authority in the form of “Do’s & Don’ts” focusing on areas of the policy found to be less well understood.

Implementation Date: December 31, 2011

2.2 Design and Monitoring of Delegation Training

The online Delegation training is mandatory for new managers with delegated responsibilities and contains a link for users to submit feedback regarding course content. Feedback is solicited to ensure that suggestions to improve the content of training are provided on a timely basis; however, user feedback is not currently considered in the design of Delegation training. Given that there are key delegation concepts not consistently understood by managers, inclusion of feedback received from training users regarding the adequacy and effectiveness of the online training may improve results.

When an individual with delegated authority has completed the mandatory online training, a hard copy of the certificate that supports the individual’s successful completion is physically stored and maintained by the Financial Reporting and Accounting Division (FRAD). FRAD has identified that electronic storage, and maintenance of this information, rather than physical storage, would be a more efficient means of monitoring who has completed the mandatory training. FRAD is considering implementing an electronic means to store and maintain all individuals’ certification of completion regarding Delegation training.

Recommendation:

FAD should ensure that feedback continues to be solicited from training users and considered by those responsible for tailoring and designing Delegation training.

Action Plan

Management agrees and will ensure that the feedback received from training users is considered when the content of the training is reviewed.

Implementation Date: December 31, 2011

2.3 Delivery of Delegation Training

Questionnaire respondents indicated that key tools and guides with respect to the fulfillment of Delegation responsibilities were not easily located. Specifically, questionnaire results identified that forty per cent (40%) of respondents were unable to locate the Agency Delegation Document and over fifty per cent (50%) were unable to locate the s.34 Verification Checklist Questionnaire. Respondents suggested that there should be a single reference point where all Delegation documents, tools and guides could be found online.

Recommendations:

F&A should evaluate the placement, and resulting visibility, of electronic links which direct users to the existing Delegation of Authority section on Infozone (e.g. Manager’s Corner and Manager’s F&A Gateway).

FAD should actively promote and communicate to delegated authority holders that these links exist in order to increase managers’ awareness of the availability of all key tools and guides pertaining to Delegation responsibilities.

Action Plan

Management will review Infozone sites in order to identify all relevant areas where the links to the Delegation documents as well as related policies, tools and guides could be inserted to maximise visibility and awareness.

To further raise visibility and awareness of key Delegation documents and tools, F&A will start sending e-mails to managers with delegated financial signing authority in the form of “Do’s & Don’ts”, which will focus on areas of concern including the ease with which managers can locate key reference and guidance material.

Implementation Date: September 30, 2011

3.0 Application of Financial Signing Authorities – Accountability

3.1 Communication of Accountability Consequences

The questionnaire results indicated that while a good understanding exists regarding the importance of personal accountability pertaining to an individual’s delegated authorities, there is a lack of clarity of specific consequences of unintentional or intentional non-compliance with their responsibilities. The questionnaire also indicated that situations may arise where individuals with delegated authority attempt to investigate potential non-compliance, whereas, they should be referring such matters to another appropriate area within the CRA (i.e.: Security and Internal Affairs Directorate, Training and Learning Directorate).

Recommendations:

F&A should improve the frequency and timeliness of communications addressing cases of non-compliance to individuals with delegated authorities, for example, through releasing statistics or summaries of non-compliance. F&A should also ensure that awareness exists amongst those with delegated responsibilities as to how to address potential non-compliance in a manner consistent with CRA policies.

Action Plan

In order to raise awareness of procedures for handling non-compliance management will amend the Financial Signing Authority Policy to include a description of the process to be followed in cases of non-compliance. The description will include consequences resulting from non-compliance. In addition, F&A will monitor more closely cases of non-compliance and consider additional mechanisms for communicating results to concerned individuals.

Implementation Date: March 31, 2011

Conclusion

Overall, the CRA’s practices involving the administration of delegated financial authority meet the requirements as prescribed under the FAA. Individuals with delegated authorities generally understood their associated responsibilities and acknowledged the existence and importance of personal accountability.

The compliance of transactions with FAA requirements (i.e. section 33, section 34) was tested during the planning phase of this audit. These transactions were found to be generally compliant with prescribed FAA requirements.

Comprehension of Financial Signing Authority Responsibilities

• Training and guidance is available and accessible. It generally provides trainees the necessary knowledge required to properly assume Delegation responsibilities.
• Opportunities exist to improve the effectiveness of the design and delivery of Delegation training. FAD should further solicit and consider user feedback with regards to the design of Delegation training, while ensuring that key tools and guides which aid holders of Delegation authorities are more visible and accessible.

Application of Financial Signing Authorities – Accountability

• Monitoring and oversight activities are established and followed which ensure that accountability exists for CRA managers who exercise financial signing authorities.
• Improvements could be made pertaining to the frequency and timeliness of communication of the consequences of non-compliance with delegated responsibilities.

Action Plan

F&A recognizes the need for improvements and has action plans to address the issues found.

Date modified:

2011-05-06