Core Control Audit of the Federal Economic Development Agency for Southern Ontario

June 2016

Office of the Comptroller General

Note: FedDev Ontario has reviewed the findings and recommendations of the Core Control Audit below and developed a Management Action Plan in response to the audit.

Why this is important

The Financial Administration Act designates deputy heads as accounting officers for their department or agency. As accounting officers, deputy heads are accountable for ensuring that resources are organized to deliver departmental objectives in compliance with government policy and procedures.

Core control audits provide deputy heads with assurance regarding the effectiveness of core controls over financial management in their respective organizations. By doing so, core control audits inform deputy heads of their organization's level of compliance with requirements contained in selected financial legislation, policies and directives.

This audit is provided in accordance with a service level agreement between the Regional Development Agencies, including the Federal Economic Development Agency for Southern Ontario (FedDev Ontario), and the Office of the Comptroller General of Canada for the provision of internal audit services.

About the Federal Economic Development Agency for Southern Ontario

In 2009, the Government of Canada created FedDev Ontario to support the competitiveness, innovation and diversification of southern Ontario's economy.

FedDev Ontario's mandate was renewed in Budget 2013 for another five years, with an investment of $920 million from 2014 to 2019, including $200 million to administer the Advanced Manufacturing Fund.

According to its 2014–15 Departmental Performance Report, FedDev Ontario had spending of approximately $206.8 million and human resources of 227 full-time equivalents in fiscal year 2014–15.

FedDev Ontario's headquarters is located in Kitchener–Waterloo and is home to operational branches and directorates responsible for programs, finance and corporate services, and communications. The Agency also has offices in Peterborough, Toronto and Ottawa.

Core Control Audit Objective and Scope

The objective of this audit was to ensure that core controls over financial managementFootnote 1 within FedDev Ontario result in compliance with key requirements contained in the selected financial legislation, policies and directives.

The scope of this audit included financial transactions, records and processes conducted by FedDev Ontario. Transactions were selected from fiscal year 2014–15. The audit examined a sample of transactions for each of the selected policies and directives. Appendix A provides a complete list of policies and directives included in the scope of the audit and the overall compliance in the areas tested.

Conformance with Professional Standards

This audit engagement conforms with the Internal Auditing Standards for the Government of Canada, as supported by the results of the quality assurance and improvement program.

Hugo Pagé, CIA, CPA, CA
Acting Assistant Comptroller General
Internal Audit Sector, Office of the Comptroller General of Canada

Audit Findings and Conclusion

Core controls over financial management regarding the transactions tested within FedDev Ontario resulted in full or partial compliance with the key requirements contained in 9 of the 14 policies, directivesFootnote 2 and corresponding legislation tested. FedDev Ontario was not in compliance with key requirements contained in the remaining five policies and directives tested.

Sound controls were observed in the management of its transfer payments program. Good practices were noted with respect to the use of tools to assess the financial viability of transfer payment applicants and to assess the financial situation of recipients. FedDev Ontario also established sound controls in its year-end recording of payables, accountable advances and financial management governance structure.

Weaknesses were identified in the areas of contracting, documentation, approval and timeliness.

Contracting

This audit observed that documentation to support contracting instruments used (competitive and non-competitive) was not on file. In particular, the statement of work, justification for sole source, best-value analysis, evaluation criteria and report signed by all evaluators, evidence of security clearance, proof of execution and justification for amendments were not on file. In addition, with respect to approvals, the individuals approving contracts and amendments did not have signature cards to support their delegated authority. The proactive disclosure of contracts or amendments above $10,000 was not always made in the appropriate amount. Finally, some contracts were approved after FedDev Ontario had already received the services or the goods.

Documentation

Weaknesses were observed in the area of acquisition cards, because documentation to support initial credit limits and cardholder acknowledgement of responsibilities was not always retained on file. It was also observed that some fleet log books were not on file while others were not completed properly. For government travel, supporting justification for reimbursement was not always available when applicable limits were exceeded or when itineraries were modified. Documentation was not on file at the time that approval was provided in the Shared Travel System. Similarly for hospitality, supporting documentation was not on file to substantiate whether the most economical means was used to avoid or minimize hospitality costs. Weaknesses were observed with respect to the proactive disclosure of travel and hospitality costs. Some travel expenses were not accurately disclosed, and some hospitality expenses were not disclosed on the Agency's website. Documentation for pay administration, overtime and acting assignments, as well as timesheets for some casual assignments, were not on file. In addition, expenditure initiation and account verification were not always supported by complete documentation.

Approval

The delegation of financial signing authorities chart did not reflect the August 2013 changes in relation to approving travel found in the Directive on Travel, Hospitality, Conference and Event Expenditures and therefore, travel was approved by an individual without proper delegated authority. In the area of pay administration, departure forms were approved by management after the end of the employee's work period.

Timeliness

Pre-approvals were not always obtained prior to the expenditure initiation, especially in the areas of leave, travel, and acquisition cards. Similarly, account verification was not always performed on a timely basis, or timeliness could not be determined because transactions were not dated by the appropriate authority.

Recommendations

The Deputy Head of the Federal Economic Development of Southern Ontario should ensure that:

  1. The delegation of financial signing authorities chart is current and reflects the changes made to the Treasury Board Directive on Travel, Hospitality, Conference and Event Expenditures for approving travel.
  2. Employees' signature cards are aligned with the delegation of financial signing authorities, are signed by the employees and are approved by the supervisors prior to the effective date.
  3. Log books for each vehicle are appropriately completed and kept on file.
  4. Proper documentation is retained on file for acquisition cards to substantiate their issuance, approval, modification and condition of use, as well as the acknowledgement of responsibilities by the acquisition cardholder.
  5. Contracting business processes are improved and are consistently performed in compliance with the Treasury Board Contracting Policy, and that documentation is retained on file.
  6. Travel business processes are improved and are consistently performed in compliance with the National Joint Council Travel Directive, and that documentation is retained on file.
  7. Documentation to support justification for the most economical and appropriate way to facilitate government business is kept on file.
  8. Hospitality expenses for designated senior-level employees are proactively disclosed on the Agency's website.
  9. Employee leave is approved in a timely manner.
  10. Supporting documentation is kept on file to ensure that casual employment respects the 90-day limit in any given calendar year.
  11. Departure forms are appropriately completed by applicable authorities prior to the end of the working period.
  12. Expenditure initiation is properly documented and performed by an individual who has the appropriate delegated authority before expenses are incurred.
  13. Account verification is documented, properly dated, done on a timely basis and supported with proof of execution.

Management Response

Management has accepted the audit findings and has developed an action plan to address the recommendations. It is expected that the management action plan will be fully implemented by June 2017.

The results of the audit and the management action plan have been discussed with the Deputy Head of FedDev Ontario and with the Small Departments Audit Committee. The Office of the Comptroller General of Canada will follow-up on the implementation of the management action plan.

Appendix A: Policies and Directives Tested

Compliance to policies and directives tested
Policies and Directives Tested Compliance
Directive on Delegation of Financial Authorities for Disbursements Partially Met
Policy on Financial Management Governance Met
Directive on Fleet Management: Light Duty Vehicles Partially Met
Directive on Acquisition Cards Not Met
Directive on Accountable Advances Partially Met
Contracting Policy Not Met
National Joint Council Travel Directive Not Met
Directive on Travel, Hospitality, Conferences and Event Expenditures Not Met
Directive on Year End Recording of Payables Met
Directive on Leave and Special Working Arrangements Partially Met
Directive on Financial Management of Pay Administration Partially Met
Policy on Transfer Payments Met
Directive on Expenditure Initiation and Commitment Control Not Met
Directive on Account Verification Partially Met
Legend of Compliance ThresholdsFootnote 3
Met Greater than or equal to 98% compliance.
Partially met Greater than or equal to 80% and less than 98% compliance.
Not met Less than 80% compliance.

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Management Action Plan
Recommendations Priority Response and Planned Actions Responsibilities
( position title responsible for the action)
Timelines
  1. FedDev Ontario should ensure that the delegation of financial signing authorities chart is current and reflects the changes made to the Treasury Board Directive on Travel, Hospitality, Conference and Event Expenditures for approving travel.

High

Response:

The Agency concurs with the recommendation.

It should be noted that the auditors have highlighted that all charts were deemed up to date with the exception of the chart for operating authorities in the area providing authority for local travel.

   
   

Planned Actions:

FedDev Ontario has amended its delegation of authorities chart, and it is currently awaiting Minister approval.

Manager, Corporate Accounting and Financial Operations

Completed (Pending approval by the Minister of Innovation, Science and Economic Development)

  1. FedDev Ontario should ensure that the employees' signature cards are aligned with the delegation of financial signing authorities, are signed by the employees and are approved by the supervisors prior to the effective date.

High

Response:

The Agency concurs with the recommendation.

Planned Actions:

A review of all signatures cards has taken place and all issues noted in the audit related to the alignment of signature cards with delegated financial signing authorities have been rectified.

Manager, Corporate Accounting and Financial Operations

Completed

In addition, a process has been implemented to issue a structured reminder to managers where specimen signature cards have not been signed within the appropriate timeframe.

Manager, Corporate Accounting and Financial Operations

Completed

  1. FedDev Ontario should ensure that log books for each vehicle are appropriately completed and kept on file.

Low

Response:

The Agency concurs with the recommendation.

Log books for fleet vehicles in the HQ Office from 2014-15 were inadvertently discarded.

   

Planned Actions:

A new process has been established wherein fleet logs are returned to the Corporate Administrative Services fleet coordinator on a monthly basis. Once received, the logs are scanned and stored in GCDOCS for archival purposes.

Manager, Corporate Administrative Services

Completed

  1. FedDev Ontario should ensure that proper documentation is retained on file for acquisition cards to substantiate their issuance, approval, modification and condition of use, as well as the acknowledgement of responsibilities by the acquisition cardholder.

Medium

Response:

The Agency concurs with the recommendation.

   

Planned Actions:

All outstanding forms will be located, and in cases where documentation can not be found, new acknowledgement and approval forms will be completed.

Manager, Corporate Accounting and Financial Operations

June 2016

A new procedure to ensure the presence of both approval and acknowledgement forms will be conducted quarterly. Process will be conducted annually once 100% compliance is achieved.

Manager, Corporate Accounting and Financial Operations

July 2016 (for first review)

  1. FedDev Ontario should ensure that contracting business processes are improved and are consistently performed in compliance with the Treasury Board Contracting Policy, and that documentation is retained on file to ensure that:
    • Statements of work are developed and explicitly defined prior to the contract award;
    • Non-competitive contract files contain justification for sole source contracting in accordance with Section 6 of the Government Contracts Regulations;
    • Best-value analysis is performed prior to contract award;
    • The requirements for former public servant are addressed in the contracts;
    • Appropriate procurement vehicles are chosen and used in compliance with their terms and conditions;
    • The bid selection method and evaluation criteria are clearly outlined in the bid solicitation document for competitive contracts before the request for proposal is issued;
    • The evaluation of proposals and the selection of contractors are conducted in accordance with the pre-established criteria set out in the request for proposal and in an open, faire and transparent manner;
    • The bid evaluation report is signed by a minimum of two clearly identified evaluators;
    • A copy of the contract and/or amendments is signed by someone with appropriate delegation authority and is retain on file;
    • Contract approval is performed prior to the receipt of goods and services;
    • Security requirements are considered in the contract and are assessed and validated;
    • Contract amendments are issued before the contract end date and are appropriately justified; and
    • Contracts, and applicable contract amendments, valued at over $10,000 are publicly disclosed on the Agency's website.

High

Response:

The Agency concurs with the recommendation.

The Agency's Investment Review Committee currently reviews and approves all business/service contracts over $10,000 that are sole-sourced, all Advance Contract Award Notices ( ACANs) and any other service contract. The Investment Review Committee also provides recommendations on the establishment of Agency contracting policies, including the review of any professional service contract.

  Planned Actions:

This is an area where significant focus will be required in terms of effecting improvement of document management practices. While the Agency is satisfied with the administration and disclosure of large contracts, there are deficiencies noted, particularly in regards to justification and best-value analysis of low-dollar value contracts, in addition to contract documentation, which have been addressed.

   

FedDev Ontario will identify comparable organizations to obtain best practices in the areas of contracting and procurement and undertake a review to determine options for moving forward.

Chief Financial Officer

Q1/Q2 FY 2016–17

In instances where the record shows that non-competitive processes have been used for low-dollar value transactions, FedDev Ontario recognizes that it is important to have on record all documentation related to supporting justification and best-value analysis.

Manager, Corporate Administrative Services

Completed

On April 1, 2016, FedDev Ontario completed the migration of contract document management from paper files to the Agency's central electronic repository ( GCDOCS). This change in document management has enhanced the ability of the Agency's procurement unit to actively manage and monitor the contract files, and to ensure consistent contract administration and policy compliance.

Manager, Corporate Administrative Services

Completed

Additional procedures, including mandatory procurement request routing slips for all contract requests, and contract file checklists have been implemented to ensure documentation for the following are received and retained on file:

  • statements of work;
  • justification for non-competitive contracts;
  • best value analysis;
  • former public servant requirements;
  • support for chosen procurement vehicles;
  • bid selection method and evaluation criteria;
  • security requirements, and
  • proper signatures by appropriately delegated officials.

Manager, Corporate Administrative Services

Q2 FY 2016–2017

It is recognized that, while procedures and best practices have recently been put in place to meet policy compliance objectives, structure and system alone will not succeed without due diligence on implementation. To provide greater scrutiny on implementation progress, the Manager, Corporate Accounting and Financial Operations will sample contracting files starting Summer 2016 to ensure the procedures are working and are effective in addressing compliance. Based on the results of the review, FedDev Ontario will put in place an ongoing monitoring process (at least once a year).

Manager, Corporate Accounting and Financial Operations

Q2 FY 2016–17

  1. FedDev Ontario should ensure that travel business processes are improved and are consistently performed in compliance with the National Joint Council Travel Directive, and that documentation is retained on file to ensure that:
    • Justification is provided when travel is approved after the start of the travel period;
    • Travel activities are supported by an approved definition of the types of activities that are considered as events or as relating to the core mandate;
    • Employees are reimbursed for meals and incidental expenses at the applicable limits and only for the period of the business-related travel;
    • Employees select hotels from the pre-approved government supplier list, where applicable, and justification is kept on file for cases where the limit identified in the National Joint Council Travel Directive is exceeded or where the hotel is not included on a list;
    • Justification is kept on file to support a change of flight; and
    • All travel for designated senior-level Government of Canada employees is proactively disclosed at the correct amounts on the Agency's website.

High

Response:

The Agency concurs with the recommendation.

It should be noted that the audit sample period reflects the first year of the Agency transitioning to a new travel system. Many of the issues noted occurred as the Agency was adapting its procedures to reflect the new system, and that processes and procedures have been updated.

   

Planned Actions:

The verification checklist used by finance staff for processing travel claims has been updated to reflect all of the specific observations identified during the audit. The revisions to the checklist included a review of timeliness of Sec. 32 approval, a review of meal and incidental rates, provision of justification of non-standard hotel, and justification for a change of flight.

Manager, Corporate Accounting and Financial Operations

Completed

A suite of tools and training material will be developed for travellers (and travel arrangers) that will align with the verification checklist used by finance staff in order to ensure travel claims are complete and accurate. Materials will include Agency definitions on core mandate events.

Manager, Corporate Accounting and Financial Operations

November 2016

Regular and ongoing meetings will be initiated with the travel system provider to ensure that feedback on deficiencies in the system are communicated, and discussions can occur on how the Agency can leverage the system functionality to strengthen control gaps, as well as offer feedback for system improvements.

Manager, Corporate Accounting and Financial Operations

Completed/Ongoing

FedDev Ontario's Proactive Disclosure process for Travel and Hospitality has been reviewed and assessed for control gaps. Ongoing attention will be given to ensure proper disclosure.

Manager, Corporate Accounting and Financial Operations

Completed/Ongoing

  1. FedDev Ontario should ensure that documentation to support justification for the most economical and appropriate way to facilitate government business is kept on file.

Medium

Response:

The Agency concurs with the recommendation.

 

Planned Actions:

Measures have been taken to incorporate a value-for-money attestation into the request for hospitality process.

Manager, Corporate Accounting and Financial Operations

Completed

Hospitality pre-approval forms will be updated to include value-for-money attestation.

Manager, Corporate Accounting and Financial Operations

November 2016

  1. FedDev Ontario should ensure that hospitality expenses for designated senior level employees are proactively disclosed on the Agency's website.

High

Response:

The Agency concurs with the recommendation.

   

Planned Actions:

FedDev Ontario's Proactive Disclosure process for Travel and Hospitality has been reviewed and assessed for control gaps. Ongoing attention will be given to ensure proper disclosure.

Manager, Corporate Accounting and Financial Operations

Completed/Ongoing

  1. FedDev Ontario should ensure that employee leave is approved in a timely manner.

Low

Response:

The Agency concurs with the recommendation.

The current HRMS Leave Self Serve system has a built in notification process, notifying managers when employees submit leave requests, and also reminding them when requests have not been approved within a specific period. HR will issue a communique reminding managers of their obligations regarding leave, specifically noting that vacation leave must be approved in advance of the leave being taken. The new MyGCHR Manager's Dashboard may be a useful tool to aid managers in the future, and the potential for this will be determined once implemented.

   

Planned Actions:

Issue communique to managers regarding leave obligations.

Director General, Human Resources

End of Q2 FY 2016–2017

Include additional information about managers' obligations in the annual year-end leave communique.

Director General, Human Resources

End of Q4 FY 2016–2017 and every fiscal year-end thereafter

Review My GCHR capabilities to determine any additional support for managers in approving leave in advance.

Director General, Human Resources

Q3 FY 2016–2017

  1. FedDev Ontario should ensure that supporting documentation is kept on file to ensure that casual employment respects the 90-day limit in any given calendar year;

Medium

Response:

The Agency concurs with the recommendation.

New and future capabilities within Phoenix and MyGCHR will aid managers in tracking employees' casual days. In the interim, the current tracking process will continue: HR provides a tracking calendar to the manager to monitor each new casual employee's working days. If the employee moves to a different branch within the Agency, HR will confirm the number of days already worked and provide a tracking calendar to capture additional working days to the new manager.

   

Planned Actions:

Issue a communique confirming the current process will continue until new capabilities are available.

Director General, Human Resources

End of Q2 FY 2016–2017

Analyze capabilities of the new systems (Phoenix and MyGCHR) and develop an amended process.

Director General, Human Resources

Q3 FY 2016–2017

  1. FedDev Ontario should ensure that departure forms are appropriately completed by applicable authorities prior to the end of the working period.

High

Response:

The Agency concurs with the recommendation.

It is the managers' responsibility to ensure that departure forms are completed and assets returned prior to employees' final departure date. HR will examine whether an electronic process housed within GCDOCS may make this process more efficient.

   

Planned Actions:

Issue a communique reminding managers of their obligations regarding the current departure process.

Director General, Human Resources

End of Q2 FY 2016–2017

Review the feasibility of a new electronic process, including development of e-personnel files.

Director General, Human Resources

Q3/Q4 FY 2016–2017

Issue a follow-up communique regarding any enhancements to the departure process.

Director General, Human Resources

Q4 FY 2016–2017

  1. FedDev Ontario should ensure that expenditure initiation is properly documented and performed by an individual who has the appropriate delegated authority before expenses are incurred.

High

Response:

The Agency concurs with this recommendation.

All overtime requests must be pre-approved (s. 32) by a delegated manager and documentation confirming pre-approval must be maintained. Phoenix is used to process overtime, including s. 34 approvals; however it does not include a pre-approval (s. 32) mechanism.

   

Planned Actions in HR :

Issue a communique reminding managers of their obligations regarding overtime, including collective agreement provisions and the requirement for documenting and maintaining pre-approvals.

Director General, Human Resources

End of Q2, FY 2016–2017

Review possibility of using GCDOCS to maintain pre-approval information. Director General, Human Resources Q3, FY 2016–2017

If applicable, issue a communique regarding any new process developed to aid managers in capturing and maintaining pre-approvals.

Director General, Human Resources

Q4, FY 2016–2017

Planned Actions in Finance:

Send a reminder notice to all accounts payable staff to verify s. 32.

Manager, Corporate Accounting and Financial Operations

Completed

Training on s. 32 authority will be included on delegation training to be made available to cost centre managers.

Manager, Corporate Accounting and Financial Operations

September 2016

The use of electronic signature on financial forms will be explored and assessed to determine if it can augment compliance rates and timeliness of s. 32 approvals while meeting all necessary central agency policies and procedures.

Manager, Corporate Accounting and Financial Operations

June 2017

  1. FedDev Ontario should ensure that account verification is documented, properly dated, done on a timely basis and supported with proof of execution.

High

Response:

The Agency concurs with this recommendation.

   

Planned Actions:

Send a reminder notice to all accounts payable staff to verify s. 34 for all transactions.

Manager, Corporate Accounting and Financial Operations

Completed

Training on s. 34 authority will be included in delegation training to be made available to cost centre managers.

Manager, Corporate Accounting and Financial Operations

September 2016

The use of electronic signatures on financial forms will be explored and assessed to support better compliance rates and timeliness of s. 34 while meeting all necessary central agency policies and procedures.

Manager, Corporate Accounting and Financial Operations

May 2017

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