Review of internal controls

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1. Executive summary

Office of the Commissioner of Official Languages

The Office of the Commissioner of Official Languages (the Office) is responsible for protecting language rights and promoting English and French in Canadian society. The Office reports directly to Parliament.

The Commissioner of Official Languages (the Commissioner) is the spokesperson for the Office of the Commissioner of Official Languages. The Commissioner is an officer of Parliament, appointed by commission under the Great Seal, after approval by resolution of the Senate and House of Commons, for a seven-year term.

The Commissioner's mandate and role are set out in Section 56 of the Official Languages Act. His roles include ensuring that federal institutions comply with the Official Languages Act, upholding the language rights of Canadians and promoting linguistic duality and bilingualism. The Commissioners mandate is to take all measures within his power to ensure that the three main objectives of the Official Languages Act are met, which are:

  • the equality of English and French in Parliament, the Government of Canada, the federal administration and the institutions subject to the Act;
  • the preservation and development of official language communities in Canada; and,
  • the equality of English and French in Canadian society.

In order to achieve his goal, the Commissioner conducts a series of activities as described below:

  • ensures that federal institutions and other organizations subject to the Official Languages Act administer their affairs according to the spirit and the letter of the Act;
  • receives and investigates complaints related to official languages that are brought against federal institutions and other organizations;
  • recommends appropriate corrective measures;
  • appeals to the Federal Court on the complainant's behalf when all other avenues have been exhausted;
  • conducts audits, evaluations, studies, research and analysis to better understand the evolution of the status and use of English and French in the country;
  • responds to requests for information and other communications from the public;
  • monitors the advancement of English and French in the federal government and Canadian society;
  • helps federal institutions implement the Official Languages Act more effectively;
  • contributes to the development and vitality of official language minority communities; and
  • submits an annual report on its activities to Parliament, along with recommendations.

Controls background

Parliament and Canadians expect the federal government to be well managed with the prudent stewardship of public funds, the safeguarding of public assets, and the effective, efficient and economical use of public resources. They also expect reliable reporting that provides transparency and accountability for how government spends public funds to achieve results for Canadians.

One component of the plan to achieve this management excellence goal consists of conducting independent audits of annual financial statements. The Office has undergone annual independent audits of its financial statements by the Office of the Auditor General in the past.

The Office has taken the initiative to proceed with the documentation of its internal financial controls in an effort to comply with the Treasury Board of Canada Secretariat's (TBS) Policy on Internal Controls, and to ensure that controls in place are sound, and provide reasonable assurance that financial operations are conducted in compliance with regulations as well as applicable policies and directives.

Samson & Associates has been mandated by the Office to document and review significant financial processes and controls in place during the 2010-2011 fiscal year. The documentation and review of internal controls is part of a continuous improvement initiative that will allow the Office to operate in an effective manner, and to comply with key elements of the TBS Policy on Internal Controls. Based on observations and recommendations resulting from the review process, management response action plans will be prepared and implemented. Lessons learned will be shared with the Office management and staff.

Summary of process controls ratings and recommendations:

Report section Process Rating
8.1 Salary Expenditures Opportunity for Improvement
8.2 Procurement and Supplier Payments (including acquisition cards) Strong
8.3 Delegation of financial Authority & Signature Authentication Acceptable
8.4 Hospitality expenses Strong
8.5 Business travel credit cards and travel expenses Acceptable
8.6 Travel by Non Public Servant Strong
8.7 Asset Management Opportunity for Improvement

Recommendations:

8.1 Salary Expenditures

  1. It is recommended that the Office consider the acquisition of a salary forecasting system integrated to CDFS in order to eliminate the use of manual forecasting reports and parallel data entry systems, and to ensure that salaries are accurately forecasted, and reliable information is provided to management for sound decision making.
  2. It is recommended that the Office develop a series of standard financial reports to provide the necessary information to managers to perform the following activities:
    • Review actual salary costs to ensure that employees listed are charged to the appropriate responsibility center during the period, and that salary costs are accurate.
    • Review salary forecast to ensure it is reasonable and properly supported.
    • Review planned annual salary expenses to ensure accuracy and to ensure that the total does not exceed available funding.
  3. It is recommended that the standard financial reports developed be used universally by all RCMs.
  4. It is recommended that the Office develop a monthly post-payroll process to ensure that managers review and approve actual salary expenditure under, in compliance with TB Policies and Directives.

8.2 Procurement and Supplier Payments (including acquisition cards)

  1. It is recommended that the Office ensure that procurement file documentation indicate clearly that FAA Section 32 was duly authorized and that funds were committed before the purchase of a good or service or before a contract is entered into. This recommendation also applies to purchases paid with acquisition cards.

8.3 Delegation of financial Authority & Signature Authentication

  1. The Office's Instrument of Delegation of Financial Authorities should be modernized to reflect recent changes to TBS Policies, and in particular:
    • Assign functional authority to compensation specialists for FAA S.34 pre-payroll approval of pay transactions.
    • Reflect changes in TBS policies and directive, i.e. update instrument and reflect full authority of the Commissioner for the approval of hospitality expenses.
  2. It is recommended that authentication cards be approved/witnessed by the Director of Finance and Procurement.
  3. It is recommended that the Office develop and implement a process to ensure that authorities delegated to a substitute (during the absence of a RCM), be approved or pre-approved by the Commissioner.
  4. It is recommended that financial authority cancellation dates be clearly indicated on authentication cards.

8.4 Hospitality expenditures

No recommendation.

8.5 Business travel credit cards and travel expenditures

No recommendations.

8.6 Travel by non Public Servants

No recommendation.

8.7 Asset Management

  1. It is recommended that the Office develop and implement a Directive on the Management of Material, including provisions for the management of capital and non capital assets. The Directive should reflect the requirements under the TBS Policy on Management of Material, including:
    • References to the Office's Directive on Accounting for Capital Assets as required.
    • Roles & responsibilities for different types of assets, including the coordination of the material management process, the maintenance of records, and the custody and safeguard of assets.
    • Identification and tracking of assets (acquisition, transfers, disposals, etc.)
    • Frequency of physical inventory counts, along with instructions on counts procedures, and roles and responsibilities.
  2. It is recommended that the Office develop and implement a Directive on Accounting for Capital Assets that would,
    • Identify the capitalization threshold;
    • Describe the nature of capital assets (i.e. simple purchases, assets under construction, leasehold improvements, etc.);
    • Describe what costs should be included in the cost of a capital asset;
    • Describe asset classes, and depreciation method for each asset class;
    • Describe accounting processes related to the acquisition, amortization and disposal of assets.
  3. It is recommended that the Office revise the capitalisation threshold to $5,000 to reflect practices in other Government departments of similar size, and to minimize the work associated with tracking capital assets and amortization for small items. This will require a one-time restatement of Capital assets balance in the Office's financial statement.

2. Objective

The objective of this assignment is to document and conduct a preliminary review of significant financial internal controls in order to provide a reasonable level of assurance to senior management that the financial processes and controls in place adequately limit the risk of non compliance to TBS and the Office policies and directives. More specifically, the documentation of internal controls will allow the Office to comply with Section 6 of the TBS Policy on Internal Controls (See section 4 of this report for more details).

3. Methodology and Scope

The preparation of the internal controls documentation consisted of conducting interviews and walking through the Office's financial processes with various stakeholders. Narrative descriptions and flowcharts of individual processes were prepared, and compared with the Office and TBS' policy and directive requirements. The review was conducted during the months of February and March of 2011.

Samson & Associates completed the following tasks in order to document internal controls at the Office. For each control documented, the following activities were conducted:

  1. Reviewed pertinent OCOL documentation.
  2. Reviewed pertinent TBS policies and directives.
  3. Interviewed managers and officers as appropriate.
  4. Prepared draft narrative descriptions.
  5. Submitted draft narrative descriptions to the Office personnel for review of accuracy.
  6. Finalized narrative descriptions of internal controls.
  7. Prepared process flowcharts.
  8. Compared existing process controls with TBS and the Office policies and directives.
  9. Discussed observations and recommendations with the Chief Financial Officer.

Financial records or specific transactions were not tested or reviewed to assess the effectiveness of controls in place. Recommendations are intended to further strengthen stewardship and accountability over processes, and are based on the information obtained from the Office, and discussions with personnel of the Office, and professional judgment.

The documentation and review of controls related to salary expenditures was limited to FAA S.32, S.34 and S.33 approval processes under the responsibility of the managers. Controls related to the processing of pay transactions in the Regional Pay System (RPS) by Public Works and Government Services Canada (PWGSC) were not part of the scope of this project.

The soundness of internal control processes were assessed based on the following rating system:

Rating Description
Strong Processes in place are adequate to ensure control objectives are met.
Acceptable Processes in place are adequate to ensure control objectives are met; however, minor improvements are required.
Opportunity for Improvement Processes in place require immediate improvements to ensure control objectives are met.
Attention Required Processes in place are not in place or inadequate to ensure control objectives are met.

4. Internal Controls

The Federal Government has made significant progress in developing a management framework based on a culture of stewardship, accountability and control. Success is measured by linking activities and results to program goals and objectives. The planning of activities, resources and the conduct of departmental operations is based on a Program Activity Architecture (PAA). The Management Accountability Framework (MAF) describes the elements of accountability and stewardship expected from management, and provides guidelines in terms of governance, strategic orientation, and performance. Although the Office it is not subject to the MAF, it uses MAF principles as a guideline.

Generally, in the Canadian Federal Government, Deputy Heads have always had the responsibility to ensure that internal controls are regularly reviewed in the context of risk, ensuring that those internal controls are balanced and proportional to the risks which they mitigate.

The Comptroller General is responsible for monitoring compliance with the Policy on Internal Control within departments and/or for requesting that departments take corrective action. The TBS Policy on Internal Control stipulates that in the case of independent Officers of Parliament such as the Office, the responsibility to monitor departmental compliance with policy within the department as well as for responding to cases of non-compliance (in accordance with any Treasury Board instruments that address the management of compliance) lies solely with the Deputy Head.

Deputy Heads are also designated as accounting officers for their organizations under the Financial Administration Act. As such, they have a legal obligation to appear before Parliamentary Committees in support of their accountability and to answer questions relating to the measures taken to maintain an effective system of internal control in their organizations. In this context, the Chief Financial Officer (CFO) supports the Deputy Head by establishing and maintaining a system of internal control related to financial management including financial reporting and departmental accounts. Other senior departmental managers establish and maintain systems of internal control for their areas of responsibility and within the departmental system of internal control.

Section 6.1 of the Treasury Board Policy on Internal Control explains that the Deputy Head is responsible for the following:

  • Ensuring the establishment, maintenance, monitoring and review of the departmental system of internal control to mitigate risks in the following broad categories: the effectiveness and efficiency of programs, operations and resource management, including safeguarding of assets; the reliability of financial reporting; and compliance with legislation, regulations, policies and delegated authorities.
  • Signing an annual departmental Statement of Management Responsibility Including Internal Control Over Financial Reporting, also signed by the Chief Financial Officer, which prefaces the departmental financial statements and that will
    • acknowledge the responsibility of management for ensuring the maintenance of an effective departmental system of internal control over financial reporting;
    • acknowledge the conduct of an annual risk-based assessment of the system of internal control over financial reporting to determine its ongoing effectiveness;
    • acknowledge the establishment of an action plan to address any significant issues found as a result of the annual assessment of the effectiveness of the system of internal control over financial reporting; and
    • include a summary of the results of the assessment of the system of internal control over financial reporting along with the actions taken in response to any significant issues.

The Policy on Financial Resource Management, Information and reporting states that the Deputy Head is responsible for the management of budgetary controls, allocation and management of resources, compliance with the TBS Policy on Internal Controls, and for the department's internal control system, including financial reports.

The Chief Financial Officer is expected to ensure that the departmental Statement of Management Responsibility Including Internal Control over Financial Reporting is supported by the appropriate evidence (obtained annually from the execution of the assessment plan).

The notion of control is not defined in the acts and regulations or the policies and directives. Internal control is generally defined as a process influenced by policies, acts and regulations, members of the organization and the technology of the information systems developed to provide a reasonable level of assurance that inherent risks to the organization are taken into account. Further, internal controls ensure that the following objectives have been reached:

  • effectiveness and efficiency of operations;
  • compliance with policies, acts and regulations; and
  • effective production of timely and reliable financial and management information.

Internal control is a dynamic process that continuously adapts to changes in the organizational environment. Members of management and employees at every level must take part in identifying and assessing risks and adapting internal controls to provide a reasonable degree of assurance that the organization will be able to achieve its goals and fulfill its mission.

The elements of an organization include its resources, systems, processes, culture, structure, tasks and etc. The sum of an organization's elements should support employees in managing risks in order to achieve an organization's objectives.

Management and personnel are responsible for ensuring that process controls are effective and are applied to all of the department's operations. Internal control processes must continuously adapt to changes in the organization's environment. Management and personnel at all levels must therefore, actively investigate and identify new risks and must modify processes and controls appropriately to provide reasonable assurance that the organization can accomplish its objectives and mission.

Review of internal controls

Samson & Associates documented and reviewed internal controls in the context of five interrelated framework elements. Controls arise from the integration of program activities in the Office's business processes, in the federal Government environment. Controls can be formal or informal, and must be designed in a manner to allow small organization to be effective:

  1. Control Environment

    Senior management must promote and reinforce the importance of process controls throughout the organization's culture.

    The proper focus on controls complements the organizational structure, in terms of stewardship of processes, financial delegations, and risk management. The corporate culture contributes to the upholding of the Office's values and ethics, and to the commitment by managers and personnel to excellence.

  2. Risk management

    A comprehensive risk analysis framework ensures that risks are identified and operating plans are prepared accordingly to ensure that organizational goals are met.

  3. Information and Communication

    Processes and systems must be in place to provide management and personnel with accurate, timely and reliable information required to make sound decisions, and ensure that activities and operations are in compliance with applicable policies and directives.

  4. Control Activities

    Policies, directives, business practices, processes and procedures must be in place to ensure that activities are in compliance with the Financial Administration Act (FAA), and the Office and TBS' directives. Process controls must ensure there is sufficient documented evidence of approvals, verifications, reconciliations, document creation and retention, etc.

    As a result of this project, the key financial process controls are now documented through narrative descriptions and flowcharts.

  5. Monitoring and Internal Audit

    The Office's internal audit function must ensure that the effectiveness of internal controls be reviewed and evaluated in the future, that opportunities for improvement be identified, and action plans be prepared and implemented as required.

    Controls can be reviewed through a combination of specific audits as well as through continuous monitoring activities, including the direct supervision of personnel by managers, data analysis and comparisons, reconciliations, and tracking of the implementation of action plans). Periodic monitoring can consist of testing of selected transactions to verify the effectiveness of a given control.

5. Continuous improvement process

To date, the work conducted by the Office consists of the documentation and preliminary review of existing key control activities with regards to financial authorities required to conduct daily program activities. The review of the controls has allowed the assessment of the adequacy of existing controls to ensure control objectives are met.

The Office will be able to build on lessons learned and action plans prepared throughout this exercise. Additionally, the Office will be able to focus on other control elements that are important to the achievement of its objectives.

As the Office progresses towards a high level of maturity, continuous stakeholder feedback, and periodic reviews and evaluations of internal controls will allow the identification of opportunities for improvement of the effectiveness of the internal controls.

6. Internal Control Limits

The preparation of internal process controls documentation does not suffice to provide assurance that control objectives will be met. The effectiveness of the Office's internal controls and compliance to legislation and TBS policies and directives are the collective responsibility of all levels of management at the Office.

Because of the human factor, there is always a risk of error due to poor judgment or lack of knowledge. Internal controls systems are built on the presumption of competency and the good faith of stakeholders however, we must be conscientious of potential risks. Even within a strong system of internal controls, simple error, collusion and fraud may be difficult detect.

The recommendations contained in this report are made in the context of a small organization, where segregation of duties is not always possible. The effectiveness of internal controls can be significantly increased by strengthening stakeholder's stewardship and accountability, and by implementing controls such as active monitoring and management oversight.

7. Statement of Assurance and conclusion

The documentation and review of financial controls is based on information provided by the Office of the Commissioner of Official Languages and was conducted according to Internal Audit Standards of the Government of Canada which requires that the work be planned, and that evidence be documented to support findings, conclusions and recommendations. In our opinion, the procedures and documentation techniques used are sufficient to support the recommendations and conclusions contained in this report.

It is our opinion, subject to the observations and recommendations contained in this report, that the internal controls of the Office of the Commissioner of Official Languages as described and documented in this report provide reasonable assurance that the risk of non-compliance with the Financial Administration Act, and Treasury Board of Canada Policies and Directives is substantially limited.

Testing the effectiveness of the internal controls was not within the scope of this mandate. In order to further comply with the Policy on Internal Controls, it is recommended that a study to assess the effectiveness of internal controls be conducted, once recommended action plans have been implemented.

8. Observations and recommendations

Overall observation

The Office is a small organization with annual appropriations of $20.6M including EBP (2011–12 main estimates). Accounting operations, pay administration and financial reporting are performed internally. Position classification services are provided by an external service provider. During our review, it was found that most key financial controls were in place. However, opportunities for improvement were identified in the area of salary expense review, approval and forecasting, as well as Material Management. The Office's financial processes are integrated with Government of Canada common financial systems; financial controls and directives are aligned with TBS policies and directives.

Due to the small size of the Office, it is difficult to have a high level of segregation of duties; however, this control weakness can be mitigated by proper oversight, monitoring and thorough documentation. The recommendations in this report take into account the Office's size and available resources. The objective is to strengthen the effectiveness of the controls while ensuring that it is feasible to implement the proposed solutions.

8.1 Salary Expenditures

Opportunity for Improvement

Processes in place require immediate improvements to ensure control objectives are met.

Objective

  • To ensure that reasonable diligence is exercised in managing salary expenditures, and provide assurance to senior management that documented financial controls are adequate to mitigate the risk of non compliance with TBS and the Office policies and directives with regards to salary expenditures.
  • To ensure that managers exercise expenditure initiation and that the Office does not exceed the appropriation authorized by the Treasury Board.
Observations

Based on operating business plans that also include a human resource plan, the Office prepares an annual operating budget that reflects main estimates approved by the Treasury Board Secretariat of Canada.

Currently, the Office's Common Departmental Financial System (CDFS) can generate high level management reports through the Management Reporting Module (MRM). However, MRM does not have the functionality to generate detailed salary expenditure reports that would be required to perform an adequate manager review. Furthermore, planned annual salary expenditures are not committed through CDFS to ensure that salary spending falls within Parliamentary appropriations. To compensate for CDFS's reporting limitations, the Office uses a number of manually generated reports to forecast salary expenditures:

  • The Salary Forecasting Tool (SFT) is an ACCESS report generated and populated manually by a financial analyst. The report is intended to provide salary forecast information by employee and by RC. This report does not provide information on actual monthly and annual salary expenditures. The report's forecast information is compared with salary forecast information provided by Responsibility Center Managers (RCM), and is updated/investigated accordingly. Once the financial analyst has updated the SFT, a summary report is prepared manually and is presented to the executive team monthly.
  • Responsibility Center Managers are required to prepare a monthly forecast and submit it to the Finance Department. To do so, RCMs use personalized EXCEL based templates to provide forecast information to the Finance Department. RCMs do not use the SFT detailed salary report prepared by Finance to forecast planned expenditures and report back to finance.

  • A monthly financial summary report is generated manually by the finance department, and includes information such as Financial Highlights, funding available, budget allocations by Branch, expenses and operating expense commitments to date by Branch, forecast to year end, and projected surplus (deficit).

    The salary-free balance shown on the report does not include outstanding commitments to year end, therefore, the Office controls planned salary expenditures by calculating the projected Surplus (Deficit) (which is based on the total salary forecast compared to total salary funding for each branch for the year).

    This report is presented monthly at the senior management meeting by the Director of Finance.

The TBS Directive on Expenditure Initiation and Commitment Control states that spending authority is expected to be managed in a manner that maintains effective commitment control. It is also expected that all payments have a corresponding commitment, and that all commitments are recorded promptly and accurately. The Directive is applicable to salary expenses.

The Office's financial management reports are generated outside CDFS. The preparation of these reports is manual and time consuming for RCMs and the financial officer. Because these reports are generated outside the financial system and require parallel data entry, there is a risk of input errors that would create discrepancies between managers' forecast information, SFT reports and actuals.

RCMs have access to the MRM to generate reports. However, the MRM only provides salary forecast information at the RC level, with no detailed salary expense information by employee. To overcome MRM shortcomings, some managers have developed personalized reports to forecast salaries. Those reports have not been tested or approved by the Office for general use and may vary in format between managers. These informal forecasting tools are difficult to review and challenge, and sometimes results in forecasting errors.

Because MRM does not provide salary costs information, RCMs cannot review the actual monthly or year-to-date salary expense. According to the TBS Guideline on Common Financial Management Business Process for Pay Administration, managers are required to confirm the accuracy of pay expenses in order to complete the last part of FAA Section 34 verification requirements. This procedure is conducted after PWGSC pay transactions have been posted to the Office's financial system, and is considered a Post-Payroll control process in the payroll cycle.

Recommendations
  1. It is recommended that the Office consider the acquisition or development of salary forecasting system, that is integrated to its financial reporting system, in order to ensure that salaries expenses are accurately committed and forecasted, and reliable information is provided to management for sound decision making. This will eliminate the use of manual forecasting reports and parallel data entry systems.
  2. It is recommended that the Office develop a series of tools/reports to provide the necessary financial information to managers to perform the following activities:
    • Review actual salary costs to ensure that employees listed are charged to the appropriate responsibility center during the period, and that salary costs are accurate.
    • Review the salary forecast to ensure it is reasonable and properly supported.
    • Review planned annual salary expenses to ensure accuracy, and the total does not exceed available funding.
  3. It is recommended that the standard tools/reports developed be used universally by all RCMs.
  4. It is recommended that the Office develop a monthly post payroll process to ensure that Managers review and approve actual salary expenditure in compliance with TB Policies and Directives.
Management Response

OCOL supports these recommendations. However, we are currently in negotiations with the Treasury Board Secretariat to obtain funds for consolidating and improving our computer systems. In this context, it is essential for our base systems to be perfectly consolidated before integrating new tools. We are participating in the shared financial salary development project, which will include a salary forecasting model. OCOL recognizes that it needs to improve its capacity to produce integrated financial information for managers that is complete, timely, accurate and relevant, and that fully supports Treasury Board Secretariat directives and management structure. Processes will be developed in 2011-2012 to include salary management.

8.2 Procurement and supplier payments (including acquisition cards)

Strong

Processes in place are adequate to ensure control objectives are met.

Objective

Provide assurance to senior management that reasonable diligence is exercised, and financial controls documented are adequate to mitigate the risk of non compliance with TBS and the Office policies and directives with regards to procurement and supplier payments including the use of acquisition cards.

Observations

The Office managers are responsible for ensuring that expenditure initiation is properly approved under FAA S.32, and that supplier invoices are properly approved under FAA S.34 prior to payment. Currently, the Director of Finance also performs the responsibilities of the Director of Procurement. We found that procurement processes were well defined and understood. The Office's management structure does not include a contract review committee. However, contracting activity is reported to senior management through the Proactive Disclosure process. Training has been provided to Responsibility Center Managers and Administrative Assistants. It was determined that improvements are required for the following areas:

  • Documentation does not clearly show that FAA Section 32 approval was obtained and that funds were committed prior to the purchase of a good or service.
  • There are no clear guidelines to ensure that FAA Section 32 approval, and that the commitment of funds is done prior to the purchase of goods or services when payment is made via an acquisition card.
Recommendation
  1. It is recommended that the Office ensure that procurement documentation indicates clearly that FAA Section 32 was duly authorized and that funds were committed before the purchase of a good or service or before a contract is accepted. This recommendation also applies to purchases paid with acquisition cards.
Management Response

OCOL supports this recommendation. It recognizes that not every individual transaction is documented for low-value purchases. However, we believe an email authorization from the manager is acceptable if it is issued before the purchase. This practice is widely used and we are considering doing risk management because the recommendation weighs down our processes and is difficult to apply in a small organization.

8.3 Delegation of financial authority & Signature authentication

Acceptable

Processes in place are adequate to ensure control objectives are met; however, minor improvements are required.

Objective

Provide assurance to senior management that reasonable diligence is exercised, and financial controls documented are adequate to mitigate the risk of non compliance with TBS and Office policies and directives with regards to Delegation of Financial Authorities and Signature Authentication.

Observations

Process controls are generally well defined. However, it was determined that improvements are required in the following areas:

  • The current delegation instrument does not provide FAA S.34 functional authority to compensation specialists that approve pay transactions in RPS.

    As described in the TBS Guideline on Common Financial Management Business Process for Pay Administration, the FAA Section 34 approval process for payroll transactions is complex because it is shared between managers and compensation specialists. FAA S.34 approval is conducted in three parts throughout the different phases the payroll cycle.

    During the pre-payroll phase, the first part of FAA S.34 is conducted when managers approve pay transactions that are captured in the RPS by compensation advisors. The second part of FAA S.34 is conducted when Compensation Verifiers “Verify” and approve payroll changes made by compensation advisors in PWGSC's Regional Pay System (RPS).

    The third and last part is conducted during the post-payroll phase when managers approve the actual salary expenditures charged to their responsibility center under FAA Section 34.

  • During their absence for short periods of time (business trip, vacation, etc.), RCMs temporarily delegate their financial authorities to substitutes; emails are sent throughout the Office to advise that the financial authority for their responsibility center has been temporarily transferred to another person.

    According to paragraph 6.1.4 of the “Directive on Delegation of Financial Authorities for Disbursements”, persons designated to exercise financial authorities do not delegate these authorities to others. Furthermore, paragraph 6.1.1 states that financial authorities are solely delegated by the Deputy Heads.

  • There is no clear indication of the cancellation date of delegated financial authorities on Signature Authentication Cards upon the termination of a temporary delegation of authority or the departure of an employee.

  • Signature authentication cards are prepared and signed by a junior financial officer.

  • The current Instrument of Delegation of Financial Authorities adequately reflects the Office's management structure. However, recent changes in TBS Policies and Directives have resulted in changes to accountability and authority levels. As a result, a number of observations were made throughout this review with regards to modifications required to the delegation instrument.

Recommendations
  1. The Office's Instrument of Delegation of Financial Authorities should be modernized to reflect recent changes to TBS Policies, and in particular:
    • Assign functional authority to compensation specialists for FAA S.34 pre-payroll approval of pay transactions.
    • Reflect changes in TBS policies and directive, i.e. update instrument and assign full authority to the Commissioner for the approval of hospitality expenses.
  2. It is recommended that signature authentication cards be approved/witnessed by the Director of Finance and Procurement.
  3. It is recommended that the Office develop and implement a process to ensure that authorities delegated to a substitute during the absence of a RCM, be approved or pre-approved by the Commissioner.
  4. It is recommended that financial authority cancellation dates be clearly indicated on authentication cards.
Management Response

OCOL supports these recommendations. All the points have been addressed in the new version of the financial delegation that will be presented to the new Minister in June 2011.

8.4 Hospitality expenditures

Strong

Processes in place are adequate to ensure control objectives are met.

Objective

Provide assurance to senior management that reasonable diligence is exercised, and financial controls documented are adequate to mitigate the risk of non compliance with TBS and Office policies and directives with regards to hospitality expenditures.

Observation

Process controls are generally well defined. Existing controls reflect the requirements of the new TBS Policy on Hospitality as of January 2011.

  • All controls required to ensure that the control objective is met have been documented.
Recommendation

None.

8.5 Business travel card and travel expenses

Acceptable

Processes in place are adequate to ensure control objectives are met; however, minor improvements are required.

Objective

Provide assurance to senior management that reasonable diligence is exercised, and financial controls documented are adequate to mitigate the risk of non compliance with TBS and the Office's policies and directives with regards to travel cards and travel expenditures.

Observations

The Office's internal controls observed and documented include the elements required under the TBS Directive on travel cards and travelers cheques. However, it was determined that improvements are required in the following areas:

  • Section 6 of the TBS Directive on Travel Cards and Travellers Cheques states the roles and responsibilities with regards to travel cards, and states that these roles and responsibilities must be clearly communicated. There is no Directive that describes roles and responsibilities specific to the Office's organization.
  • Card holders are not required to provide written acknowledgement of responsibilities and obligations related to the use of the travel card.
Recommendations

The observations mentioned above are minor in nature, and do not increase the Office's risk of non-compliance to the policy. No recommendations are granted at this time.

8.6 Travel by non-public servants

Strong

Processes in place are adequate to ensure control objectives are met.

Objective

Provide assurance to senior management that reasonable diligence is exercised, and financial controls documented are adequate to mitigate the risk of non compliance with TBS and the Office's policies and directives with regards to travel expenditures for non public servants.

Observations

In 2009, the Office developed and implemented the Travel by Non Public Servants Directive. The Directive clearly describes roles and responsibilities. The internal controls observed and documented include the elements required under the Offices Directive and TBS' Policies and Directives on Travel by non-Public Servants.

Recommendation

No recommendation.

8.7 Asset management

Opportunity for Improvement

Processes in place require immediate improvements to ensure control objectives are met.

Objective

Provide assurance to senior management that reasonable diligence is exercised, and financial controls documented are adequate to mitigate the risk of non compliance with TBS and Office policies and directives with regards to asset management.

Observations
  • The Office's capitalization threshold is currently set at $1,000. This amount is considered low in comparison to the practice in other departments of similar size, and causes a large volume of low value assets to be capitalized and amortized.
  • The Office has developed some inventory lists. However, roles, responsibilities and accountabilities are not clearly defined. There is no Directive specific to the management, custody and tracking of assets.
  • There has been no physical count of inventory items and capital assets during the past five years to ensure the accuracy of records, and to validate the existence and condition of assets. There is a risk that inventory lists are inaccurate.
Recommendations
  1. It is recommended that the Office develop and implement a Directive on the Management of Material, including provisions for the management of capital and non capital assets. The Directive should reflect the requirements under the TBS Policy on Management of Material, including:
    • References to the Office's Directive on accounting for capital assets as required.
    • Roles & responsibilities for different types of assets, including the coordination of the material management process, the maintenance of records, and the custody and safeguarding of assets.
    • Identification and tracking of assets (acquisition, transfers, disposals, etc.)
    • Frequency of physical inventory counts, along with instructions on counts procedures, and roles and responsibilities.
  2. It is recommended that the Office develop and implement a Directive on Accounting for Capital Assets that would include:
    • Capitalization threshold
    • The nature of capital assets i.e. simple purchases, assets under construction, leasehold improvements, etc.
    • Describe what costs should be included in the cost of a capital asset.
    • Describe asset classes, and depreciation method for each asset class.
    • Describe accounting processes related to the acquisition, amortization and disposal of assets.
  3. It is recommended that the Office revise the capitalisation threshold to $5,000 to reflect practices in other Government departments of similar size, and to minimize the work associated with tracking capital assets and amortization for small items. This will require a one-time restatement of Capital assets balance in the Office's financial statement.
Management Response

OCOL supports these recommendations. It is currently examining best practices in this sector of activities in order to develop a directive that corresponds with its needs while respecting the principles of control.

OCOL's Action Plan for financial internal controls
Report section Process Description of Works
8.1 Salary Expenditures After TBS submissions
8.2 Procurement and Supplier Payments (including acquisition cards) Nothing following this recommendation
8.3 Delegation of Financial Authority $ Signature Authentication New draft will by ready by the middle of June for PCO signature
8.4 Hospitality expenses No recommendations
8.5 Business travel credit cards and travel expenses No recommendations
8.6 Travel by Non Public Servant No recommendations
8.7 Asset Management
  • Directives witch define role and responsibilities
  • 2011-2012- Draft for consultation will be circulated in July

Table of Contents

Date modified:
2020-09-18