Audit Report 2002

MANAGEMENT OF TRAVEL EXPENSES
PROJECT #01/02 01-01

prepared by
the Audit, Evaluation and Review Directorate

November 2002

	Executive summary
	1.0 Introduction   1.1 Context   1.2 Reference framework   1.3 Objectives and scope
	2.0 Delegation of financial authority   2.1 General finding   2.2 Spending authority - expenditure initiation   2.3 Financial authority for compensation   2.4 Policies and procedures   2.5 Updating of delegated authority
	3.0 Procurement of goods and services   3.1 General finding   3.2 Commitment monitoring   3.3 Certification pursuant to FAA section 34   3.4 Transactions involving purchase orders
	4.0 Employee compensation   4.1 General finding   4.2 Certification pursuant to section 34   4.3 Policies and procedures
	5.0 Travel expenses   5.1 General finding   5.2 Commitment of travel expenses
	6.0 Expenditures charged to acquisition cards   6.1 Commitment of expenditures   6.2 Certification of expenditures
	7.0 Transfer payments   7.1 General finding   7.2 Commitment procedures
	8.0 Automated controls related to faa sections 32 and 34   8.1 IFMS access privileges   8.2 Other automated controls required
	9.0 Certification of requisitions for payment pursuant to section 33   9.1 General finding   9.2 Employee compensation   9.3 IFMS access privileges   9.4 Sampling procedure   9.5 Verification of journal vouchers   9.6 Interest on late payments to suppliers
	Appendix A - Management action plan

EXECUTIVE SUMMARY

OBJECTIVES

This audit sought to determine the extent to which the CSA is meeting its financial management responsibilities, notably with respect to the control requirements prescribed by sections 32, 33 and 34 of the Financial Administration Act (FAA) and other Treasury Board requirements with respect to delegation of financial authority, commitment of expenditures, certification of contract performance and account verification for payment purposes.Systems and procedures as well as internal control elements were reviewed in order to evaluate their effectiveness, efficiency and economy.

REFERENCE FRAMEWORK

The obligations and responsibilities of ministers, deputy heads and managers in terms of appropriate control over expenditures are prescribed in sections 32, 33 and 34 of the Financial Administration Act (FAA). This legislative authority is supplemented by Treasury Board policies and guidelines which define the control framework and which also contain provisions which stipulate that departments and agencies must periodically evaluate their application. The audit of the exercise of financial authority at the CSA is particularly vital in view of the fact that the President has delegated his spending authority to more than 200 positions which used $318 million of public funds during the 2000-2001 fiscal year by issuing nearly 18,900 cheques to suppliers and employees.

GENERAL FINDING

In general, financial authority is properly exercised. Expenditures are committed and certified pursuant to FAA sections 32 and 34 and account verification for payment purposes is performed by independent financial officers pursuant to section 33.However, improvements will have to be made in order to consolidate the control framework and improve the effectiveness and efficiency of operations.

DELEGATION OF FINANCIAL AUTHORITY AND DELEGATION INSTRUMENTS

The delegation of financial authority and the various delegation instruments constitute the cornerstone of the control framework since they define its nature and extent. Spending authority, notably with respect to expenditure initiation, should be limited with the aim of ensuring an appropriate division of responsibilities which is in keeping with the budgetary responsibilities of the person exercising that authority. Moreover, in order to effectively communicate the scope and extent of delegated financial authority and to facilitate understanding by those exercising that authority, the CSA should adopt an official policy, revise the Summary of Delegated Financial Authorities so that it includes financial authority for compensation and the relevant references to the supplementary documents and institute effective procedures for updating specimen signatures.

PROCUREMENT OF GOODS AND SERVICES

When the decision is made to procure goods and services, the resulting expenditures are, in general, properly committed and certified pursuant to FAA sections 32 and 34. However, the efficiency and economy of operations with respect to commitment monitoring and budgetary control are compromised by maintaining procedures and tools parallel to the Integrated Financial/Materiel System (IFMS) and by the fact that IFMS access rights are not extended to managers.

EMPLOYEE COMPENSATION

Transactions relating to employee compensation are properly controlled and are committed and certified pursuant to FAA sections 32 and 34. However, administrative control could be increased by issuing an official policy with respect to commitment and by adopting new practices concerning certification pursuant to section 34.

TRAVEL EXPENSES

Although certified pursuant to section 34, travel expenses are not always committed before the travel takes place.

EXPENDITURES CHARGED TO ACQUISITION CARDS

Practices not consistent with Treasury Board policies and guidelines were noted with respect to commitment and certification of contract performance. We also noted deviations from CSA policy in several regards which lead us to believe that the use of acquisition cards as a tool for awarding contracts has evolved significantly since their introduction. An audit project with expanded audit objectives dealing specifically with acquisition cards is currently under way.

TRANSFER PAYMENTS

We noted that on several occasions, contribution agreements were often signed by the recipients before being committed and that the disbursements sometimes took place very shortly after the commitment of funds, which is not in compliance with the requirements with respect to commitment of expenditures.

CERTIFICATION OF REQUISITIONS FOR PAYMENT

With the exception of compensation, account verification pursuant to FAA section 33 is performed properly, but would be more effective if a statistical sampling process were instituted.Expenditures relating to the compensation of CSA employees are not the subject of an independent audit by the authorized financial officers, which is not in compliance with FAA section 33.Interest on late payments to suppliers is not paid automatically to suppliers, contrary to Treasury Board directives.

1.0 INTRODUCTION

1.1 CONTEXT

The audit of the exercise of financial authority at the Canadian Space Agency (CSA) is part of a series of three separate audit projects involving the audit of the Corporate Management Directorate, as scheduled in the work plan of the Audit, Evaluation and Review Directorate for the 2001-2002 fiscal year.

The importance of the audit of the exercise of financial authority is obvious when we consider that the CSA used $318 million of public funds during the fiscal year ended March 31, 2001 and that the CSA President delegated, as of December 31, 2001, his spending authority to more than 200 positions of different levels.

1.2 REFERENCE FRAMEWORK

The Financial Administration Act (FAA) is the legislative authority which governs financial management in the federal government. Sections 32, 33 and 34 of this Act are particularly important for ensuring appropriate control over the expenditures made under appropriations since they specify the obligations and responsibilities of ministers, deputy heads and managers in this regard:

• Section 32 requires that the financial commitments chargeable to each appropriation by Parliament be controlled in order to ensure that a contract can be entered into only if there is a sufficient unencumbered balance available to discharge any debt incurred under the contract.
• Section 34 deals with the requirement to certify contract performance by an authorized representative by certifying that the goods or services invoiced were received, that the price invoiced is as specified in the contract and that the contract terms and conditions have been met.
• Section 33 prescribes controls aimed at ensuring that payments are made only at the request of a person who holds the appropriate delegation and that requisitions for payment are made only for lawful, authorized charges which do not exceed the appropriation.

The legislative authority is supplemented by Treasury Board policies and guidelines. The most important are:

• The Policy on Delegation of Authorities
• The Policy on Commitment Control
• The Policy on Account Verification
• The Policy on Payment Requisitioning and Payment on Due Date

In accordance with these policies, CSA managers are required to devise and institute processes and controls adapted to their particular operations in order to ensure appropriate management of CSA financial resources.

1.3 OBJECTIVES AND SCOPE

The objectives of this audit are to ensure that the CSA properly and effectively discharges its responsibilities with regard to the exercise of financial authority, notably with respect to the application of sections 32, 33, and 34 of the Financial Administration Act (FAA).

The specific objectives of this audit are as follows:

1. Evaluation of the process of delegation of financial spending and payment authority in order to ensure appropriate control of expenditures by means of an appropriate division of responsibilities;
2. Examination of the expenditure commitment process in order to ensure that appropriations and Treasury Board allotments are not exceeded when a contract is initiated;
3. Evaluation of the processes related to the certification of contract performance and account verification in order to ensure that payment authority is exercised properly;
4. Examination of the process of issuing requisitions for payment in order to ensure an appropriate separation of duties and payment of accounts on the due date;
5. Evaluation of the internal controls in place with respect to FAA sections 32, 33 and 34;
6. Examination of compliance with applicable CSA policies and procedures as well as with Treasury Board policies and guidelines;
7. Determination of the effectiveness, efficiency and economy of the processes in place concerning the application of FAA sections 32, 33 and 34.

This audit project also encompassed the responsibilities assigned to all levels of CSA management as well as the information systems, policies and procedures in place with respect to expenditures made during the fiscal year ended March 31, 2001, which are presented as follows:

The following table provides information about the nature of the expenditures made based on the main reporting objects. During the fiscal year ended March 31, 2001, the Agency issued nearly 18,900 cheques to its suppliers and employees. Of this number, 8,800 were the subject of a requisition and purchase order in the Integrated Financial/ Materiel System (IFMS). The balance, namely nearly 10,100 requisitions for payment, were committed manually via the "Fund Management" module of the IFMS and concern certain types of expenditures that cannot be committed by requisition, such as interdepartmental settlements, grants and contributions, telecommunications expenditures, travel expenses, expenditures charged to acquisition cards, postal expenses, etc.

We examined the application of FAA sections 32, 33 and 34 with respect to the expenditures charged to each appropriation through the operational processes used:

2.0 DELEGATION OF FINANCIAL AUTHORITY

It is government policy to entrust its ministers and deputy heads with the responsibility to delegate financial and operational authority to managers. When delegating his authority, the deputy head must ensure that there is an appropriate division of financial authority in order to ensure appropriate control. The various financial authorities to be considered are as follows:

• Spending authority - which includes the following elements:
  • Expenditure initiation which is exercised when decisions are made to obtain goods or services which will result in expenditures on behalf of the CSA;
  • Commitment authority pursuant to FAA section 32 which involves verifying that a sufficient unencumbered balance is available and recording the corresponding expenditure in the financial records;
  • Contracting authority which involves entering into agreements and contracts on behalf of the CSA, in accordance with the Department of Supply and Services Act, which gives PWGSC exclusive authority to procure goods and services and to delegate this authority;
  • Authority to confirm contract performance and price pursuant to FAA section 34, which stipulates that the goods or services invoiced must be certified by an authorized representative as having been received and in accordance with the agreement with the supplier.
  
  
  
• Payment authority
  
  The payment authority which consists in submitting a requisition for payment to the Receiver General for Canada pursuant to FAA section 33, after verifying that certification pursuant to section 34 has been correctly applied.

2.1 GENERAL FINDING

The review of delegated financial authority revealed that, in general, adequate controls were in place to ensure an appropriate management framework and accountability of decision-making authority. In accordance with Treasury Board policies and guidelines, we ensured that:

• Financial authority is formally delegated and communicated in writing;
• Financial authority is exercised solely by persons who have been designated by an officer to whom they report;
• Financial authority is delegated to positions designated by their title.

At the time of our audit, the CSA President had delegated his financial authority to 215 positions of different levels. Of these 215 positions, 118 held full spending authority, with or without financial limits. With the exception of acquisition card holders, the awarding of contracts was limited to the Procurement & Contract Administration Division and the certification of payroll documents was limited to the Pay & Benefits Division, which ensures appropriate segregation of duties in accordance with Treasury Board guidelines.

2.2 SPENDING AUTHORITY - EXPENDITURE INITIATION

We noted that financial authority was, in general, properly delegated to responsibility centre managers based on their budgetary responsibilities. This is fully in keeping with senior management's commitment to "both empowerment and accountability" as mentioned in the CSA mission statement. However, in certain cases, the authority to initiate expenditures is delegated to employees who do not have budgetary responsibilities or is delegated simultaneously to several managers for the same responsibility centre.

The following situations were noted:

1. Certain managers have delegated their spending authority, including the authority to initiate expenditures with or without financial limits, to administrative support staff who do not have budgetary responsibilities, such as secretaries or administrative officers. In a number of cases, these employees also had the contracting authority through acquisition cards. At the time of our audit, we identified 17 positions with such characteristics.
2. In addition to the administrative staff mentioned in the previous paragraph, a number of acquisition card holders who do not have budgetary responsibilities were granted authority to initiate expenditures without this authority being limited to the expenditures charged to acquisition cards. This situation means that these employees have the authority to initiate any expenditure in the responsibility centre to which they are assigned. However, the authority to certify contract performance pursuant to FAA section 34 has not been delegated to them and, in certain cases, the authority to initiate and award contracts via the acquisition card entailed financial limits. We have thus identified 18 positions which did not have appropriate limitations.
3. Certain directors general have delegated the financial authority to initiate and to certify contract performance (with or without financial limits) simultaneously to several subordinate managers, some at the same level, for the same responsibility centre. As a result, the decision to spend in the same responsibility centre is shared by several managers and this can make it difficult to apply the budgetary responsibilities normally assigned to a single operational manager. This situation was identified in the following directorates and affected the number of positions indicated below which simultaneously shared the same responsibilities for the same responsibility centre:

These situations do not ensure an appropriate delegation of financial authority by means of an appropriate division of responsibilities and increase the risks of budgetary overexpenditure and/or inappropriate use of public funds. In addition, they are contrary to the Treasury Board guidelines dealing with the delegation of decision-making authority, which state as follows:

• "The authority to initiate an expenditure is exercised when decisions are made to obtain goods or services that will result in the eventual expenditure of funds [...] The objective of this authority is to give operational managers the primary responsibility for initiating expenditures charged to their budgets."
• "Spending authority must be delegated to responsibility centre managers in relation to their budgetary responsibility in order to ensure they have adequate authority and full responsibility for their decisions."
• "To make it easier, responsibility centre managers may designate subordinates to exercise limited spending authority on their behalf; e.g. use of acquisition cards."

RECOMMENDATIONS

CORPORATE MANAGEMENT

We recommend that managers responsible for defining financial authority:

1. Grant a delegation of spending authority only to management positions which have budgetary responsibilities;
2. Restrict the expenditure initiation authority granted to acquisition card holders;
3. Review the delegated financial authority to prevent managers from holding the same spending authority in respect of the same responsibility centre;
4. Encourage instead the use of temporary delegations to delegate financial authority in cases where the responsibility centre manager is absent.

2.3 FINANCIAL AUTHORITY FOR COMPENSATION

The review of financial authority for human resources and salary verification procedures revealed the following:

The financial authority for human resources delegated by the President is properly documented and is available on the CSA's Intranet site. We noted, however, that with the exception of overtime, the Summary of Delegated Financial Authorities does not reflect the authority to initiate compensation-related expenditures, such as the staffing of positions, the bilingualism bonus, the secondment allowance, etc.

Since the Human Resources Directorate acts only as a staffing officer and is not responsible for managing operational budgets, the responsibility for initiating a compensation expenditure remains with the responsibility centre managers. This position is in accordance with the Treasury Board guideline which specifies that "When the minister delegates spending authority to officers [...] such as personnel officers to hire staff, they exercise the authority on behalf of the responsibility centre managers who submit requests for support services."

Section 2.10 of the CSA Salary Verification Policy identifies the responsibility centre managers as holding the authority to approve salary expenditures pursuant to FAA section 34 while in practice, in accordance with the Summary of Delegated Financial Authorities, the exercise of this authority is limited to certain positions in the Human Resources Directorate. The operational managers only have authority to initiate compensation expenditures within their responsibility centres.

These situations do not ensure an appropriate understanding and delegation of delegated financial authority.

RECOMMENDATIONS

CORPORATE MANAGEMENT

In order to clarify compensation-related spending authority, we recommend the following changes:

1. The authority to initiate transactions related to human resources should be added to the "expenditure initiation" section of the Summary of Delegated Financial Authorities;
2. The responsibilities concerning the initiation of compensation expenditures and their certification pursuant to FAA section 34 should be clarified and brought into line with the CSA Salary Verification Policy so that they are consistent with the Summary of Delegated Financial Authorities.

2.4 POLICIES AND PROCEDURES

We noted that several delegation instruments are in use; however, the CSA does not have a policy and procedures with respect to the delegation and exercise of financial authority. This situation means that the holders of financial authority are not formally informed concerning the nature and extent of the authority that has been delegated to them and how to exercise it correctly. Such a policy and procedure should at the very least define the delegated financial authority and the extent of the responsibilities as well as incorporating the various delegation instruments currently in use:

• The Summary of Delegated Financial Authorities which constitutes the summary of financial authority by position level granted at the CSA by the minister;
• Appendix A of the Summary which specifies the financial limits;
• Appendix B of the Summary which designates the equivalent positions
• The specimen signatures which, in addition to documenting the handwritten signatures of position incumbents, define the extent of financial authority delegated to them.

Furthermore, although Appendix B is an integral part of the Summary of Delegated Financial Authorities, no reference is made to it therein. The Summary must contain all the relevant information, including the references to the supplementary documents, so that the persons exercising authority and the staff responsible for ensuring application are able to understand the nature and extent of the delegated authority.

The Corporate Management Directorate has informed us that a draft policy dealing with signing authority is currently under development and, moreover, that the Summary of Delegated Financial Authorities has been submitted to the Minister for authorization.

RECOMMENDATIONS

CORPORATE MANAGEMENT

In order to provide the appropriate directives with respect to delegation of financial authority and to facilitate understanding, we recommend:

1. Issuing a formal policy and procedures concerning the delegation and exercise of financial authority;
2. Amending the Summary of Delegated Financial Authorities so that it contains the appropriate references to Appendix B - Delegated Financial Authorities Table of Equivalent Positions.

2.5 UPDATING OF DELEGATED AUTHORITY

The review of specimen signatures, which document the extent of the financial authority delegated by position and contain a specimen of the financial authority holder's signature, revealed the following situations:

1. With the exception of the Corporate Services sector, these forms had not all been updated during the last twelve months for the CSA as a whole.

   The lack of a process for updating specimen signatures is caused in part by a lack of communication between the operational and financial sectors as well as by a lack of procedures defining the responsibilities of CSA managers with respect to the monitoring of delegated authority. This situation has the following consequences:

   • Delegated financial authority is not always withdrawn when the person holding the authority leaves or is transferred.
   • Employees transferred to another responsibility centre sometimes continue to hold financial authority in their previous division, thereby combining responsibilities incompatible with their current duties.
   • Specimen signatures documenting authority delegated to active employees are sometimes authorized by managers who are no longer employed by the CSA.

   This situation means that the financial officers responsible for verifying the certification of contract performance under FAA sections 33 and 34 do not always have appropriate specimen signatures to allow them to perform their duties properly. In accordance with the procedural requirements of the Treasury Board Policy on Delegation of Authorities:

   • "Departments must review and update all delegated authorities [...] at least annually."
   • "The delegation document must be cancelled and withdrawn as soon as the incumbent gives up the duties of the position, and withdrawn and replaced when departmental reorganizations or policy changes modify any of the information it contains."

   The Corporate Management Directorate indicated that a project (management of arrivals and departures) was under way in order to electronically inform the various groups concerned (such as Pay & Benefits, Security, Finance and Accounting) as soon as an employee gives up his duties at the CSA. However, this project does not cover internal transfers.

2. Specimen signatures are documented using paper forms in order to obtain the handwritten signatures of the holder of delegated financial authority and of his superior authorizing the delegation of the authority. This procedure is in compliance with Treasury Board policies and directives.

   However, because of the large number of holders of financial authority at the CSA (215 at the time of the audit) and the lack of a process for updating specimen signatures, the manual documentation of financial authority does not allow the financial officers to conduct an effective review of financial authority when verifying the certification of contract performance pursuant to FAA section 34 and the verification of requisitions for payment pursuant to FAA section 33.

3. The tables of equivalent positions by sector, corresponding to Appendix B to the Summary of Delegated Financial Authorities, were not always updated in order to be approved by the authorized line managers and did not always correspond to the delegations in effect in certain sectors.

   This situation is caused by the fact that these tables are maintained manually and organizational changes requiring changes to these tables occur frequently.

RECOMMENDATIONS

CORPORATE MANAGEMENT

In order to enhance the effectiveness of the verification of the application of FAA sections 33 and 34, to prevent situations where financial authority is still attributed to employees who are no longer in the position and to facilitate the updating of tables of equivalent positions by sector, we recommend:

1. Ensuring that the specimen signatures are reviewed and updated as soon as changes are necessary;
2. Instituting a formal communication process aimed at informing the financial officers responsible for the verification of sections 33 and 34 without delay of any movement of personnel holding financial authority;
3. Evaluating the possibility of automating the delegation instruments, notably the specimen signatures and the tables of equivalent positions by means of a database which would be accessible to the financial officers.

3.0 PROCUREMENT OF GOODS AND SERVICES

3.1 GENERAL FINDING

The review of the procurement processes for goods and services revealed that, in general, spending authority was exercised properly and in compliance with FAA sections 32 and 34. We noted the following:

1. The internal controls in place (such as separation of duties, issuing of requisitions and purchase orders, submission of supporting documents, automated controls, automated blocking of expenditures in excess of commitments, validation of requisitions for payment and monitoring of expenditures via the management reports produced by the IFMS system) ensure an appropriate management framework with respect to the exercise of financial authority.
2. In general, funds are properly committed during the procurement of goods and services. Indeed, the policies, procedures and systems in place permit the appropriate recording and control of commitments in order to ensure that parliamentary appropriations and Treasury Board allotments are not exceeded, pursuant to FAA section 32.
3. In general, the procurement of goods and services is properly certified by the authorized managers in compliance with FAA section 34.

3.2 COMMITMENT MONITORING

Although we judged commitment monitoring to be adequate, the effectiveness of the processes and tools instituted for monitoring purposes could be significantly improved. The following observations were noted:

1. The reports provided by the IFMS are generally used by the sectoral financial officers for commitment monitoring. However, various processes and documentation tools are maintained on systems parallel to the IFMS, such as Excel or Access, mainly for monitoring service contracts with progress payments and to provide financial information adapted to the needs of responsibility centre managers, since managers sometimes find the standard IFMS reports difficult to interpret or unsuited to their needs.

   These parallel processes require duplicate entry of financial information as well as periodic reconciliation of this information with the information in the IFMS, which unnecessarily increases the workload of the sectoral financial officers.

   In addition, in the Space Operations sector, all financial transactions are entered on Excel in order to facilitate the retrieval and reconciliation of the financial records maintained on the IFMS, which in our view is inefficient.

2. Access to the IFMS in read-only mode is not offered to responsibility centre managers and their administrative staff in order to allow them to monitor the commitments of their responsibility centre themselves. No standard user profile permitting access in read-only mode has been developed by the Corporate Systems Division to be offered to operational managers. Currently, only certain operational employees of the Space Sciences sector have specific access to their sector's financial data in the IFMS.

   This limitation of access to financial information requires the sectoral financial officers to provide information concerning commitments to operational managers on request, which increases the workload of the financial officers. Access by responsibility centre managers to real-time financial information could also facilitate and improve decision-making in the sectors.

FINDING

The effectiveness of maintaining parallel processes and documentation tools for financial information as well as the unavailability of IFMS access to operational managers will be the subject of a specific audit, as scheduled in the work plan of the Audit, Evaluation and Review Directorate for the 2001-2002 fiscal year.

3.3 CERTIFICATION PURSUANT TO FAA SECTION 34

During the review of the process for certification of contract performance pursuant to FAA section 34, we noted the following situations:

1. Certification of the receipt of goods

   In order to properly certify the performance of a contract, the holder of such financial authority must obtain the assurance that the goods or services were in fact received. Under the current procedure, when the goods are received by Shipping and Receiving, receipt is confirmed in the IFMS. When suppliers' invoices are received, the sectoral financial officers verify in the IFMS that the goods invoiced were received before submitting the invoices to the manager responsible for certifying contract performance pursuant to section 34. However, we noted that, from one sector to another, the supporting information communicated to the managers is not always appropriate to allow them to properly carry out their responsibilities:

   • The financial clerks in the Corporate Services sector document the verification of receipt of the goods invoiced by signing in the space provided after stamping the invoice with the "Goods received" stamp in order to indicate to the responsibility centre managers that receipt of the goods has been confirmed in the IFMS.
   • In the David Florida Laboratory, the sectoral financial clerk manually enters "receipt verified in SAP" on the supplier's invoice when the receipt of the goods invoiced has been confirmed in the IFMS.
   • The Space Operations sector requires, in all cases where goods have been invoiced, a formal certification of receipt of the goods by an operational manager, by means of the "Goods received" stamp.
   • Even if the receipt of the goods invoiced is verified, the financial clerks in the Space Systems and Space Technologies sectors as well as the Canadian Astronaut Office do not record the results of their verification on the invoices. However, if receipt of the goods could not be validated in the IFMS by the financial clerk, the manager responsible will be required to provide a written certification of the receipt of the goods by means of the "Goods received" stamp.
   • In the Space Sciences sector, no verification of receipt of the goods is carried out by the sectoral financial clerk on the grounds that it is the responsibility of the managers to confirm receipt of goods and, moreover, that the IFMS automatically blocks the entry of any supplier invoice requiring certification of receipt if said receipt has not previously been recorded in the IFMS.
2. Dating of the certification of contract performance

   The certification of contract performance pursuant to section 34 is not always dated by the manager who signed it. This situation is caused by the fact that the stamp used for the manager's signature does not provide any space to indicate the date. This does not allow the financial officers responsible for the verification of certification pursuant to sections 33 and 34 to validate temporarily delegated financial authority.

RECOMMENDATIONS

CORPORATE MANAGEMENT

In order to facilitate the certification of contract performance pursuant to FAA section 34, we recommend that:

1. Best practices with respect to verification and documentation of receipt of goods be identified and implemented;
2. The date become mandatory information to be provided by the manager authorized to certify contract performance.

3.4 TRANSACTIONS INVOLVING PURCHASE ORDERS

When a purchase order is recorded in the IFMS, certain fields such as unit price and total contract value are mandatory and the data entered are used notably during payment procedures. The requirements of the IFMS can cause certain difficulties when dealing, for example, with a service contract with progress payments where it is impossible to know in advance the quantities which will be invoiced. In order to get around this problem, a standard procedure has been developed which involves entering $1 as the unit price and entering the total value of the contract as the quantity. According to the Procurement & Contract Administration Division, this approach is not suitable when the purchase order becomes the official document for certain suppliers (for example, when it is not necessary to draw up a formal contract in addition to the purchase order). In these circumstances, the value 1 must be entered appropriately as the quantity, and the total value of the contract as the unit price.

In the latter situation, progress invoices are considered as fractions of the unit ordered and the quantities invoiced must then be expressed as decimals. Since the precision of the IFMS in terms of quantities is limited to three decimal places, it commonly happens that at the end of contracts amounts remain committed and require an adjustment by journal voucher. This very inefficient situation unnecessarily increases the workload of the sectoral financial officers.

A project under the responsibility of the Corporate Systems Division, and including the Procurement & Contract Administration and Financial Operations divisions of the sectors, is currently under way to devise a solution to this situation.

RECOMMENDATION

CORPORATE MANAGEMENT
ADMINISTRATION

In order to improve the effectiveness of the Financial Operations divisions of the sectors with respect to transactions involving purchase orders, we recommend instituting the appropriate measures to correct this situation, as identified during the project carried out by the Corporate Systems Division.

4.0 EMPLOYEE COMPENSATION

4.1 GENERAL FINDING

The review of the processes concerning compensation of CSA employees, including changes made to CSA payroll records, revealed that, in general, financial spending authority was exercised properly in compliance with FAA sections 32 and 34. We noted the following:

1. The internal controls in place (such as separation of duties, production of supporting documents, automated controls, validation of transactions entered in the payroll system and monitoring of expenditures via the management reports produced by the SMS system) ensure an appropriate management framework for the exercise of financial authority.
2. Although salary expenditures are not committed formally in the IFMS financial system, because of the lack of an appropriate interface between the IFMS and SMS systems, the SMS system makes it possible to document commitments by employee as well as the salary forecasts (expenditures forecast but not attributed to a specific employee). This situation ensures appropriate monitoring of salary expenditures committed and meets Treasury Board and CSA requirements with respect to the commitment of funds.

4.2 CERTIFICATION PURSUANT TO SECTION 34

The certification of compensation-related expenditures, based on changes made to the payroll records of CSA employees, is performed properly and documented by the duly authorized officers in the Pay & Benefits Division. However, the following situations were noted:

1. The officers of the Pay & Benefits Division authorized to enter, validate and certify overtime-related salary expenditures pursuant to FAA section 34 do not have at their disposal a copy of the specimen signatures, which does not allow them to verify whether the managers who authorized the overtime form have the appropriate delegation to do so.
2. In addition, it is difficult to verify the signatures of the persons exercising authority with respect to initiating overtime because of the large number of transactions and also, when temporary delegations are taken into account, because of the large number of managers who hold such authority. This situation increases the risk that overtime may be paid without having been authorized by a person who holds the appropriate financial authority.
3. Unlike the stamps used by the financial officers, which specify that contract performance is certified pursuant to FAA section 34, the stamp used by the officers in the Pay & Benefits Division makes no reference to section 34. This situation does not provide the assurance that they recognize their responsibility in terms of the requirements of section 34 when validating and releasing payroll record changes.

RECOMMENDATIONS

CORPORATE MANAGEMENT
HUMAN RESOURCES

In order to ensure the appropriate certification of salary expenditures pursuant to FAA section 34, we recommend that:

1. The officers of the Pay & Benefits Division authorized to certify salary expenditures have access to a copy of the specimen signatures in order to allow them to properly verify authorizations of overtime-related expenditures;
2. The Human Resources Directorate consider automating the overtime authorization process by incorporating automated controls so as to ensure that overtime is approved by a person who holds the required financial authority;
3. The stamp used to certify payroll record changes mention specifically that the transaction is certified pursuant to FAA section 34, in accordance with the certification procedure in place in the other sectors.

4.3 POLICIES AND PROCEDURES

Although the commitment of compensation-related expenditures was judged to be adequate and in compliance with Treasury Board policies, we noted that no policy or procedure concerning the commitment of this type of expenditure has been issued to responsibility centre managers and sectoral financial officers. As a result, no official information is currently available to define the commitment process for compensation-related expenditures and to inform the various parties concerned about their responsibilities with respect to commitment for this type of expenditure.

RECOMMENDATION

CORPORATE MANAGEMENT
HUMAN RESOURCES

In order to ensure that the commitment process for compensation-related expenditures is well understood and that it is uniformly applied and controlled, we recommend developing and issuing the policies and procedures required with respect to commitment of compensation-related expenditures.

5.0 TRAVEL EXPENSES

5.1 GENERAL FINDING

The review of the processes concerning travel expenses revealed that, in general, spending authority was exercised properly in compliance with FAA sections 32 and 34. We noted the following:

1. The internal controls in place (such as pre-authorization to travel, separation of duties, submission of supporting documents, verification of travel allowance claims, automated blocking of expenditures in excess of commitments and monitoring of expenditures via the management reports produced by the IFMS system) ensure an appropriate management framework with respect to the exercise of financial authority.
2. In general, travel allowance claims are properly certified by the authorized managers in compliance with FAA section 34 based on travel allowance claims and statements of account reporting the purchase of airline and train tickets.

5.2 COMMITMENT OF TRAVEL EXPENSES

In general, travel expenses are properly committed prior to the submission of the travel allowance claim, i.e. when the authorization to travel is approved. However, when the travel expenses concern travellers who hold an annual travel authority and do not require an airline or train reservation, the following sectors do not commit the travel expenses in advance:

• Space Technologies
• Space Systems
• Space Sciences
• Corporate Services

This situation does not give responsibility centre managers the assurance that travel expenses are appropriately monitored and is not in compliance with Treasury Board requirements with respect to commitment.

RECOMMENDATION

CORPORATE MANAGEMENT

In order to comply with Treasury Board requirements with respect to the commitment of funds and to standardize the commitment process for travel expenses based on the best practices in place at the CSA, we recommend considering block commitment of travel by automobile for holders of an annual travel authority, based on the travel expense history for previous periods and forecasts for the current period.

6.0 EXPENDITURES CHARGED TO ACQUISITION CARDS

6.1 COMMITMENT OF EXPENDITURES

CSA policy with respect to the commitment of expenditures charged to acquisition cards is as follows:

• Maintain, on a monthly basis, an overall commitment for each acquisition card, of the lesser of $2,000 or the maximum monthly limit of the acquisition card, in order to use this commitment for low-value purchases;
• Create a specific commitment for any purchase of $1,000 or more.

However, the following divergent practices were noted during the review of acquisition card transaction forms, indicating a risk of misunderstanding of policies by operational staff and financial officers:

1. The Space Technologies and Space Operations sectors commit the expenditures made by acquisition cards only when the transactions form is entered in the IFMS, which means that the funds are committed after the expenditures were incurred. For the fiscal year ended March 31, 2001, the expenditures charged to acquisition cards were estimated at nearly $400,000 for the Space Technologies sector and at $441,000 for the Space Operations sector.
2. The Canadian Astronaut Office commits, at the beginning of the fiscal year, an estimate of the expenditures charged to acquisition cards for office supplies only. However, other types of expenditures charged to acquisition cards are committed only when the transactions form is entered. The Canadian Astronaut Office charged $72,000 to its acquisition cards in 2000-2001.
3. The monthly limit with respect to commitment of expenditures charged to acquisition cards, as described above, is not always complied with since block commitments of more than $5,000 per acquisition card are sometimes recorded at the beginning of the fiscal year in the following sectors:
   • Space Systems
   • Space Sciences
   • Corporate Services
4. The following sections and spaces are not always completed on the acquisition card transactions form by the sectoral financial officers:
   • The commitment numbers as well as the amounts committed for expenditures of more than $1,000, as stipulated in section 2A;
   • Section 4 used to confirm that the funds were properly committed for the expenditures reported.

These situations do not give responsibility centre managers the assurance that expenditures charged to acquisition cards are appropriately monitored and are not in compliance with Treasury Board requirements concerning commitment or with the CSA Acquisition Cards Policy.

RECOMMENDATIONS

CORPORATE MANAGEMENT

In order to comply with Treasury Board requirements and CSA policies concerning commitment of funds and use of acquisition cards, and with the aim of standardizing the procedures based on the best practices in place at the CSA, we recommend:

1. The block commitment of low-value expenditures charged to acquisition cards, based on the history of the previous periods and forecasts for the current period;
2. The individual commitment of expenditures of more than $1,000 charged to acquisition cards, at the time of their initiation;
3. The documentation and confirmation of commitments in the space provided on the acquisition card transactions form.

6.2 CERTIFICATION OF EXPENDITURES

In accordance with the CSA Acquisition Cards Policy, expenditures are generally initiated and certified pursuant to FAA section 34 by the responsibility centre manager on the transactions form provided for this purpose. However, the following divergent practices were noted indicating a lack of understanding of the policies and procedures by acquisition card holders and financial officers:

1. Acquisition card holders certify expenditures pursuant to section 34 instead of having them signed by the responsibility centre manager to whom they report. Some of these card holders have no budgetary responsibility, while others are responsibility centre managers.

   Although these acquisition card holders are authorized to initiate and certify expenditures charged to acquisition cards under the financial authority delegated to them, this situation does not ensure an appropriate separation of duties since these holders combine the authority to initiate, to award contracts via the acquisition card and to certify the expenditure pursuant to section 34, which increases the risk of inappropriate use of public funds and contravenes the Treasury Board requirement which specifies that "A person must not exercise spending authority, pursuant to section 34, for a transaction from which he or she can benefit personally, directly or indirectly."

   In addition, this situation is not in compliance with the CSA Acquisition Cards Policy, which states that "the card holder shall have the expense authorized by the manager identified at section 1 of the form," who is usually his immediate superior.

2. The section of the form provided for certifying contract performance pursuant to section 34 is not always signed, which does not make it possible to certify that the goods were received or the services rendered. In certain cases, as in the Space Operations sector, the responsibility centre manager signs the consolidated acquisition cards statement of account, which does not ensure that the manager certifying the statement of account has reviewed in detail the transactions charged to acquisition cards.

   This situation does not make it possible to confirm the certification of contract performance and is not in compliance with the CSA procedure indicating that "the card holder shall have the expense authorized at section 2 of the acquisition card transactions form by the manager identified at section 1 of the form."

3. Section 2c provided for certifying the initiation of the expenditure is not always signed or is sometimes signed by the acquisition card holder even if he is not authorized to initiate an expenditure under the financial authority delegated to him. However, we noted that certification of the receipt of the goods or service pursuant to section 34 is properly performed by a responsibility centre manager who holds this authority.
4. Section 5 of the form provided to confirm the verification performed by the sectoral financial officer is not always completed, which does not allow the financial officers responsible for the application of section 33 to have the assurance that CSA policies concerning acquisition cards were applied correctly.
5. Although the CSA policy specifies that purchases of computer hardware and software must be authorized in advance by Information Technology whenever they exceed $100, this authorization is not documented. This situation does not allow the financial officers responsible for the application of section 33 to verify the application of this CSA policy.

FINDING

Our discussions with the staff and the divergences observed above with respect to the applicable policies and procedures lead us to believe that the use of acquisition cards as a tool for awarding contracts has evolved significantly since their introduction. Consequently, we are not in a position to draw any conclusions at this time concerning the nature and extent of the recommendations that should be made.

In light of the foregoing and the fact that acquisition cards are widely used (for the fiscal year ended March 31, 2001: 117 acquisition card holders made 4,295 transactions with a total value of $1.8 million). That is why the processes, policies and procedures related to the use of acquisition cards at the CSA will be the subject of a specific audit project in order to allow us to evaluate whether they still correspond to the needs of the CSA, are effective and comply with Treasury Board policies.

7.0 TRANSFER PAYMENTS

7.1 GENERAL FINDING

The review of the processes concerning transfer payments, notably with respect to grants and contributions, revealed that, in general, spending authority was properly exercised pursuant to FAA sections 32 and 34. We noted the following:

1. The internal controls in place (such as separation of duties, production of supporting documents, automated controls, validation of transactions entered in the IFMS system and monitoring of expenditures via the management reports) ensure an appropriate management framework with respect to the exercise of financial authority.
2. The certification of contract performance with respect to transfer payments is in compliance with FAA section 34.

7.2 COMMITMENT PROCEDURES

In the course of our audit, we noted certain situations which contravene FAA section 32:

1. Grant letters or contribution agreements were often signed by the recipient before the funds were committed in the financial system;
2. In several cases, the date of the disbursement of the contribution followed the date of commitment of the funds by a few days.

These observations were discussed in much greater detail in the audit report issued in March 2002 (Project #01/02-01-02) concerning the follow-up of the internal audit of the grants and contributions programs.

RECOMMENDATION

Audit report #01/02-01-02 contains the appropriate recommendations aimed at ensuring compliance with the provisions set out in FAA section 32. The directorates concerned as indicated in their action plans have already identified corrective measures.

8.0 AUTOMATED CONTROLS RELATED TO FAA SECTIONS 32 AND 34

8.1 IFMS ACCESS PRIVILEGES

The task of creating new suppliers in the IFMS has been assigned only to the Procurement & Contract Administration Division and to a limited number of financial clerks in the Accounting Division. However, all the financial clerks, both in the sectors and in the Accounting Division, have retained in their user profile the privilege of creating new suppliers in the IFMS even if they are authorized to enter commitments and invoices in the IFMS.

This situation does not ensure an appropriate segregation of duties and increases the risk of inappropriate use of public funds.

The Corporate Systems Division has informed us that a project to review the IFMS access profiles is currently under way.

RECOMMENDATION

CORPORATE MANAGEMENT

Ensure that the IFMS user profiles reflect the duties performed while ensuring an appropriate segregation of duties from the standpoint of internal controls.

8.2 OTHER AUTOMATED CONTROLS REQUIRED

The review of the automated controls revealed that, on the whole, the controls incorporated in the IFMS permit the appropriate exercise of financial authority by limiting the risks of errors. However, the lack of the following controls in the IFMS was noted:

1. In the "Material Management" module of the IFMS, the duplicate entry of a supplier's invoice number is not automatically blocked. A message is simply displayed on the screen, which can be ignored by the financial clerk. This situation increases the risk of duplicate payment of the same expenditure without it being detected.
2. The financial system does not automatically block an expenditure from being incorrectly charged to a commitment from a prior or subsequent fiscal year when funds are available. This situation generates an unnecessary excessive workload for the sectoral financial officers because of the searches required and the journal vouchers that must be produced to correct these errors attributable to the IFMS.

RECOMMENDATION

CORPORATE MANAGEMENT

In order to improve the management of the risks related to financial spending authority, we recommend incorporating automated controls in the IFMS aimed at correcting the situations mentioned above.

9.0 CERTIFICATION OF REQUISITIONS FOR PAYMENT PURSUANT TO SECTION 33

This section deals with payment authority for all parliamentary appropriations by means of the various operational processes, as identified in section 1.3 of this report.

It is CSA policy to pay the amounts owing to third parties on time. To this end, processes and guidelines have been instituted in order to certify that:

• The work has been performed, the goods supplied or the services rendered or the payee is entitled to the payment;
• Relevant contract or agreement terms and conditions have been met (price, quantity and quality);
• The payment made is as specified in the contract or agreement;
• The transaction is accurate and the financial coding has been provided;
• All relevant statutes, regulations and Treasury Board policies have been complied with.

9.1 GENERAL FINDING

The review of the account verification performed by central accounting personnel revealed that, with the exception of transactions concerning employee compensation (see section 3.2), all requisitions for payment are verified and certified by authorized financial officers pursuant to FAA section 33. We noted the following:

1. Payment authority pursuant to FAA section 33 is exercised only when the requisition for payment has been certified pursuant to section 34;
2. The account verification process currently in place provides the financial officer to whom payment authority has been delegated with the assurance that the certification provided for in section 34 has been carried out;
3. The system and processes in place ensure, in general, an appropriate management framework permitting payment to suppliers and payees on the due date as stipulated by the standardized payment procedures.

9.2 EMPLOYEE COMPENSATION

Expenditures related to the compensation of CSA employee are certified based on the changes made to payroll records by duly authorized officers of the Pay & Benefits Division. These changes include, for example, staffing, promotions, separations, salary changes, overtime, payroll deductions, etc.

Once validated and certified pursuant to FAA section 34 by the duly authorized officers of the Pay & Benefits Division, the transactions entered in the payroll system are transmitted electronically to the financial officers of the Accounting Division authorized to certify requisitions for payment pursuant to FAA section 33. However, these transactions are simply transmitted to PWGSC for cheque-issuing purposes by Accounting Division financial officers, without prior verification or validation, which is not in compliance with FAA section 33.

This situation is partly explained by the lack of a mechanism for transmitting supporting documents and details in support of the transactions entered in the payroll system by the Pay & Benefits Division. In addition, the financial officers do not have the appropriate training to understand the information displayed by the payroll system.

RECOMMENDATIONS

CORPORATE MANAGEMENT
HUMAN RESOURCES

In order to verify, pursuant to FAA section 33, the requisitions for payment arising from the changes made to payroll records by the Pay & Benefits Division, we recommend:

1. Instituting a process for verifying payroll record changes;
2. Providing the necessary training with respect to payroll transactions to the financial officers authorized to certify requisitions for payment.

9.3 IFMS ACCESS PRIVILEGES

Although the exercise of payment authority is properly separated from spending authority, it has been noted that the user profile of the managers and financial officers holding payment authority pursuant to section 33 also included the privilege of entering expenditures in the Integrated Financial/Materiel System (IFMS).

Moreover, two managers from the Corporate Management Directorate hold payment authority pursuant to section 33, while they also hold the authority to initiate expenditures and to certify contract performance pursuant to section 34 for their respective responsibility centres.

These situations do not ensure an appropriate separation of duties which would ensure compliance with the following Treasury Board procedural requirements and increase the risk of inappropriate use of public funds:

• "No person shall exercise signing authority pursuant to both sections 33 and 34 of the FAA with respect to a particular payment."
• "Departments must delegate payment authority to positions classified as 'financial officer' who can independently verify how other officers exercise spending authority."

The Corporate Systems Division has informed us that a review of the IFMS access profiles is currently under way.

RECOMMENDATIONS

CORPORATE MANAGEMENT

In order to ensure an appropriate separation of duties, we recommend:

1. Withdrawing the privilege of entering expenditures in the IFMS from financial officers who hold payment authority pursuant to FAA section 33;
2. Restricting the payment authority delegated to managers in the Corporate Management Directorate so that they cannot exercise such authority in respect of their own responsibility centres.

9.4 SAMPLING PROCEDURE

Although the CSA has a policy on account verification and a policy which governs the use of statistical sampling, this policy has not yet been implemented. We have therefore noted that account verification still extends to all requisitions for payment without regard to the risks and characteristics associated with each of them.

This situation does not ensure an effective account verification process and does not facilitate in-depth verification of high-risk accounts. Hence, the implementation of a sampling plan would make it possible to reduce the volume of low-risk transactions that are currently subject to verification in order to target in particular the transactions requiring closer attention.

Treasury Board policies and guidelines with respect to account verification strongly recommend the implementation of a sampling process based on:

• Assessment of the magnitude of the risks associated with the types of payment based on certain criteria, such as:
  • nature of the transaction (i.e. whether there is a contract, progress payments, discretionary payments, etc.);
  • amounts involved;
  • financial impact (variation in the value of invoices from one period to another, risk of irrecoverable financial loss for the CSA, etc.);
  • error rate observed among the suppliers sampled;
  • recurrence of payments;
  • type of supplier (i.e. utilities, regular established suppliers, etc.);
  • etc.
• Development of a sampling plan that will make it possible to define the populations sampled, the review period, the sampling method, the acceptable error rate, the sample selection method, the sample size, etc.;
• Implementation of proven statistical sampling methods that will make it possible to identify in an objective manner and without distortion, a representative sample of the desired size and with the desired level of confidence.

Moreover, the systematic verification of accounts results in the centralization, within the Accounting Division, of the original documents accompanied by the documents supporting the requisitions for payment. This situation requires the sectoral financial clerks to make photocopies of all the original documents sent to Central Accounting, which in our view is inefficient. Instituting a statistical sampling process would make it unnecessary to photocopy documents since the original documents could be kept in the sectors.

The Corporate Management Directorate informed us that the development and implementation of an account verification process based on statistical sampling were planned under the work plan for the current year, but that no action has yet been taken.

RECOMMENDATION

CORPORATE MANAGEMENT

In order to improve the effectiveness of the account verification for which the financial officers holding payment authority pursuant to FAA section 33 are responsible, we recommend that verification procedures based on statistical sampling be developed and implemented.

9.5 VERIFICATION OF JOURNAL VOUCHERS

The sectoral financial officers regularly prepare journal vouchers, notably for the purpose of transferring charges between different responsibility centres. In accordance with the delegation of financial authority, the journal vouchers must be authorized pursuant to FAA section 34 before being entered in the IFMS.

However, we noted that the authorization of journal vouchers concerning transfers of expenditures between responsibility centres was not always verified by the financial officers responsible for the application of FAA section 33. This situation is caused by the lack of verification processes concerning the journal vouchers and, as a result, the authorization of the journal vouchers affecting different responsibility centres is not validated by an independent third party.

RECOMMENDATION

CORPORATE MANAGEMENT

In order to ensure that journal vouchers are authorized in accordance with delegated financial authority, we recommend instituting a verification process for journal vouchers, to allow the financial officers responsible for the application of FAA section 33 to validate the authorization of journal vouchers that entail a financial risk.

9.6 INTEREST ON LATE PAYMENTS TO SUPPLIERS

For the fiscal year ended March 31, 2001, interest totalling $7,892 was paid to CSA suppliers on 270 late payments. Interest on late payments is currently paid only when the suppliers officially request it, despite the fact that Treasury Board policies and CSA policy stipulate that "Interest shall be paid on payments made later than the due date as provided for by contract or statute or when awarded in legal proceedings against the Crown."

Treasury Board Circular 1996-1 dealing with the changes to the Payment on Due Date Policy specifies that "Automation [of the system for charging interest on overdue accounts] will be part of the government's new Financial Information Strategy (FIS), which will result in changing the location of calculation of interest from PWGSC to departments. FIS will require the departments to automatically calculate interest in their internal systems."

RECOMMENDATION

CORPORATE MANAGEMENT

In order to encourage payment on the due date and to comply with Treasury Board requirements in cases of late payment, we recommend automating the payment of interest when the CSA is responsible for a late payment.

APPENDIX A MANAGEMENT ACTION PLAN