Please note that the following document is not in effect until April 1, 2006. The
current Internal Audit Policy remains in effect until
March 31, 2006.
1.1 This document provides direction to deputy heads on the responsibilities,
membership and operations of departmental audit committees.
2.1 The departmental audit committee is an essential part of the audit regime
established by the Policy on Internal
Audit. The Policy calls for the deputy
head of each department, other than small departments and agencies (SDAs), to
establish an independent departmental audit committee that includes experienced,
competent external members. Deputy heads of SDAs may also choose to establish a
departmental audit committee when their departments are undertaking internal
audits.
2.2 This directive is issued pursuant to paragraph 7.(1) (a) of the Financial
Administration Act.
3.1 This directive will take effect on April 1, 2006. (See Policy 1.1)
4.1 Role of Departmental Audit Committees
The audit committee shall ensure that the deputy head has independent,
objective advice, guidance, and assurance on the adequacy of the department's
control and accountability processes. In order to give this support to the
deputy head, the audit committee should exercise active oversight of core areas
of departmental control and accountability in an integrated and systematic way.
4.2 Responsibilities of Departmental Audit
Committees
The key areas of responsibility that shall be addressed by the departmental
audit committee are:
4.2.1 Values and Ethics: The audit committee shall review, at least annually,
the arrangements established by management to exemplify and promote public
service values and to ensure compliance with laws, regulations, policies, and
standards of ethical conduct.
4.2.2 Risk Management: The audit committee shall review, at least annually,
the corporate risk profile and departmental risk management arrangements.
4.2.3 Management Control Framework: The audit committee shall review, at
least annually, departmental internal control arrangements, including the
adequacy of management-led audit.
4.2.4 Internal Audit Function
The audit committee shall:
- Recommend, and regularly review, a departmental internal audit charter or
internal audit policy for approval by the deputy head;
- Regularly review the adequacy of resources of the internal audit function;
- Review and recommend for approval the risk assessment and the internal
audit plan prepared by the chief audit executive;
- Regularly review the performance of the internal audit function;
- Advise the deputy head on the appointment and performance appraisal of the
chief audit executive;
- Receive and recommend for approval internal auditing reports and
management action plans to address recommendations; and
- Be aware of audit engagements or tasks that do not result in a report to
the committee, and be informed of all matters of significance arising from
such work.
4.2.5 Office of the Auditor General and Central Agencies
The audit committee shall:
- Ensure that management has adequate arrangements to support the Office of
the Auditor General (OAG) and central agencies in doing audit work in the
department;
- Be fully briefed on all audit work relating to the department to be
undertaken by the OAG, other agents of Parliament or central agencies;
- Review the audit reports of the OAG and central agencies that have
departmental or government-wide implications and recommend for approval
departmental responses and action plans;
- Periodically meet with the OAG and seek its comments and advice on matters
of departmental risk, control, and governance;
- Be briefed on audit-related issues and priorities raised by central
agencies and advise the deputy head on required action; and
- Be briefed on, and advise the deputy head on, the impact of
government-wide initiatives to improve management practices.
4.2.6 Follow-up on Management Action Plans
4.2.6.1 The audit committee shall:
- Ensure that there are effective arrangements in place to monitor and
follow-up on management action plans responding to recommendations from
internal audits, the OAG, or other sources; and
- Periodically receive reports from management on actions taken.
4.2.6.2 The chief audit executive shall report periodically to the audit
committee on whether management's action plans have been implemented and whether
the actions taken have been effective. The chief audit executive's report shall
identify any areas where he or she believes management has accepted a level of
risk that is unacceptable to the department or to the government.
4.2.7 Financial Statements and Public Accounts Reporting
4.2.7.1 The audit committee shall review the departmental financial
statements with management and all significant accounting estimates and
judgments therein and recommend to the deputy head whether they should be
accepted.
4.2.7.2 When the departmental financial statements are audited, the audit
committee shall review:
- The audited financial statements with the external auditor and senior
management, discuss any significant adjustments to the statements required
as a result of the audit, and any difficulties or disputes with management
encountered in the course of the audit;
- Management letters arising from the external audit of the department's
financial statements or the Public Accounts;
- The auditor's findings and recommendations relating to the internal
controls in place for financial statement reporting; and
- The performance of the external auditor.
4.2.8 Risk and Accountability Reporting
The audit committee shall review the departmental Corporate Risk profile and
the Report on Plans and Priorities, the Departmental
Performance Report and other significant accountability reports, to ensure that, to the best of their
knowledge, there are no material misstatements or omissions.
4.3 Membership of the Departmental Audit Committee
4.3.1 Audit committees must include independent, external members who are not
currently in the federal public service. By April 1, 2009, all audit
committees must have a majority of external members. Members from the federal
public service shall be limited to the deputy heads, and associate deputy
ministers and assistant deputy ministers from other departments. The deputy head
would be the only internal representative on the audit committee if he or she
elects to chair the committee. The preferred model would be a committee
comprised entirely of external members with the deputy head as an ex-officio
member.
4.3.2 Deputy heads are responsible for establishing an independent
departmental audit committee that includes a majority of external members who
are not currently in the federal public service. Deputy heads and the
Comptroller General shall jointly select audit committee members for approval by
the Treasury Board.
4.3.3 The Comptroller General shall also establish competency profiles for
external audit committee members and standards for tenure, terms of service,
conditions for removal, conflict of interest, liability indemnification,
security clearance, remuneration, and protocols to address disagreements.
4.3.4 Members of an audit committee shall be selected so that their
collective skills, knowledge, and experience will allow the committee to
competently and efficiently undertake its duties. Members of the audit committee
should be free of any real or perceived conflict of interest.
4.3.5 The audit committee shall have three to five members. External members
shall be engaged by the deputy head for a term of four years.
4.3.6 A member shall serve no more than two terms. To ensure adequate
continuity, engagements can be staggered and initial terms may be for less than
four years.
4.3.7 All members of the audit committee shall be familiar with private or
public sector financial reporting, or undertake to become familiar within the
first year after appointment. At least one member shall be a financial expert
who possesses:
- An understanding of generally accepted accounting principles and financial
statements;
- Experience preparing, auditing, analyzing or evaluating financial
statements that present a breadth and level of complexity of accounting
issues that are generally comparable to the breadth and complexity of issues
that can reasonably be expected to be raised by the department's financial
statements, or experience actively supervising one or more persons engaged
in such activities;
- An understanding of internal controls and procedures for financial
reporting; and
- An understanding of audit committee functions.
4.3.8 The deputy head or an external member shall chair the audit committee.
If the deputy head is chair, an external member shall be vice-chair. The
preferred model is for the chair to be an external member.
4.3.9 The quorum for the committee shall be a majority of the members. No
alternates shall be permitted.
4.3.10 The deputy head, the senior financial officer, and the chief audit
executive shall be expected to attend all meetings of the audit committee. The
chair may request the attendance of other departmental officials.
4.3.11 The chair shall, as necessary, ask a senior representative of the OAG
to attend the audit committee meeting to discuss the OAG's plans, findings and
other matters of mutual concern.
4.3.12 The chair may, as necessary, ask Treasury Board Secretariat officials
to attend the audit committee meeting.
4.3.13 Audit committee members shall receive formal orientation and training
on the committee's responsibilities and objectives, and on the business of the
department.
4.4 Operations of the Departmental Audit Committee
4.4.1 The role, responsibilities, and operations of the audit committee shall
be documented in an audit committee terms of reference or charter, approved by
the deputy head. The document shall be reviewed periodically by the audit
committee and reaffirmed by the deputy head.
4.4.2 The chair of the audit committee shall prepare a plan to ensure that
the annual and ongoing responsibilities are scheduled and fully addressed. The
plan shall be presented to the committee for its approval.
4.4.3 The audit committee shall meet at least four times a year. Audit
committees are encouraged to schedule their meetings one year in advance so that
departmental management and auditors can prepare the information and reports
required to support the committee's work. Rescheduling of audit committee
meetings would be by exception only.
4.4.4 As part of each meeting of the audit committee, the committee shall
meet individually in camera with each of the deputy head (if not a committee
member), the departmental senior financial officer, the chief audit executive,
the representative of the OAG when in attendance, and any other officials the
committee may determine.
4.4.5 The audit committee shall prepare an annual report to the deputy head
that shall:
- Summarize the committee's activities undertaken and the results of its
reviews;
- Provide the committee's assessment of the department's system of internal
controls;
- Document any significant concerns the committee may have in relation to
the department's risk management, controls and accountability processes;
- Provide the committee's assessment of the capacity and performance of the
internal audit function; and
Provide, as needed, recommendations for the improvement of risk management,
controls and accountability processes, including recommendations for the
improvement of the departmental internal audit function.
Please send any questions about this directive to:
Office of the Assistant Comptroller General, Internal Audit
Treasury Board of Canada Secretariat
L'Esplanade Laurier
300 Laurier Avenue West
Ottawa, Ontario
K1A 0R5
Email: ias-svi@tbs-sct.gc.ca
Fax: (613) 952-3698
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