Project Overview

Established in 1986 by Employment and Immigration Canada (now Human Resources Development Canada), the Community Futures Program (CFP) has been responsible for the establishment of 90 Community Futures Development Corporations (CFDCs) throughout rural Western Canada. In 1995, the CFP for Western Canada was transferred to Western Economic Diversification Canada (WD).

The purpose of the CFP was to create CFDCs that would diversify the Canadian rural economy by creating or maintaining jobs in new or existing businesses. The CFDCs are not-for-profit corporations responsible for a variety of community-focused activities that support economic development in designated rural areas. With core funding assistance provided by WD, they help communities to develop and diversify through the following activities:

Strategic community planning - working with communities to assess local problems; establish objectives; plan and implement strategies to develop human, institutional, and physical infrastructures; and support entrepreneurialism, employment and the economy.
Business services - delivering a range of business counseling and information services to small and medium sized enterprises.
Access to capital - providing capital to assist existing businesses or to help entrepreneurs create new businesses.

In accordance with Treasury Board Decision 828143 of May 18, 2000, and as a result of observations made by the Office of the Auditor General (OAG) in her December 2001 Report, WD has committed to both an audit and evaluation of WD’s CFDC program. The evaluation is the subject of a concurrently submitted report.

Objective and Scope of Audit

The audit of the CF Program had three main focuses:

To evaluate the adequacy of WD’s management control system relating to the CF program;
To assess implementation of the responses to the 2001 Report of the Auditor General; and
Where possible, make recommendations for areas of possible improvement.

The audit scope was limited to the structure of the relationship between the CFDCs and WD itself. This would include the nature of the reporting systems and requirements, the interaction of WD Staff with the CFDCs and the monitoring and control procedures undertaken by WD in regards to the objectives of the CF Program and the activities of the CFDCs.

Although the individual CFDCs are the entities carrying out the implementation of initiatives, it was determined in consultation with WD that the control procedures within the CFDCs themselves would be outside the scope of this engagement.

Approach

In commencing this assignment, Grant Thornton staff met with several WD officials to determine the scope and parameters of the engagement. In addition to these discussions, background information related to the CF Program was reviewed, including:

2001 Report of the Auditor General of Canada
Treasury Board of Canada “Policy on Transfer Payments”
CFDC, WEI and FEDO Contributions – WD Policy
Audit / Financial Statement Guide for CFDCs

Grant Thornton’s approach to this assignment included:

Workshop and Sample Selection

As part of the consultation and planning process, discussions were held with WD staff to determine the general parameters for the assignment followed by a workshop with the Project Steering Committee in January, 2003. The session served to confirm the scope and approach of the Audit, as well as the selection of the CFDCs to be sampled.

Originally, in selecting the sample of CFDCs, “Project Risk Assessment” was to be the key criteria. On an annual basis, this risk assessment is done for each CFDC based on various criteria relating to the CFDC itself. (Please refer to Appendix A-9). However, a Risk Assessment was not available for all CFDCs at the time of selecting the sample. Therefore, it was determined that the sample of CFDCs would be the same representative sample selected for the Evaluation of the program. This allowed the Audit and Evaluation to be consistent and capitalize on any efficiencies. (See Appendix A-1 for listing of CFDCs selected).
Audit Objectives

A key portion of WD’s system for managing their relationship with the CFDCs is based on the documents that the CF Contract requires the CFDCs to file with WD. These documents allow WD Staff to monitor the CFDCs’ activities, accomplishments and financial status, as well as the CFDCs’ compliance with the terms of the CF Contract. Also, as a result of the 2001 Report of the Auditor General of Canada, WD has implemented certain initiatives to improve the effectiveness of their management and control of the CF Program. Each region was assessed according to the following objectives:
- Whether or not each CFDC is complying with requirements under the CF Contract, such as filing required documents on a timely basis with WD, including financial documentation, policies, amendments, etc.;
- How, and to what extent, WD utilizes this information in the management of the CFDC relationships; and
- The status of the implementation of the changes indicated in the response to the Auditor General’s 2001 Report, such as QAR process and checklists, risk assessment process and performance monitoring and that the selected CFDC files contains documentation of the foregoing;
Site Visits

With these objectives in mind, each WD regional office (Vancouver, Edmonton, Saskatoon and Winnipeg) was visited. The following audit procedures were performed at each location.
Audit Procedures

In each region, a detailed file review program was completed. WD project files for the period April 1, 2000 through September 30, 2002 for each of the 20 CFDCs sampled was reviewed to assess whether:
- Current CF Contract was retained on file
- Annual operating plans had been filed
- Annual operating plans were approved
- Quarterly reports were filed
- Interim financial statements were filed
- Annual audited financial statements, and auditor’s report on compliance had been filed
- WD Staff had completed “QAR File Contents and Best Practices” Checklist (see Appendix A-10)
- WD Staff had completed “WD Annual CFDC / WEI / FEDO Project Risk Assessment”
- Approval process relating to advance contribution payments was evidenced
Discussion with WD Officials

In order to gain an understanding of the processes within WD involving the reporting and monitoring of CFDCs, discussions were held at WD regional offices with various levels of WD staff. These discussions were fairly informal as opposed to a detailed program of interviews, and focused largely on how the CF Program was administered in each office, and how WD Staff utilized the information provided by the CFDCs. These discussions not only resulted in gaining information regarding WD processes, but also were useful in determining whether or not the actual practice of WD staff follows the formal monitoring and control structure.
Data Compilation and Reporting

The resulting information was compiled as follows:
- The results of the audit procedures were compiled with the exceptions noted (Refer to Appendix A-2).
- The discussions with WD Staff regarding their methods for monitoring the CFDC relationships were summarized (Appendices A-4 through A-7).
Based on the information gathered, it was possible to draw conclusions regarding WD practices for monitoring and control over the CF Program and make various recommendations.

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