Special Study on
Internal Financial Controls
Industry Sector
Audit and Evaluation Branch
Novembre 1999
Executive Summary
Detailed Report
- Background of the study
- Objectives of the study
- Scope of the study
- Detailed findings
- Conclusion
Executive Summary
In response to the Corporate Comptroller's request that a special study of the internal financial controls, including the segregation of duties, be conducted, the Assistant Deputy Minister, Industry Sector volunteered his Sector as a pilot for this study.
This study focussed on the management control framework for the acquisition, travel and telephone calling cards.
The following deficiencies were noted during this study:
For acquisition cards
- Segregation of duties: the majority of the Administrative officers cover all processing aspects (purchasing/Sec.32/Sec.34/input payments into the Integrated Financial and Materiel System (IFMS)) Cardholders should not exercise spending authority (Sec. 34)
- Lack of monitoring by the accountable managers in the Branches
- There are no detailed procedures governing the management of acquisition cards
For Travel cards
- American Express payments are not monitored periodically and should be excluded from the automatic post (do not process without account verification even if <$2,000.)
For telephone calling cards
- Roles and responsibilities are not clearly defined between Responsibility Centre and Facilities Management Directorate
- Inaccuracies in Government Telecommunications and Informatics Services (GTIS) billings
- Inadequate controls regarding the retrieval of cards when employees retire or are transferred to another department.
Overall, this study demonstrates that several improvements are required, but there is no evidence of abuse or misuse of cards in the Industry Sector. Therefore, extending this study to other Sector(s) was not required.
Detailed Report
1. Background of the study
In response to the Corporate Comptroller's request that a special study of the internal financial controls, including the segregation of duties, be conducted, the Assistant Deputy Minister, Industry Sector volunteered his sector as a pilot for this study.
2. Objectives of the study
The objectives of this special study were:
- to review the current practices and processes involved in the issuance and management of acquisition, travel and telephone calling cards to ensure that appropriate controls are in place for the use of such cards and in compliance with regulations;
- to ensure that Departmental procedures exist and are understood by the cardholders;
- to ensure that segregation of duties do exist between the person making the purchases and the one authorizing the spending, in accordance with Section 32 of the Financial Administration Act (FAA) and the person acknowledging receipt of goods and services and recommending the payment, as per Section 34 of the FAA;
- to determine whether proper monitoring is being exercised by Branches and that spending is being challenged during the account verification process by the accountable manager, in the Sector, and by officers in the Financial and Materiel Management Directorate.
3. Scope of the study
The study was limited to the Industry Sector and covered the relevant financial controls related to acquisition cards, travel cards and calling cards. The study consisted of describing the current system for the utilisation and control of cards generating expenditures, ensuring that all necessary controls were in place and recommending ways to improve the process.
4. Detailed findings
Acquisition cards
The detailed testing was performed in six Branches within the Industry Sector:
- Automotive and Transportation Branch
- Finance, Administration and Special Services
- Environmental Affairs Branch
- Industrial and Consumer Products Branch
- Life Sciences Branch
- Manufacturing and Processing Technologies Branch
We reviewed a sample of transactions with the Administrative officers from the Branches listed above, for the period of January to March 1999. In addition, we requested a list of all transactions made with MasterCards (for the same cardholders) from the National Bank Data Base. The period covered for this test was from July 98 to June 99.
Based on our interviews and the testing performed, the following deficiencies were found:
- Segregation of duties: the majority of the Administrative officers cover all processing aspects. (Purchasing/signing of Section 32 and 34 of the FAA and input payments into IFMS).
- When invoices from the National Bank are received, most Administrative officers are signing both Section 32 and 34. According to Treasury Board regulations, a cardholder should not exercise spending authority (Sec. 34).
- There is a lack of monitoring/challenges by the accountable managers in the Branches (4 out of 6 Branches). In other words, purchases are made and payment input is being done without any challenge. Also, the majority of these payments are being processed in Finance automatically (without challenge) since they amount to less than $2,000.
- The study also revealed that some senior level people in the Department were cardholders, most of whom have not used the card in the last 10 months.
- There are no internal detailed procedures governing the management of acquisition cards.
Although improvements are required for the management of acquisition cards, the detailed testing of transactions did not reveal any abuse in the utilisation of the cards in the Industry Sector.
Recommendations
- Spending authority (Section 34) should be removed from the cardholders in order to improve segregation of duties.
- Internal procedures, which would address all components of the control framework regarding acquisition cards, should be written and communicated to all Sectors.
- Accountable managers in each Branch should monitor and challenge any expenditures being made with the acquisition card.
- Financial and Materiel Management Directorate should provide training to the Administrative officers.
Travel cards
During the study we identified all employees who had a travel card (American Express), in the Industry Sector. Management in this Sector were concerned about the continuing need for this travel card for individuals in positions that do not require travel.
In an attempt to trace the source document which originated the issuance of the cards, the study revealed that for the majority of cardholders, American Express cards had been issued as a result of a roll-over from the enRoute cards. It was brought to our attention that the department's internal policy allows for practically everybody to have such a card. The Comptroller's Bulletin No. POL 021 stipulates that "Anyone who travels even once a year should have a Diners' Club/enRoute card."
Since payments for individual travel cards are the responsibility of individuals, there is a lower risk for payment abuse in the Department. Very recently, the Financial and Materiel Management Directorate reviewed all payments made to American Express for the last year in order to identify expenditures that relate to an individual travel card versus the regular payment for a Corporate American Express card (which is used to pay for airlines or other major expenditures). In light of the testing performed by the financial officers, no detailed transaction testing was, nor could be, done during this study.
Recommendations
- The Financial and Materiel Management Directorate should monitor American Express payments on a quarterly basis.
- All payments made to American Express should be excluded from the Automatic Post (i.e. do not process without proper account verification even if <$2,000.)
Telephone calling cards
This study also covered the expenditures generated by the utilisation of calling cards. Our testing consisted of comparing the master list of cardholders, which is held by Facilities Management Branch, against the list of employees in each of the 6 selected branches in the Industry Sector. Our testing revealed the following deficiencies:
Recommendations
- Roles and responsibilities should be clearly defined between Responsibility Centers and Facilities Management Branch.
- A periodic review of GTIS billings should be conducted by the Administrative officers to ensure they are accurate. This review should be co-ordinated with Facilities Management Branch, Operations Sector.
- Controls over the release forms should be strengthened in order to retrieve calling cards when employees retire or are transferred to another Department.
Overall, this study demonstrates that several improvements are required for the management of acquisition cards and calling cards, but there is no evidence of abuse or misuse of such cards in the Industry Sector. Therefore, extending this study to other Sector(s) was not required. By implementing the suggested recommendations in all Sectors, the financial controls related to cards generating expenditures would be improved.
Management Action Taken
Action has been taken to address all recommendations. The key change resulting from the study was the implementation, across the department, of procedures requiring a segregation of duties with respect to acquisition cards. This will prevent any individual from being able to both make and authorize acquisition card expenses.
Date Created: 2000-04-27
|