Audit Guidelines
April 16, 2004
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Table of Contents
- Introduction
- Scope
- Definitions
- General Information - Audits
What is an audit?
Why have an audit performed?
Types of Audits
Independent Audit (Recipient
Initiated)
Ministerial Audit (Health Canada
Initiated)
Unqualified Opinion
Qualified Opinion
Denial of Opinion (Adverse Audit
Opinion)
- Audit Requirements - Independent Audits
(Recipient Initiated)
Auditor Qualifications
The Audit Contract
The Audit Deliverables
Audit Report
Report on Health Expenditures
Recipient Responsibilities
Health Canada Responsibilities
Audit Default
- Appendices
Appendix A
Appendix B
Appendix C
Under a Consolidated Contribution Agreement-Integrated (CCA-Integrated),
the accountability relationship between Chiefs and Councils and the Minister
of Health reflects an approach based on the community having greater
program and financial flexibility within a framework requiring more visibility
and accountability to community members, and to Parliament. In its accountability
to Parliament, the federal government reports on all activities that
it has funded in every Department and on the results achieved. Similarly,
in its accountability to community members, a First Nation's Council
and administration are to report on where funds have been spent and what
community members are getting in return.
These guidelines are intended to assist both First Nations
and Inuit Health Branch (FNIHB) employees and First Nation and
Inuit Recipients. This guide is also intended as an informative document
to help First Nations and Inuit community members and outside parties
understand
the requirements and obligations with respect to
contribution programs, as well as outlining the interaction
between the community's administration and FNIHB.
The purpose of these guidelines is to describe the audit
requirements of Health Canada's CCA-Integrated. These guidelines discuss
several basic audit concepts, and are intended to provide the reader
with a basic understanding of audits, and the relationship to the contribution
agreement, as well as addressing audits performed on behalf of the
Recipient, and other annual reports. Ministerial Audits are not addressed
in these guidelines. These are addressed in the separate FNIHB
Ministerial Audit Guidelines.
In the context of this Guide, relevant terms are defined as follows:
Audit
This means an audit conducted by an independent accredited
auditor with an opinion expressed on:
- fairness of the financial statements; and
- adequacy of financial controls in place
Financial Statements
This means statements that are prepared to provide
their users with reliable information concerning the financial affairs
of an organization. In the case of First Nations, users of the statements
can be banks, the federal government, other funding agencies and First
Nations members. The statements also provide the First Nation with financial
information concerning organizations that are accountable to the First
Nation. "Financial statements should demonstrate the accountability
of a First Nation for the financial affairs and resources entrusted to
it." (Source: A First Nation Guide to Generally Accounting Principles
prepared by AFN-CGA Working Group).
Fiscal Year
This means a one year period commencing April 1 of
one calendar year and ending March 31 of the subsequent calendar year.
Independent (Recipient Initiated) Audit
This means an Independent Auditor contracted by the
Recipient to conduct an audit of the Recipient's financial processes,
controls, accounts and records.
Independent Auditor
This means an auditor who is independent from the Recipient
and is a member of an accounting body that is recognized by the Province/Territory
in which the Recipient has its administrative offices.
Minister
This means the Federal Minister of Health
This means an audit of the Recipient's accounts, records
and supporting documentation conducted by the Minister in accordance
with the terms and conditions of the contribution agreement.
Recipient
This means an organization that has entered into a
Health Services Agreement (including: an Indian Band, a district or Tribal
Council, an Indian or Inuit health board, an Indian or Inuit organization,
or a corporation).
Region
This means the office of the Regional Director, First
Nations and Inuit Health Branch, Health Canada.
In general terms, an audit is an examination of the records and financial
statements of a business or organization by an independent accountant,
for the purpose of expressing an opinion as to whether the financial
statements present fairly the financial position at a given date and
results of operations and its cash flows ending on that date in accordance
with generally accepted accounting principles.
Generally an audit serves two purposes. It provides an assurance to
the reader of the financial statements, that these reports, including
the Statement of Financial Position (Balance Sheet), and Statements of
Revenue and Expense, are a fair reflection of the current financial position
of the organization, and a fair representation of the revenues and expenditures
stemming from the operations of the organization for the period covered.
The audit also is a management tool. The management letter prepared by
the independent auditor highlights weaknesses in accounting and governing
financial management processes and assists management (the Recipient)
in developing an action plan to correct any weaknesses.
Health Canada requires that First Nations entering into a CCA-Integrated
have their financial records audited each year. The CCA-Integrated represent
a greater degree of control transferred from Health Canada to the Recipient.
This increases the need to assure not only the government, but also the
Recipient's community members that the financial reports are a fair representation
of the Recipient's financial position and activities. Furthermore, since
the Recipient has taken on more responsibility and associated financial
risks, it is important that the Recipient is aware of any weaknesses
in its overall financial management.
As stated in the definitions, there are two types of audits that a Recipient
may encounter over a period of time in the context of the CCA-Integrated.
These are an Independent Audit (Recipient Initiated) and a Ministerial
Audit (Health Canada Initiated). It is important to understand the difference
between the two.
The Accounting and Audit Requirements section of the CCA-Integrated
requires that the Recipient be audited by an independent auditor who
is a member of an accounting body that is recognized in the Province
/ Territory in which the Recipient has its administrative offices, and
that the audit is conducted in accordance with the section of these guidelines
on Recipient Initiated Audits.
In this type of audit, the Recipient will contract an independent auditor
to perform the audit. Generally the auditor will examine the financial
processes that the Recipient has in place to manage its financial operations.
The auditor will also examine the controls that the Recipient has in
place to ensure that they accurately capture financial transactions and
to safeguard financial assets. The auditor will examine the accounts
to determine whether transactions have been properly recorded. And finally,
the auditor will examine the records to determine whether there is appropriate
documentation to support financial transactions, such as payments and
receipts of funds. Upon completion, the auditor will prepare a report
that will express an opinion as to the audit findings.
Generally, when the auditor has cited weaknesses in either the financial
management operation processes, management controls, the accounts or
supporting documentation, the Recipient should develop an action plan
to implement the corrective measures.
Within each of the three types of Contribution agreements that Health
Canada uses, CCA -General, Integrated and Transfer, is a section referred
to as the Minister's Right To Audit. This "right" provides
the Minister of Health Canada the right to conduct an audit of accounts
and records of the Recipient or any Agency of the Recipient, relating
to the funding provided under this Agreement in order to ensure compliance
with the terms and conditions of the Agreement.
While the reasons for the audit are the same, the main difference here
is that the audit is conducted not only to determine whether the financial
statements of the Recipient represent a fair reflection of the Recipient's
financial position and its operations, but also to provide assurance
that the activities and financial statements are a result of carrying
out the activities within the terms and conditions of the Contribution
Agreement. In a Ministerial Audit, the auditor(s) will examine whether
the Recipient has carried out its operations in accordance with the contribution
agreement. This type of audit focusses only on the financial activity
and management processes as they relate to the programs listed under
the agreement.
The auditor also evaluates the efficiency and effectiveness of program
management, assesses the quality of financial control measures and mechanisms
in place to manage risk effectively, and assures compliance with Treasury
Board and FNIHB policies and rules and regulations related to the provision
of Health Service in Canada.
Along with determining whether the financial and other reports required
under the agreement were completed accurately, the auditor may examine
(where the agreement stipulates a requirement) for instance, that communicable
disease reports have been forwarded to the appropriate provincial agency,
that adequate liability insurance has been acquired, that professional
staff, such as Registered Nurses are registered with their provincial
nursing associations. The Auditor will also examine whether the resources
were expended for the intended activities under the agreement. Upon completion,
as is the case with the Independent audit, the auditor will prepare a
report that will express an opinion as to the Auditor's findings. Please
refer to the FNIHB Ministerial Audit Guidelines for more detailed information
on Ministerial Audits.
The expression of an Auditor's opinion will normally take one of three
forms. An Unqualified Opinion, a Qualified Opinion or a Denial of Opinion
(Adverse Audit Opinion).
An auditor will provide an unqualified opinion, when, based on the examination
it has been determined that the financial reports fairly represent the
financial position and activity of the organization in accordance with
Generally Accepted Accounting Principles (GAAP).
This is a statement written upon the front page of an audit done
by a professional auditor. A qualified opinion suggests that the information
provided was limited in scope and/or the entity being audited has not
maintained GAAP standards.
An auditor will provide a qualified opinion, when, based on the examination
it has been determined, that the financial reports, subject to exceptions
noted, are a fair reflection of financial position and results of operations.
In certain cases, the exceptions can be material enough to warrant the
restatement of the financial reports to address the effect the deficiency
has played upon the financial position, financial activity, or both.
This is a professional opinion made by an auditor indicating that
an organization's financial statements are misrepresented, misstated,
and do not accurately reflect its financial performance and health.
An auditor will in some cases, deny an opinion, if, based on the review,
it was not possible to determine with any confidence the fairness of
the organization's financial reports. Events such as the organization
failing to maintain adequate accounts, and significant lack of records
to support transactions would be cause for a denial of opinion.
The Recipient will enter into a contract with a qualified auditor to
perform the audit. In order to be considered a qualified auditor the
auditor must be:
- independent and must not be an employee of the Recipient; and
- qualified and be a member of a recognized accounting body in the
appropriate Province or Territory.
The Recipient will enter into a contract with an individual or a firm
to obtain auditing services. The audit contract should include:
- a summary of the Recipient's responsibilities;
- a summary of the Auditor's responsibilities, including the deliverables
(such as the Report on Health Expenditures) and the time frame/due
date for the Audit Report;
- the purpose and nature of the audit;
- the limitation of the audit;
- the scope of the audit, including specifics to be addressed and
reports to be produced;
- the conditions for additional audit or financial services to be
provided; and
- a copy of these guidelines (for the Auditor's reference);
- First Nations may wish to consider a payment hold back clause within
their contracts as an additional measure to ensure that all terms and
conditions have been fulfilled by the contracted auditor.
The audit report addresses the adequacy of the financial controls and
certifies whether generally accepted accounting principles have been
followed.
The auditor's report will include the following:
- an opinion regarding the Accuracy of Financial reports and adherence
to Generally Accepted Accounting Principles; and
- the following schedule: Report on Health Expenditures (Appendix
B)
Note: These two reports provide disclosure and visibility
in the Recipient's audit report as to funds expended on health programs
and services. Some Recipients provide consolidated audit reports for
their entire operation and Health Canada's revenue and expenditures are
highlighted but in a summary manner. For a completed sample of the Auditor's
Derivative Report please refer to Appendix A. Another option is for the
Recipient to provide a full audit report solely for Health Canada's programs
with the appropriate details.
The "Report on Health Expenditures" will show total health
program expenditures for the past fiscal year under the program/services
outlined in the agreement between the Recipient and Health Canada. Recipients
may choose to use the existing FNIHB reporting format as the basis for
completing the "Report on Health Expenditures", (Appendix B).
As such, for information purposes only, Appendix C, lists the Programs/Services.
The last section of the "Report on Health Expenditures" is
a disclosure, for the same fiscal period, of the funds received from
other organizations and governments for health purposes.
Note: The "Report on Health Expenditures" (Appendix
B) will be incorporated in the auditor's report as a schedule.
The Accounting and Audit Requirements section of the CCA-Integrated
(Phase I and II) Agreement requires that the Recipient:
- accurately record program information and financial transactions
and prepare all reports and statements as stipulated in the agreement;
- keep and maintain all accounts, financial and supporting documentation
for a period of seven (7) years unless advised otherwise by the Minister
in writing
- make program, financial and administrative records and reports available
to the Auditor and provide assistance to the Auditor, as necessary;
The Recipient should avoid duplication of effort and resources, by coordinating
and planning this audit with all other audits being conducted for other
federal departments, and make available to community members copies of
the above noted reports
The Accounting and Audit Requirements section of the CCA-Integrated
(Phase I and II) requires that FNIHB advise the Recipient within 30 days
of the receipt of the audit report.
The FNIHB region office is responsible for reviewing the report, including
any attachments and ensuring that proper follow-up action is taken with
respect to the opinion and observations expressed by the auditor by:
- communicating with the Recipient concerning the auditor's opinions
and observations;
- at the request of the Recipient, assisting the Recipient to develop
a plan for corrective action, if required; and
- monitoring on a regular basis, and through subsequent audits, whether
corrective action has been taken by the Recipient.
In cases where the Recipient defaults in its obligation to provide the
Minister with an audit report, the Remedies on Default section
of the CCA-Integrated permits the Minister to:
- require that an independent auditor, recognized in the Province in
which the Agreement was executed, be appointed immediately by the Recipient,
at the Recipient's cost, and that the audited financial statements
be delivered within a reasonable time as the Minister may determine;
or
- appoint an independent auditor recognized in the Province in which
the agreement was executed and in which case:
- the Recipient will provide the auditor, appointed by the Minister,
with full access to its financial records and provide such other
information as the auditor may require to perform the audit; and
- the Recipient will reimburse Health Canada for all costs incurred
in having the audit conducted.
Sample Completed Auditor's Derivative Report
Sample Only
GLASGOW & BROWN
CHARTERED ACCOUNTANTS
Peter Glasgow, CA
Sue Brown
125 5th St.
Edmonton, Alberta
To the Minister of Health
c/o Regional Director
Albert Region
First Nations and Inuit Health Branch
Health Canada
I have audited the (consolidated) statement of financial
position of Earth First Nation as at March 31, 2003 and the (consolidated)
statements of revenue and expenditures and changes in financial position
for the year then ended. These financial statements are the responsibility
of the Earth First Nation. My responsibility is to express an opinion
on these financial statements based on my audit.
I conducted my audit with generally accepted auditing
standards. Those standards require that I plan and perform an audit to
obtain reasonable assurance whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosure in the financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation.
In my opinion, these (consolidated) financial statements
present fairly, in all material respects, the financial position of Earth
First Nation as of March 31, 2003 and the results of its operations and
its change in financial position for the year then ended in accordance
with generally accepted accounting principles.
Glasgow and Brown
Edmonton, Alberta
June 15, 2003
Chartered Accountants
(Signed)............................................. CA/CGA/CMA
Schedule - Report on Health Expenditures
FIRST NATION HEALTH SCHEDULE OF REVENUE
AND EXPENSE (SAMPLE)
APRIL 1, 2002 TO MARCH 31, 2003
| |
CURRENT YEAR
BUDGET |
CURRENT YEAR
ACTUAL |
PRIOR YEAR
ACTUAL |
| REVENUE |
Health
Canada (HC) |
$500,000 |
$500,000 |
$490,000 |
Indian
and Norther Affairs Canada (INAC) |
20,000 |
20,000 |
15,000 |
Other
Revenues |
10,000 |
15,000 |
3,
000 |
Total |
530,000 |
535,000 |
508,000 |
| EXPENSE |
| Integrated
Community Based Health Services |
Management & Support |
42,000 |
42,000 |
42,000 |
Community
Health Representative (CHR) |
40,000 |
40,000 |
40,000 |
Operations & Maintenance
(O&M) |
35,000 |
35,000 |
35,000 |
National
Native Alcohol & Drug Abuse Program (NNADAP) |
48,000 |
48,000 |
48,000 |
Building
Healthy Communities (BHC) |
95,000 |
95,000 |
85,000 |
| Targeted Programs |
Home & Community
Care (H&CC) |
110,000 |
110,000 |
110,000 |
Prenatal
Nutrition |
15,000 |
15,000 |
15,000 |
| Non Insured Health Benefits
Program |
Direct
Transportation |
90,000 |
90,000 |
90,000 |
Transportation
Administration |
25,000 |
25,000 |
25,000 |
| Other |
INAC
Project |
20,000 |
20,000 |
15,000 |
FN
Project |
10,000 |
10,000 |
0 |
Total |
530,000 |
530,000 |
505,000 |
EXCESS
(SHORTFALL) OF REVENUE OVER EXPENSE |
$0 |
$5,000 |
$3,000 |
Notes:
- Example above is to be used as a guide in preparing schedule.
- Revenue and expense must be presented by source.
- Individual Health Canada Programs must be reported separately.
Appendix C
List of FNIHB Programs/Services
NOTE: This is a sample list provided to assist the
Band choosing to utilize the FNIHB activity reporting format to complete
the "Report on Health Expenditures" (Appendix B). Management
and Support Services.
Health Services
Aboriginal Diabetes Initiative
Aboriginal Headstart
Brighter Futures
BHC -Mental Health Crisis Mgmt
BHC -Solvent Abuse
Canada Prenatal Nutrition Program
Community Health Promotion and Injury/Illness Prevention
Community Health Primary Care (CHPC)
Environmental Health Program
Fetal Alcohol Spectrum Disorder (FASD)
First Nations and Inuit Health Information System (FNIHIS)
First Nations and Inuit Home and Community Care (FNIHCC)
Health Careers
Health Consultations
HIV/AIDS
National Native Alcohol and Drug Abuse Program (NNADAP)
Non-Insured Health Benefits (NIHB)
Pre-transfer
Tobacco Control
Tuberculosis Elimination Strategy
Capital
Treatment Centres
|
