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COMPLIANCE AUDIT REPORT ON SECTION 32 APRIL 20th, 2006TABLE OF CONTENTS
EXECUTIVE SUMMARYBackgroundThe Transportation Safety Board of Canada (TSB) is an independent agency of the Federal Government and exercises its activities through its Head Office in Gatineau, an Engineering Laboratory in Ottawa, and eight regional offices. The Head Office provides assistance and guidance to the various managers and administration officers by developing policies, guidelines and training to assist them in the exercise of their responsibilities. Those responsibilities include the need to comply with the section 32 of the Financial Administration Act (FAA), the Treasury Board Policy on Commitment Control and the TSB Internal Policies and Guidelines regarding the procurement processes. Objectives and ScopeIn February 2006, a compliance audit was required by TSB with the objectives to determine the extent of compliance to section 32 of the Financial Administration Act, the Treasury Board policy on Commitment Control and the TSB policy on Commitment Accounting and to assess the adequacy of internal controls with respect to financial commitments. The scope of this audit covered transactions from the period of April 1, 2005 to February 28, 2006. Of the 79 transactions reviewed, 60 transactions were chosen from the Accounting Transactions Detail Report and 19 transactions from the Outstanding Commitments Report. MethodologyThe audit included interviews, the review of relevant documentation and on-site examination of a sample of transactions in each of the key areas covered by the assignment. Conclusion and RecommendationsOverall, we found that the procurement and contracting activities at TSB were well executed and complied with the audit criteria. However, there are areas where compliance and business processes could be strengthened as described below. The Director General Corporate Services should:
The contracting and acquisition activities could be improved by establishing a standardized file identification system. This system would ensure that copies of all contracts are on file in a central location, thus allowing the contracting activities to be independently monitored and information more easily traceable. It is recommended that:
I. INTRODUCTIONThe Transportation Safety Board of Canada (TSB) is a small agency of the federal government created in 1990 with a mandate to advance safety in the marine, rail, pipeline and aviation modes of transportation by:
The TSB operates independently from other government departments and agencies and reports to Parliament through the President of the Privy Council. The TSB has approximately 230 employees of which 125 work at the Head Office in Gatineau, Quebec, 25 work at the Engineering Laboratory in Ottawa, Ontario, and the remainder work in the eight regional offices located across the country. From a financial perspective, the TSB operates in a decentralized manner. There are currently 47 delegated persons who can sign under section 32 of the Financial Administration Act (FAA). There are 18 administrative officers who are responsible to record commitments in the departmental financial management system, some of whom also have signing authority under section 32. Commitment authority can only be exercised if there are sufficient unencumbered funds available to discharge the obligation. The TSB currently utilizes the G/X departmental financial management system; therefore, directorates must ensure that:
Generally, salary payments are not committed in GX. II. AUDIT PARTICULARS1. Audit ObjectivesThe objectives of this compliance audit are to:
2. Scope of the AuditThe scope of this audit is to:
The scope of this audit has included Head Office, the Engineering Branch and the regional offices. Approximately 1,500 commitments and 5,000 payment transactions were processed in the departmental financial management system during the period from April 1, 2005 to February 28, 2006. Of the 79 transactions reviewed, 60 transactions were chosen from the Accounting Transactions Detail Report representing $279,480 out of $5,333,336 and 19 transactions were chosen from the Outstanding Commitments Report representing $384,381 out of $2,061,620. The audit was conducted between February 20 and April 7, 2006. 3. Methodology and ApproachThe audit has been conducted in accordance with the standards and requirements set out in the Government of Canada Treasury Board Secretariat's Policy on Internal Audit, the Institute of Internal Auditors and standards for assurance engagements recommended by the Canadian Institute of Chartered Accountants. 3.1 OVERALL METHODOLOGY3.1.1 Planning PhaseDuring the planning phase, the audit team:
3.1.2 Field Work PhaseDuring the work phase the audit team:
3.2 SAMPLING METHODOLOGYIn order to test the internal controls, Samson & Associates has examined the Accounting Transactions Detail Report and the Outstanding Commitment Report that were provided by TSB's Finance and Administration Manager. The amounts under $200 in the Transactions Detail Report were segregated as these amounts are not required to be committed into the financial system as per the limit set by TSB. Our findings established that the total population over $200 to be 3,332 transactions (3,149 under $5,000 and 183 over $5,000) representing $5,333,336 ($3,322,091 under $5,000 and $2,011,245 over $5,000). Our sampling methodology consists of a dual approach including statistical sampling, using a formula generally accepted by the Canadian Institute of Chartered Accountant (CICA) and a judgmental approach for additional transactions with a high dollar value amount. For the statistical sampling, a 95% factor of confidence level was used to reflect a high degree of risk with an error margin of 5%. The result was a sample size of 60 transactions to audit. For the judgmental sampling, an additional 19 transactions were chosen resulting in a total of 79 transactions reviewed. 4. Audit CriteriaThe Audit Criteria clarifies the audit objectives and forms a basis for the work plan and the conduct of the audit. For this reason, they originate from Acts and Regulations, Government Policy, Guidelines or Standards, guidance provided by the Office of the Comptroller General, and/or simply from generally accepted good-practice models developed by recognized experts or the auditor with management. Consequently, audit criteria used in this audit project are specific to the two audit objectives previously identified. See Appendix A for detailed criteria. III. OBSERVATIONS AND RECOMMENDATIONS1. Compliance to section 32 of the Financial Administration Act.Our findings indicate that five of the thirteen criteria used to assess compliance to section 32 of the FAA, the Treasury Board Policy on commitment control and TSB policy on commitment accounting were met by the transactions examined during our audit. In particular, the following practices are highlighted:
However, the audit revealed some specific areas where compliance issues and value for money can be strengthened. These are discussed further in this report followed by recommendations to address these issues. 1.1 Justification for contracting outOur audit revealed that the justification for contracting out and the analysis of alternative solutions to the acquisition of goods and services were not always found to be existent in the supplier's file. More specifically, we found that in five occasions there was no documentation on file comparing alternative solutions and demonstrating how the procurement process provided best value or value for money for the organization. Most of the occasions related to information technology (IT) services (4 out of 5). In these five occasions, three were under $1000, one was $7,200 and one was $29,700. Although most of the contracts were of low dollar value, sole source justification became less a factor. We also noticed that the documentation is found in numerous locations, the file identification and file keeping is not standardized or misunderstood by the internal resources and is sometimes hard to locate as also described in section 2 of this report. RECOMMENDATION 1 The Director General Corporate Services should ensure that appropriate training and instructions be given to personnel regarding the procurement process and file keeping. 1.2 Appropriate Requisition DocumentationIt was found that requisition documents are being used in the majority of the transactions. However, we noted three occasions out of 60 transactions where the appropriate requisition documentation were missing (room rental for training, internet services and plane rental). These occasions seem to be isolated as there is no common factor noted between them. Missing requisition documents cannot provide assurance that the contracting activities are carried out in accordance with Treasury Board Contracting Policy. RECOMMENDATION 2 Since the number of deficiencies were minimal, an internal memo to procurement personnel reminding the importance of the requisition documentation in the procurement process should be sufficient. 1.3 Contracts are signed before the start dateIt was found that the contract was not signed by the supplier in one occasion out of eight transactions requiring contracts. The one exception noted was for obtaining internet services. RECOMMENDATION 3 It is recommended that the Director General Corporate Services reinforce monitoring procedures to ensure that contracts are signed before the contract start date.
RECOMMENDATION 4 We recommend that files be established to provide a complete audit trail and that clear responsibilities of file keeping be developed between divisions. This relates also to the recommendations in section 2.
RECOMMENDATION 5 All suppliers' accounts payable files should contain justification for sole sourcing when applicable. Also, the suppliers' files should contain a reference to the original RFP file to provide a proper audit trail and to meet Treasury Board Contracting Policy. 1.6 Availability of fundsDuring our audit, we observed that funds were not committed against their respective budgets in 13 occasions out of 60 transactions. Of the 13 occasions, nine referred to traveling, two referred to goods, one referred to training and one to consulting. It was also noted that out of the nine traveling transactions, five were for investigation purposes which could be justified due to the urgency of the situation. There were seven transactions under $500 and only one over $800 (this transaction was for training at $7,200). It was also noted that out of the 13 occasions, four were credit card related. The internal policy allows payment up to $200 without committing, but this ceiling limit is often exceeded. RECOMMENDATION 6 We recommend that the Director General Corporate Services reinforce the importance of fund commitment process regarding traveling expenditures and credit card transactions to employees with commitment authority.
Furthermore, the audit also revealed some specific areas where the internal control and processes can be strengthened. These are discussed further in this report followed by recommendations to address these issues. 2.1 Management of TSBTSB provides guidance and support to its staff and regional offices through the Corporate Services Directorate and its various Divisions, such as, Finance and Administration, Human Resources, Information Management and Informatics. The responsibility for the input of commitments into the financial system (G/X) has been delegated or assigned to the Administration Officers in the various Branches and Regions. An Administrative Procedures Manual was developed to guide and assist managers and staff in carrying out their responsibilities. This manual seems to be very explicit and detailed, but unfortunately does not reflect the current situation and directives at TSB (last updated in January 1998). Also, being a decentralized organization, the responsibilities of contracting and acquiring goods are divided among various sectors and regions. Therefore, the documentation is found in numerous locations, the file identification and file keeping is not standardized and is sometimes difficult to locate. This results in an increased risk of errors and non-compliance to Treasury Board Policy, the Financial Administration Act and TSB internal policies. RECOMMENDATION 7 The Administrative Procedures Manual should be updated to reflect current practices and directives and be accessible to TSB managers and staff. Also, the effectiveness and efficiency in the contracting and acquisition activities could be improved by establishing a standardized file identification system. This system would ensure that copies of all contracts are on file in a central location, thus allowing the contracting activities to be independently monitored and information more easily traceable. IV. SUMMARY OF RECOMMENDATIONS
V. MANAGEMENT RESPONSEThe Director General of Corporate Services stated that the procurement process and file keeping was also a concern in the pass and that procedures were developed last year for standardizing some aspects of the procurement process. The staff turnover may have contributed to documents being misfiled and the process not having been fully understood. The Manager of Finance and Administration will review and update, if needed, the actual procedures and guidelines and will inform appropriate internal personnel. Management feels that the other audit findings might not justify a general approach across the organization since the non compliant instances were mostly of a low dollar value amount and were mostly related to the observation above. Therefore, management may elect to reinforce the actual procedures by issuing a reminder on the existence of the procurement and the updated commitment processes. Appendix A: Audit Criteria
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