Management and Financial Audit
of Selected Programs in the
Information Highways
Application Branch (IHAB)
September 2000

Executive Summary

Background

This audit was undertaken at the request of senior management. Hallux Consulting Inc. was contracted to undertake the work on behalf of the Audit and Evaluation Branch (AEB) with most of the fieldwork conducted between March and May 2000.

The objectives of the audit were to determine:

• if management has reasonable assurance that programs are well managed and are being implemented in a timely manner;



• if proper financial planning controls exist for the management of the programs; and



• if management has the necessary tools to ensure that Programs being delivered by third parties (in particular with Alternative Service Delivery (ASD) arrangements) are implemented effectively.

The audit focused on four programs (Community Access Program, Learnware, NetCorps and VolNet) within the Information Highways Applications Branch (IHAB). These four programs utilize grants and contributions extensively as part of program delivery. They deal with relatively small amounts directed to non-profit, community and education groups that in turn leverage additional funds and provide public services essential to the national and international success of IHAB programs. Consideration was also given to the contracting practices within the Branch during the period 1995-2000.

Key Findings

IHAB's contribution programs demonstrate many of the attributes of a well-managed program as identified by Industry Canada's Practices for Grants and Contributions¹ and the Office of the Auditor General². Staff are enthusiastic about their work and are working actively with program participants to find solutions and to make necessary adjustments to the program.

Nevertheless, comptrollership gaps were identified during the audit that offer opportunities to improve overall program management:

• Funds claimed by recipients in advance of need and based on budget
  A total of $1.3 million of $36 million paid during 1998-1999 and 1999-2000 was paid according to the budget rather than actual activity levels.



• Funds were not always consistently administered in accordance with terms and conditions set for contribution programs. CAP and VolNet programs are currently being administered more in line with a grants program.



• Inadequate adherence to requirements stipulated in government policy:
  While there is no evidence of fraud or personal benefit associated with existing practices, there were several examples of variance from Treasury Board policy noted during the audit. Specifically:



• In terms of the application of contracting requirements, contracts examined did not always identify clear deliverables and there were cases identified that could easily infer an employee-employer relationship;



• With respect to the management of financial requirements, staff in CAP and VolNet focused more on whether claimed costs were within budget, rather than on whether they met the definition of eligible cost.



• In terms of the allocation of expenditures to a fiscal year, auditors found examples of advance payments in one fiscal year which related to program activity in a subsequent fiscal year (VolNet, CAP)


• When working with Alternative Service Delivery (ASD) partners, payment and monitoring activities were inconsistent with government policy. Several instances were identified where payments were made for costs not clearly defined as eligible, and where insufficient consideration was given to the extent to which program targets were met.

Several key factors contributed to these practices. Within IHAB there is a strong focus on achieving published targets without giving adequate attention to Treasury Board and departmental financial management requirements. As well, staff do not clearly understand all administrative requirements associated with contribution programs. Finally, insufficient resources were allocated to IHAB's salary envelope, leading to an excessive use of contractors who are not as knowledgeable of government financial management policies and practices.

Conclusion

Based on the audit work undertaken, we have concluded that:

• IHAB management was so focused on the attainment of the established performance targets, that they gave inadequate attention to their comptrollership responsibilities;



• While staff worked diligently to implement programs in a timely manner, the evolving nature of the program and the time required to forge the necessary partnerships with other organizations resulted in IHAB being unable to implement the program within the established timeframes and according to departmental standards;



• While proper financial planning controls exist within Industry Canada for the management of programs, these were not adequately followed by IHAB; and



• IHAB did not use the necessary range of tools and mechanisms to adequately ensure that its programs, delivered by third parties, were being implemented effectively.

Management Action Taken (September 2000)

Industry Canada accepts the findings, conclusions and recommendations of the audit report, and has developed an action plan to reinforce management accountability and practices through control measures, training, monitoring, reporting, and further review and audit scrutiny.

Notwithstanding the positive program outcomes of IHAB, the audit results indicate instances where the department's standards for financial and program management have not been met. The audit found that IHAB's contribution programs demonstrate many of the attributes of a well-managed program as identified by Industry Canada's Practices for Grants and Contributions and the Office of the Auditor General; nevertheless, comptrollership gaps were identified that offer opportunities to improve overall program management. These comptrollership gaps will be addressed in the following action plan as an omnibus response to the recommendations made in the audit report.

Industry Canada values highly the essential role that the internal audit function plays in ensuring that the highest levels of modern comptrollership are met in the department's financial and program management practices.

Action Plan

Immediate actions:

1. All managers and staff will be reminded of their responsibility and accountability under the Financial Administration Act and the Treasury Board policy on transfer payments.




Financial, contracting and program authority will be temporarily removed from all managers and administrators in the Community Access Program (CAP) and the VolNet Program. Signing authority will be reinstated upon completion of the Contracting and Financial Signing Authorities courses provided by the Comptroller's Branch as well as the Program Delivery course provided by the Program Services Branch. The department will deliver this training to the appropriate staff in CAP and VolNet before the end of October 2000. All other IHAB managers, program officers, and administrators will also participate in this training within a reasonable time frame.

In the interim, the Assistant Deputy Minister, Spectrum, Information Technologies and Telecommunications (SITT) will exercise the required authorities with respect to CAP and VolNet.

In recognition of the progress made in improving their financial and program management practices over the past year, signing authority will be retained for the NetCorps and Learnware programs, as the most serious comptrollership gaps found in the audit did not occur in these programs.

2. The Department will initiate a measured review from a legal perspective of IHAB projects, agreements and contracts. A status report will be presented to the Departmental Audit and Evaluation Committee (DAEC) by January 2001.



3. IHAB will review all payments against claims, identify any overpayments or reimbursements of ineligible costs, and provide the results of the review and an action plan to the Program and Services Board (PSB) by December 2000.



4. IHAB will seek the sign-off of Industry Canada Legal Services on all IHAB agreements and contracts over $5,000 before they are signed by program managers. This arrangement will be reviewed in July 2001.



5. All IHAB directors will engage in early consultation with Industry Canada Legal Services and the Comptroller's Branch on proposed projects and contracts before any verbal or written commitments are made to third parties, and to ensure full compliance with policies, guidelines and legal requirements as these agreement and contract projects are developed.



6. The Director General, Audit and Evaluation Branch will initiate an internal audit of a sample of IHAB pilot projects, not covered by the scope of this audit, to be completed within 60 days.



7. The hold-back percentage for all IHAB programs will be 10%, as a minimum, in accordance with conventional departmental practice. This offers the Department some protection if any overpayments are made.



8. IHAB will complete as soon as possible, the staffing of a financial officer (FI-3) and a contracting officer (PG-3) in order to provide expert, objective advice and support to IHAB managers in exercising their responsibilities. These officers will, as an interim measure, report to the Comptroller's Branch. This reporting arrangement will be reviewed in July 2001.




Medium-term actions:

9. IHAB will review their organizational design and present a report to the PSB by November 2000. The report will deal with issues such as whether an appropriate level of resources have been allocated to the salary budget, and whether the staff complement model ensures the necessary competencies are present. The PSB will review the report and make recommendations to the DAEC.



10. IHAB will prepare an assessment of whether it is using the appropriate instrument (grant, contribution, or contract) to deliver its programs, and present their findings to the PSB by December 2000. The PSB will review the report and provide advice to the Deputy Minister on this issue.



11. IHAB will establish a monitoring plan which complies with the requirements of the Treasury Board Policy on Transfer Payments. The monitoring plan will be presented for approval by PSB in December 2000.




Longer-term action:

12. A follow-up compliance audit of IHAB programs will be undertaken, with a final report due by September 2001. In the interim, IHAB will provide written assurance, on a quarterly basis, to the Assistant Deputy Minister, SITT, that its programs are being appropriately managed and that funds are being disbursed prudently and in accordance with the programs' terms and conditions and all applicable legal and policy requirements.

¹ As set out in Grants and Contributions at Industry Canada – Management Practices, March 2000.

² As defined in A Risk Assessment Framework for Grant and Contribution Programs, Discussion Draft, March 7, 2000 prepared by the Office of the Auditor general in collaboration with Industry Canada.

• See also Review of the Access.ca Pilot Project – Phase II

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