Audit of Delegated Financial Authorities

Executive Summary

Background

The Canadian Food Inspection Agency's (CFIA or the "Agency") mission is "dedicated to safeguarding food, animals and plants, which enhances the health and well-being of Canada's people, environment and economy." The successful achievement of the Agency's mission and strategic goals depends upon its ability to implement and follow management regimes (governance systems and practices) that comply with legislative requirements and promote sound financial management.

Effective delegation of authority is one of the primary means by which an organization promotes accountability, sound spending, and payment controls. The importance of effective delegation of authority in government is recognized by its inclusion as a core management control in the Treasury Board of Canada Secretariat's (TBS) draft publication on Fundamental Controls. The importance of strong delegation mechanisms is also reflected in the Accountability and Stewardship elements of the Government of Canada's Management Accountability Framework.

The Office of the Comptroller General (OCG) identified the delegation of financial authorities as one of its government-wide horizontal internal audit priorities for 2006-2007 and 2007-2008. The OCG noted that "the sound design and communication of delegated financial authorities represents a key control and enabler to accomplishing the business of departments." As Chief Audit Executives of Large Departments and Agencies are expected to issue their "holistic opinion on the effectiveness and adequacy of departmental risk management, control and governance processes" for the first time in 2008-2009, it will be necessary for them to have gathered sufficient assurance on the core management controls and key financial controls in their department.

In light of the importance of a clear and well articulated delegation strategy to an effective internal control system, the Canadian Food Inspection Agency's Sub-Committee on Audit & Risk Management (SCARM) decided to conduct an audit of the Agency's delegation of financial authorities.

Objective

The objective of this audit was to provide reasonable assurance that the Agency's systems of internal controls are adequate to ensure that:

• Financial authority, responsibility and accountability instruments and related policies are established and designed to enable the organization, while respecting legislative requirements and promoting sound financial management;
• Authority instruments, including the Minister's Letter of Delegation of Financial Authorities, Specimen Signature Records (SSRs) and those associated with acting assignments, are well controlled and updated as necessary;
• Delegated managers and financial staff who exercise authorities receive appropriate training and have a sound understanding of their financial authority and related responsibilities;
• Authorities for certain financial transactions are exercised in accordance with delegations and applicable policies and procedures; and
• Compliance with financial authorities and applicable policies and procedures is monitored regularly.

Scope and Methodology

The audit included:

1. interviews with Responsibility Centre (RC) managers across Canada, as well as key officials in Finance Administration and Information Technology Branch (FAIT) and Leadership Development and Career Progression - Human Resources Branch; and
2. walkthroughs in the National Accounts Payable Service Centers (NAPSC) in Montreal, Quebec and Guelph, Ontario, Procurement & Contracting Service Centre, and Client Services on the following streams of transactions:
   • Travel and Hospitality;
   • Contribution Agreements;
   • Purchase Orders for Goods;
   • Service Contracts; and
   • Intergovernmental Settlements

Transactional walkthroughs were conducted by observing transactions as they were being processed at the time of the on-site visits.

The assessment of control effectiveness was outside the scope of this audit and, therefore, no extensive transaction testing was undertaken. However, the audit did include an assessment of the general computer controls in place to support electronic authorizations.

Audit Approach

The audit was conducted in accordance with the professional standards of practice as outlined in the Treasury Board Policy on Internal Audit.

The audit program used for this assignment was based on the one developed by the Office of the Comptroller General to conduct its horizontal audit of the delegation of financial authorities in 2006-2007 and 2007-2008.

The audit criteria selected for this audit were discussed with and agreed upon by FAIT management.

To enhance the understanding of the audit entity and to identify key control points and areas of risk, process maps were developed for:

• The maintenance of the Policy Framework for Delegated Authority;
• Preparation of Signature Specimen Records (SSRs); and
• Illustration of the administration of delegated financial signing authority at the Agency.

Findings

Governance of Delegated Financial Authority

At the CFIA, financial authority, responsibility and accountability instruments and related policies have been established and are comprehensive, aligned with TBS policies, approved by Senior Management, and communicated in a timely fashion. They have been designed to allow the organization to meet its mandate, but also focus on respecting legislative requirements and promoting sound financial management. However, due to the service centre model adopted by the CFIA to deliver accounts payable services, the responsibility of performing account verification under Section 34 of the Financial Administration Act (FAA) is shared between the RC managers and the Accounts Payable Service Centres. This process is not consistently understood by all managers.

Authority Instruments

Although FAIT has updated the delegation schedules since the new Minister was appointed, they have yet to be signed, pending the issuance of an Order In Council to assign the Minister of Agriculture and Agri-Food as the Minister responsible for CFIA. Treasury Board policy states that the appointment of a new Minister does not automatically nullify existing delegations of authorities but nonetheless all efforts are being made by the Agency to minimise the delays in securing these.

The SSR form is comprehensive and is designed to provide the necessary information to control signing authority at CFIA. However, significant delays were noted due to incorrect information in SSR applications as well as delays in posting the needed information into RDIMS. Furthermore, in some instances, Responsibility Centre (RC) managers were unclear on the administration of authority for acting assignments.

Delegated Financial Authority Training

Documents describing the roles and responsibilities of staff with delegated authority (i.e., responsibility center managers and finance staff) are available to all CFIA staff on the Intranet. These include policies, processes and procedures related to delegation of financial authority. The "Managing for Success" initiative has been implemented and is considered a useful tool to educate RC managers on the process and their responsibilities. Indications of added-value of the training have been validated through interviews. It is recognized that education is an ongoing process and that, as such, the Agency must continue to ensure that those with delegated authority maintain the required level of knowledge.

Transaction Walkthrough of Accounts Payable Process

The process for validating signing authority is consistent for all transaction types reviewed during the audit. Although there is a strict adherence to ensuring delegated financial authority for Section 32 (expenditure initiation with availability of funds) and Section 34 (contract performance and price), the best practice of RC Managers with delegated financial authority signing for goods receipt/services rendered is not always a requirement to process payments, as the signature of a subordinate attesting that the goods have been received or the services have been rendered (as per column 59 of the Delegation) is sometimes accepted without an approved SSR in place.

Monitoring

The monitoring of accounts payable compliance is an integral part of the existing quality assurance process. Added value is obtained from this independent process because the results are challenged by key FAIT officials, who are authorised to release cheque payments. A monitoring report is also prepared and forwarded to the Director of Accounting Operations and to the Vice President FAIT in their oversight role.

Audit Opinion

Governance of Delegated Financial Authority

In our opinion, the Governance Framework for delegated financial signing authority is sound. Added clarity is required, however, on the use and interpretation of Column 59 of Schedule 1 to meet best practice in administering Section 34 of the FAA.

Authority Instruments

In our opinion, except for Specimen Signature Records, existing authority instruments are well controlled. Significant improvements are required on the administration and maintenance of Specimen Signature Records to avoid errors and ensure timeliness in the processing of payments.

Delegated Financial Authority Training

In our opinion, existing training strategies are in place and are effective to ensure desired levels of awareness on delegated financial authority. It is recognized this is an ongoing effort, and the Agency is encouraged to promote continuous communication/training in this area.

Transaction Walkthrough of Accounts Payable Process

In our opinion, the process for validating signing authorities for financial transactions is consistent and is exercised in accordance with applicable policies and procedures. Added policy guidance on the significance of a manager's signature will enhance the application of Section 34.

Monitoring

In our opinion, an effective quality assurance process is in place to monitor compliance with financial authorities and applicable policies and procedures. However, this process can be further strengthened once there is a common understanding on the application of Column 59 and the Specimen Signature Records (SSRs) are properly administered and managed.

Recommendations

1. The Vice-President, Finance, Administration and IT should modify the CFIA Delegation of Financial Signing Authorities - Explanatory notes - Schedule 1 to bring added clarity to the circumstances under which Column 59 can be implemented across the Agency.
2. The Director of Accounting Operations should take the necessary steps to centralize the SSR management process to better control the quality and consistency of these documents.
3. To avoid delays in processing SSR applications, and to provide SSRs on a timely basis to Procurement and Accounts Payable staff, the Director of Accounting Operations should institute formal processes as well as service standards to update and activate SSRs.
4. The Director of Accounting Operations should ensure that training on delegated financial authorities is not exclusively reliant on the "Managing for Success" course. Ongoing training efforts, such as refreshers or other forum, should provide participants with CFIA-specific requirements, including concrete examples of its application at the Agency.
5. The Director of Accounting Operations should review and enhance the way certification of goods receipt/services rendered is administered at the National Accounts Payable Service Centres.

ACTION PLAN

Recommendations	Actions	Responsible Manager	Implementation Date
1. The Vice-President, Finance, Administration and IT should modify the CFIA Delegation of Financial Signing Authorities - Explanatory notes – Schedule 1 to bring added clarity to the circumstances under which Column 59 can be implemented across the Agency.	1.1   Schedule 1 of the Delegation of Financial Signing Authorities will be modified to clarify column 59 (Section 34 authority), as we are still awaiting the Minister's approval.	Marco Dupuis, Director, Accounting Operations	January 31, 2008
	1.2   In the mean time, an accounting bulletin will be published via Zlist clarifying Column 59 and account verification requirements under Section 34 of the FAA.	Marco Dupuis, Director, Accounting Operations	January 31, 2008
2.   The Director of Accounting Operations should take the necessary steps to centralize the SSR management process to better control the quality and consistency of these documents.	2.1   The SSR management process will be centralized in the NCR during the next fiscal year.	Marco Dupuis, Director, Accounting Operations	September 30, 2008
3.   To avoid delays in processing SSR applications, and provide SSRs on a timely basis to Procurement and Accounts Payable staff, the Director of Accounting Operations should institute a formal process as well as service standards to update and activate SSRs.	3.1   SSR validation procedural documentation will be drafted and implemented, addressing such points as processing time and communication and follow-up protocols.	Marco Dupuis, Director, Accounting Operations	March 31, 2008
	3.2   Accounting Operations and the Learning Division (HR) will explore options to ensure that information with regard to the completion of Managing for Success course is communicated to Accounting Operations in a timely manner.	Marco Dupuis, Director, Accounting Operations and Mary Brodhead, Executive Director, Learning Division	March 31, 2008
	3.3   The Agency plans to implement Agriculture and Agri-Food Canada's (AAFC) SSR online system, which will be rolled out in fiscal year 2008-2009.  The new system will provided enhanced functions to manage SSR's, including search and reporting capabilities.	Marco Dupuis, Director, Accounting Operations	March 31, 2009
4.   The Director of Accounting Operations should ensure that training on delegated financial authorities is not exclusively reliant on the “Managing for Success” course. Ongoing training efforts, such as refreshers or other forum, should provide participants with CFIA-specific requirements, including concrete examples of its application to the Agency.	4.1   Consistent with training initiatives implemented during the 2007/2008 fiscal year, Accounting operations will continue to deliver training sessions on delegated financial signing authorities during: FAIT conference; quarterly debriefs of Quality Assurance reports with NAPSC's and Client Service Unit (CSU); and branch management meetings as requested by branch finance managers.	Marco Dupuis, Director, Accounting Operations	Implemented
	4.2   The annual SSR review is an effective tool to raise awareness of delegated financial authorities and instruments amongst managers. During this annual exercise, managers are asked to perform a complete review on the authority delegation structure and instruments.	Marco Dupuis, Director, Accounting Operations	March 31, 2008
	4.3   The Learning Division and Accounting Operations will explore the possibility to deliver the Managing for Success training more frequently and enhance the financial delegation portion with more practical examples and case studies.	Mary Brodhead, Executive Director, Learning Division and Marco Dupuis, Director, Accounting Operations	March 31, 2008
5.   The Director of Accounting Operations should review and enhance the way certification of goods receipt/services rendered is administered at the National Accounts Payable Service Centres.	5.1   Account verification process will continue to be reinforced through the training sessions for each quarterly quality assurance report and the Accounting Operations Workshops.	Marco Dupuis, Director, Accounting Operations	Implemented
	5.2   NAPSC's and CSU will provide training to their staff, with regards to roles and responsibilities of account verification procedures, as part of their recently initiated training initiative.	Marco Dupuis, Director, Accounting Operations and Helen Morgan, Director, Strategic Policy, Business Planning and Administration	March 31, 2008