Audit of the Allocation and Control over Tied Funding

Action Plan

Background

“Tied Funding” are funds received through Treasury Board (TB) submissions that are identified for specific activities or initiatives, including, for example, Bovine Spongiform Encephalopathy (BSE), Avian Influenza (AI) or Plum Pox. Thirty per cent of the Canadian Food Inspection Agency’s (CFIA) budget is considered Tied Funding. With some exceptions, reallocation of Tied Funding is permitted subject to program objectives being met and proper controls being maintained. The CFIA’s Resource Management Policy sets out the requirements for re-programming Tied Funding dollars.

An underlying principle of financial management within the federal government is that of financial resource reallocation. This means that departments and agencies should be reviewing their programs and activities on a continuous basis to ensure that they remain relevant to the current environment and provide value to the Canadian public. Financial resources attributed to programs and activities that are considered no longer relevant, or are of a lesser priority, should be redirected to activities of a higher priority.

The objective of CFIA’s Resource Management Policy is to provide delegated managers the flexibility and guidelines to effectively maximize financial resources by promoting reallocation, while ensuring that they continue to meet program objectives and deliver results. The Resource Management Policy aims to clarify the flexibilities and constraints associated with allocation and reallocation of Tied Funding.

Objective

The objectives of this audit were to provide reasonable assurance that:

• the management control framework in place over the Tied Funding process is adequate and effective; and
• the procedural requirements for the management, monitoring and reallocation of Tied Funding complies with the CFIA Resource Management Policy.

Scope

The following specific control areas were examined:

• Accountability and Governance
• Stewardship
• People
• Risk Management
• Results and Performance
• Policy compliance

This audit was conducted mainly in the National Capital Region, together with telephone interviews with Regional staff members in Guelph, Ontario and Moncton, New Brunswick. A representative sample of transactions was tested for compliance with the Resource Management Policy, and included transactions in the current and prior fiscal years for the Operations, Science and Programs Branches.

Approach and Methodology

This assurance engagement was conducted in accordance with the Treasury Board Secretariat (TBS) Policy on Internal Audit and the Institute of Internal Auditors’ International Standards for the Professional Practice of Internal Audit.

For each of the control areas outlined above, specific audit criteria were identified that collectively define an adequate, effective and efficient management control framework. The audit criteria were based on the Core Management Control Model (draft) developed by Treasury Board. Collectively, they formed the backbone of the audit program.

The criteria were discussed with and agreed upon by the Vice President and Executive Director of the Finance, Administration & Information Technology (FAIT) branch.

Key Findings

The Management Control Framework over Tied Funding is generally effective, although instances were identified where stronger adherence to CFIA’s Resource Management Policy is warranted.

Strengths in the management of Tied Funding include:

• Roles and responsibilities within the Agency are well understood. Furthermore, delegations are aligned with individual responsibilities, and functional authority is appropriately vested in and exercised by program managers.
• Financial variance analysis is part of the regular management reporting cycle, and includes Tied Funding programs. Each branch reviews and approves a variance analysis that is presented to the Resource Management Directorate, FAIT, and these branch reports are consolidated into the Agency Financial Situation Update (FSU).
• There is centralized support from the Resource Management Directorate and the Accounting Operations Directorate, FAIT, to delegated managers and financial staff within the branches and directorates to assist them with financial roles and responsibilities. Further guidance is provided to delegated managers through the mandatory financial management training course, Managing for Success. The newly delegated managers interviewed had successfully completed this course.

Nonetheless, improvements can be made to enhance CFIA’s management, monitoring and reallocation of Tied Funding, as follows:

Accountability and Governance

Responsibility and accountability for delivering stated objectives for Tied Funding are well communicated and clearly understood when an oversight body (committee or national office) has been established (e.g., the Avian Influenza Working Group). In the absence of an oversight body, authority, responsibility and accountability for Tied Funding objectives are not well coordinated, and non-financial reporting is not sufficient or timely to support effective oversight and governance of resources.

Stewardship

The Agency budgeting process is well defined, including the allocation process, and communicated to branches by Resource Management Directorate, FAIT. This process is well understood in the branches. However, the allocation process within branches is not transparent to program managers. Further, a formal process for challenging budget allocations is not available to program managers within branches. In the current fiscal year, several program managers identified shortfalls in opening budgets as compared to TB Submission appropriations. The impact of the reallocations on Tied Funding program objectives has not been clearly addressed or communicated to program managers and clearly does not comply with the CFIA Resource Management Policy.

The Agency has a reporting process that requires each branch to prepare a variance report comparing actual results to plan at the Branch level only. Although significant variances are challenged by branch or area financial services personnel, said challenge is informal and the results are not always well documented (limited qualitative analysis appended to variance reports). Directorate variance reports are consolidated at the branch level, which must be approved by the branch head prior to being forwarded to FAIT. This review and approval process is not always well substantiated by a physical sign off.

Compliance testing of the procedural requirements for the management, monitoring and reallocation of Tied Funding indicated that the initiation of transactions is authorized based on appropriate delegation, and transactions are independently reviewed to validate that they are appropriately coded and accurately recorded. From the sample of 17 transactions selected on a judgemental basis, 5 did not have appropriate evidence of authorization and/or were not recorded on a timely basis. These control weaknesses increase the risk that senior management will be unable to monitor the appropriate use of resources to achieve Tied Funding objectives.

People

The Resource Management Policy was announced to delegated managers through various mechanisms (intranet, email, addressed in the Managing for Success training course). While the awareness of the policy among the delegated and financial managers interviewed was high, said policy was not well understood by program managers because said managers were unclear as to how to actually implement policy requirements.

Although the Agency has a performance evaluation program for employees, limited alignment exists between individual performance objectives and specific goals, outcomes or activities associated with Tied Funding initiatives.

Risk Management

A few branch and area managers indicated that risks associated with Tied Funding are managed through informal, non-documented risk assessments, conducted as a normal course of management meetings. Supported by audit tests, no risk management practices, such as regular risk assessments using formal guidelines, appear to be in place to make decisions in relation to Tied Funding allocation and reallocation.

Results and Performance

Basic monitoring requirements identified in TB submissions are being met (establishment of Results-based Management and Accountability Framework (RMAF) indicators and other special reports as requested by TB, specifically annual Public Security and Anti-Terrorism (PSAT) reports). However, some performance measurement practices need to be addressed, including the availability of data on program outcomes and adequacy of information to support decision making and reporting.

Audit Opinion

In our opinion, the management control framework in place over Tied Funding is generally adequate, but management attention is needed to ensure that the procedural requirements for the monitoring and reallocation of tied funds comply with the CFIA Resource Management Policy.A number of opportunities for improvement have been identified to strengthen the management, monitoring and reallocation of these funds within the Agency.

Recommendations

Accountability and Governance

We recommend that the Agency:

Stewardship

We recommend that the Agency:

People

We recommend that the Agency:

Risk Management

We recommend that the Agency:

Results and Performance

We recommend that the Agency:

Management has developed a comprehensive action plan to address the issues raised in the report, and its implementation will be closely monitored by the Internal Audit Directorate and the Audit Committee.