Internal Audit and Evaluation Documents

Parks Canada - Parks Canada Performance, Evaluation and Audit 2006 - 2009 Plan

Report presented to the Audit Committee

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6. Observations and Recommendations

6.1 Management Control Framework (MCF)

Yellow

Moderate improvements needed

Some controls are in place and functioning. However, major issues were noted and need to be addressed. These issues could impact on the achievement of program/operational objectives.

To determine whether the management control framework is sufficient to ensure compliance with financial policies, we used the following audit criteria:

C1- Information essential for achieving operational objectives is identified, collected, processed and quickly transmitted to those concerned.

C2- Staff roles and responsibilities, specifically those relating to control, are clearly identified, documented and circulated.

C3- Business and operational plans are prepared in cooperation with the parties concerned and set adequate budget parameters and needs in terms of human and material resources and security.

C4- The control environment in place facilitates sound, effective management.

C5- The control activities exercised ensure early detection of anomalies and permit timely application of corrective measures.

C6- The control activities exercised ensure proper management of finance staff.

C7- The finance group has sufficient, competent staff to achieve operational objectives.

C8- Operations-related risks are formally assessed on a regular basis.

6.1.1 Organizational Structure

Roles and Responsibilities

The role of DG Western and Northern Canada, working in close cooperation with the Chief Executive Officer (CEO), is to standardize the management practices of the 15 field units under its responsibility. This structure makes it possible to promote the Agency's vision and objectives at a more regional level. Although field unit superintendents have a line relationship with the CEO, the creation of the DG Eastern and the DG Western and Northern has enabled the CEO to delegate the tracking of daily information while receiving regular updates on activities within the entire Agency. Circulation of information between field units and the CEO's office is also facilitated, since the Director General for Western and Northern Canada is meant to be the spokesperson to the CEO on behalf of the field unit superintendents. The Director General and the CEO hold frequent discussions, which facilitates feedback to the various questions. Finally, the Director General for Western and Northern Canada is a resource person who supports the decision making of field unit superintendents.

An up-to-date organization chart and a number of generic job descriptions were available at the time of the audit. When employees are initially hired, they receive a copy of their generic job description. If the employee is to perform specific duties regularly, those duties are recorded in the employee appraisal and performance plan. Appraisals are conducted on an annual basis and the employee objectives set for the next year are reviewed to ensure that the employee understands their significance in terms of achieving the Agency's overall objectives. The employee objectives may be adjusted during the year depending on new management requirements. Note that some incumbents of very specialized positions have more precise job descriptions outlining their duties.

To facilitate the transition during employee changeovers, any recurring duties should be documented. Without appropriate documentation, the transition period may be longer and result in additional costs, thereby reducing efficiency. Proper documentation of the activities included in key positions will help to maintain corporate memory, which is essential given the frequent changes in terms of human resources.

The roles and responsibilities to be exercised by finance staff within the service centre and the Banff Field Unit, and the roles and responsibilities of the acquisition card coordinators, are not clearly defined. This lack of clarity weakens internal controls over the processing of financial transactions, which is reflected in unverified signatures and coding, incorrectly completed documents and incomplete files. A clear, documented definition of the various roles and responsibilities, along with good communication between activity sectors, will improve internal controls over financial operations.

Objectives and Budgets

Since the objectives of DG Western and Northern Canada change very little from one year to the next, the unit sees no need to prepare a formal business or operational plan, as the field units do. However, since the key objective is to support the field units in their strategic planning, their objectives are considered when setting priorities for DG Western and Northern Canada. Overall objectives related to each activity are set in the budget plan and revised each year. The lack of a business plan does not mean that rigorous budget planning is not exercised over two key aspects: long-term planning of large-scale projects and tracking of basic budget estimates in the field units. The budget plan is set in close collaboration with the different sectors involved. It includes human and monetary resource requirements. The Director, Corporate Services regularly sends Excel reports to managers within DG Western and Northern Canada, as well as to field unit superintendents, who are accountable for their financial activities and must provide estimates to offset potential budget variances, thereby ensuring optimization of the funds allocated to each.

Communication

Corporate services staff discuss financial operations and budgets on a weekly basis. In addition, monthly meetings are held with all finance staff so that information essential for achieving financial goals may be presented.

It is easy for the Director General for Western and Northern Canada and his team to meet to discuss various situations, as they are all located in the same office. Furthermore, superintendents and managers meet two or three times a year to discuss general objectives for Western and Northern Canada. At the operational level, information is transmitted via e-mail or in ad hoc meetings with employees.

It may be concluded from the audit that information circulates well within the unit audited. We note that discussions among staff concerning questions about financial practices are documented and kept in the payment files. New video and teleconferencing technology, along with e-mail, minimizes the communication challenge posed by staff remoteness.

Segregation of Duties

The segregation of duties is clearly defined by the organizational structure of DG Western and Northern Canada. Expenditures are initiated in various sectors and approved by the competent authority. All managers with S.34 FAA (Financial Administration Act) signing authority have passed the F&A 101 course, a prerequisite for obtaining such authority. The person delegated under S.32 FAA, who is responsible for commitments, reserves funds in the STAR financial system, as required. Once the goods or services are received or rendered, the manager signs the invoice to authorize payment of the amount owing. Finance staff in the Winnipeg Service Centre and the Banff Field Unit are responsible for reconciliation and input the payment information in STAR. Finally, the person with payment authority under S.33 FAA is responsible for ensuring that the information is in compliance and complete before releasing payment.

Recommendations

1. The Director General for Western and Northern Canada must ensure that:
   • recurring tasks in key positions are documented,
   • the roles and responsibilities of finance staff handling financial operations are clearly defined and documented,
   • the roles and responsibilities of the acquisition cards coordinator are clearly defined and documented.

6.1.2 Control and Monitoring Environment

Since all staff of DG Western and Northern Canada have access to a computer, they can consult all financial policies at their convenience. Furthermore, several measures have been put in place to ensure that staff have a good understanding of the financial rules. Successful completion of the F&A 101 course is a prerequisite for obtaining spending authority. Administrative assistants receive training on financial policies, and explanatory documents are available on the Service Center's Intranet (Westnet). Managers are also asked to consult with the Service Center's finance officers on any questions regarding financial policy.

Responsibility for compliance with financial policy lies with the person with spending authority under S.34 FAA. Sporadic audits conducted by the Service Center's finance staff are based on the risk associated with the nature of the transaction. In addition, a statistical sampling is selected at the national level, and lists of the transactions chosen are sent to the finance group for audit each month. Although memos advising of replacements of absent managers are circulated within the DG, they are not sent to finance staff within the Service Center, thus reducing the quality of control over authorization validity.

With regard to budget management, the senior finance manager prepares financial reports in Excel, based on data from STAR. These current expenditure reports are sent to the responsible managers for confirmation of the accuracy of the data and their estimates for the coming months. Thus the senior finance manager can identify potential discrepancies and obtain explanations from managers. Adjustments will be made to the budget targets as required.

Recommendation

2. The Director General for Western and Northern Canada must ensure that all memos advising of replacements of absent managers are forwarded to finance staff in the Winnipeg Service Centre and the Banff Field Unit.

6.1.3 Risk Assessment

DG Western and Northern Canada has not yet established or documented a formal risk assessment process for its financial processes as a whole. A directive is expected from National Office over the next year to guide them in the process. In the meantime, issues of risk are discussed regularly at management meetings.

However, specific investment projects are the subject of a risk-assessment-based analysis. The purpose of this approach is to mitigate the risk of the project being compromised. Templates have been developed to assist project managers in forecasting. This assessment covers not only the project's finances but also the overall risks related to the project, such as human recourses requirements, environmental impacts, scheduling, and identification of partners involved in the project.

Recommendation

None

6.2 Hospitality

Red

Unsatisfactory

Controls are not functioning or are nonexistent. Immediate management actions need to be taken to correct the situation.

To determine whether due diligence is being exercised in the financial process relating to hospitality expenses and whether controls in place are adequate to ensure compliance with policies, we have used the following audit criteria:

C1- Hospitality activities are conducted in appropriate venues.

C2- Financial limitations placed on hospitality expenses are respected.

C3- Hospitality activities are approved prior to the event up to the appropriate approval level.

C4- Recipients of the hospitality activities are in compliance with the Parks Canada Agency.

C5- Payment for activities respects the provisions of the Parks Canada Agency.

Practices and Observations

It is government policy to extend hospitality in an economical, consistent and appropriate way when it will facilitate government business or is considered desirable as a matter of courtesy. Government of Canada senior managers have been required since December 2003 to publish all hospitality expenses on their organization's Web site.

Requests for hospitality must always be approved by the delegated responsible officer before the activity takes place, using the appropriate form, which explains the nature and scope of the planned activity. The document must be completed, signed and submitted with the payment request.

Where approval by the Minister (>$5,000) or by the CEO (between $1,500 and $5,000) is required, requests for approval of hospitality must be submitted sufficiently in advance to ensure that authorization is received before the activity is held. Authorization by the CEO requires a minimum of two weeks, while a minimum of one month should be allotted for the Minister's approval.

We have selected hospitality expense transactions for each fiscal year. The size and value of the transactions selected represent 21 transactions valued at $17,031.45, 81% of the total value for 2006–07 and 14 transactions valued at $5,226.74, 91% of the total value for the first six months of 2007–08.

A review of the documents revealed the following instances of non-compliance with the Hospitality Policy:

• 1 case where the cost per person exceeded the limit set out in the Policy.
  
  
• 1 activity for which no documentation was provided.
  
  
• 6 activities conducted without pre-authorization and for which no hospitality expense claim form was submitted.
  
  
• 21 audited transactions in which the hospitality expense claim form was not completed and signed.

Obtaining pre-approval for an activity without obtaining final authorization after the activity is held may open the door to organized activities that produce cost overruns.

We noted that only Mountain Parks management keeps a participant list available for each hospitality event. Although lists are not enclosed with the payment claim, they could be, as a best practice. Including the list with the payment documents would allow finance staff to corroborate the number of persons present at the activity and monitor the cost per participant.

One hospitality activity was organized in conjunction with the signing of a treaty. An audit of the activity revealed several instances of non-compliance and error. First, no request for approval of hospitality was completed before the activity was held, so that no pre-authorization was obtained, in violation of the policy. Second, a coding error in the breakdown of data in STAR underestimated the cost of the activity, which exceeded $5,000. At this cost, the activity required ministerial authorization. Finally, a $2,600 overpayment was made because the different invoices received from the activity organizer were not reconciled. Invoices received in duplicate were paid by mistake.

Recommendations

3. The Director General for Western and Northern Canada must ensure that:
   
   
   • Each hospitality activity obtains pre-authorization before the event is held.
     
     
   • The authorization level required respects the limits set out in the policy.
     
     
   • Each hospitality activity receives S.34 FAA authorization after the event is held.
     
     
   • The cost per participant respects the limits set out in the Policy.

4. The Director General for Western and Northern Canada must ensure that action is taken to recover the overpayment of $2,600.

6.3 Contracting

Yellow

Moderate improvements needed

Some controls are in place and functioning. However, major issues were noted and need to be addressed. These issues could impact on the achievement of program/operational objectives.

To determine whether due diligence is being exercised in the financial process relating to contracting and whether controls in place are adequate to ensure compliance with policies, we have used the following audit criteria:

C1- Guidelines and procedures relating to contracting practices exist in the field unit/service centre and are in compliance with TBS and PCA policies and directives.

C2- Adequate training/instruction is provided at all levels to ensure that staff are informed of and understand contracting policies and procedures.

C3- Compliance with contracting policies and procedures is monitored.

C4- Management reports relating to contracting activities are produced and used to monitor and supervise those activities.

C5- A need to award a contract has been identified.

C6- The appropriate contracting mechanism is used.

C7- Contracts are awarded fairly, bearing in mind the economy principle.

C8- The nature of the work to be performed or article to be delivered is specified in the contracts.

C9- The contracts include conditions to mitigate the risk of non-performance.

C10- The contracts are approved by persons with the required authorization.

Observations

DG Western and Northern Canada uses the following contracting methods: standing offers, purchase orders through PWGSC, purchase orders, competitive sourcing and noncompetitive sourcing. For the period April 1, 2007, to September 30, 2007, 14 contracts, including purchase orders, were awarded. The following table summarizes the contracting methods used:

	Less than $5,000		$5,000 – $25,000		More than $25,000
	No	Value	No	Value	No	Value
Purchase orders	2	$650.49
Purchase orders through PWGSC	1	$3,710.00
Standing offers	4	$4,402.38			1	$34,371.10
Competitive sourcing			4	$61,098.80	1	$49,502.00
Non-competitive sourcing			1	$16,345.20
Total	7	$8,762.87	5	$77,444.00	2	$83,873.10

The table does not include contracts from the Through Highways Directorate, most of which are administered directly within the field units where the work is needed. These contracts were examined as part of the audits conducted in the field units. However, contracts administered by the service centre were included in sampling. We focused on the riskier contracts in terms of allocation levels, i.e., construction and non-competitive contracts.

We found that DG Western and Northern Canada staff are provided with contracting advice and assistance from contracting officers in the Western Service Center. Two contracting officers work in Calgary and one in Winnipeg. The current directive urges managers to use the Contracts Administration and Procurement Officer for all purchases over $5,000. In this way, the risk of non-compliance with the contracting policy will be considerably reduced. The contracting officers keep an up to date list of the ongoing contracts by fiscal year. This list is used to track records of expenditures relating to these contracts. Once the contract officers confirm, on the invoice, that the terms of the contract are compliant, the payment is issued.

We also found that training and contracting tools, such as contract templates and job evaluation rating summary templates, are available to managers to assist them with contracting activities.

In our audit, we examined five of the 14 contracts awarded by DG Western and Northern Canada, representing a total value of $75,885.00. We also selected 10 contracts from the Through Highways Directorate, representing a total value of $6,443,567.00.

The following table shows the breakdown of the contracts selected:

	2007–08
	No.	Value
Competitive contracts	2	$112,337.00
Non-competitive contracts	10	$169,405.00
Competitive construction contracts	3	$6,237,710.00
Total	15	$6,519,452.00

It may be concluded from our audit of the competitive contracts awarded that contracting procedures are adequate. However, the non-competitive contracting process should be improved. Our audit of those files revealed the following instances of non-compliance:

• 5 files containing no justification for non-competitive contracts.
• 2 files containing inadequate justification for non-competitive contracts. In addition, in both cases, the contract and terms of reference were signed after the actual start of the contract.
• 6 contracts where amendments to the original contract were not signed by both parties to the contract.

Recommendations

5. The Director General for Western and Northern Canada must ensure that the awarding of non-competitive contracts is justified and properly documented.

6. The Director General for Western and Northern Canada must ensure that all contract files are complete and contain agreements signed by all parties concerned.

6.4 Use of Acquisition Cards

Yellow

Moderate improvements needed

Some controls are in place and functioning. However, major issues were noted and need to be addressed. These issues could impact on the achievement of program/operational objectives.

To determine whether due diligence is being exercised in the financial process relating to the use of acquisition cards and whether controls in place are adequate to ensure compliance with policies, we have used the following audit criteria:

C1- Guidelines and procedures governing acquisition cards exist in the field unit/service centre and are in compliance with TBS and PCA policies and directives.

C2- Adequate training/instruction is provided at all levels to ensure that staff are informed of and understand policies and procedures governing acquisition cards.

C3- An acquisition card coordinator is designated; procedures for issuing and cancelling acquisition cards are in place; and a log is maintained of cards issued and cancelled.

C4- Acquisition card limits and other restrictions are periodically examined to ensure that the planned use is reasonable.

C5- Compliance with the policies and procedures governing acquisition cards is monitored.

C6- Purchases are made by the cardholder only and are within approved operating and credit limits.

C7- Expenditures are verified for accuracy and compliance with TBS and PCA directives relating to acquisition card use.

C8- Purchases are reconciled with the acquisition card statement of account each month.

C9- A person other than the cardholder provides valid S.34 FAA certification.

C10- Card transactions are processed and paid on time to avoid interest charges.

Observations

There are 15 acquisition cards in circulation for DG Western and Northern Canada staff. Credit limits, ranging from $5,000 to $15,000, were determined on the basis of planned use and approved by the cardholder's manager.

The cards used in DG Western and Northern Canada are broken down by region follows:

Directorate	Number of Cards
DG	10
Northern Division	3
Mountain Parks	2

The Winnipeg Service Center functions as the acquisition card coordinator, with the exception of active cards in the Mountain Parks Directorate, which are the responsibility of the Banff Field Unit's finance staff.

Acquisition card coordinators have access to the Bank of Montreal Web site but do not use it to its full potential. The site offers various reports on acquisition card use that could facilitate monitoring of acquisition card transactions and detect discrepancies more quickly. Usage rates and credit limits are not monitored. A credit limit higher than necessary increases the risk of inappropriate use of the card.

The Finance Group (CS) monitors expenditures on acquisition cards when reconciling monthly statements with supporting documentation for payment. Purchases considered not in compliance with Agency policy are discussed with the cardholder.

Acquisition cardholders receive no training prior to obtaining their card. An audit of the files established that acquisition card coordinators do not require that the acknowledgement of responsibilities and obligations form developed by National Office be signed and returned to them. Yet, this document is evidence that the cardholder has been informed of the rules governing the card's use and agrees to abide by them. On the other hand, information notes on the policy on acquisition card use are circulated by e-mail once a year.

The total of 45 monthly statements examined for 10 cardholders is broken down as follows:

Directorate	2007–08		2006–07
	Number of Cardholders	Number of Statements	Number of Cardholders	Number of Statements
DG	7	13	3	20
Northern Division	1	1	1	1
Mountain Parks	2	10
Total	10	24	4	21

In the audit, the following cases of non-compliance were noted:

• reimbursement of expenditures when no supporting documentation was included with the statement.
• S.34 FAA authorization of four monthly statements by the cardholder's subordinate.
• authorization of four monthly statements by a person without signing authority for that cost centre.
• payment in full of one statement containing a notation that the goods had not all been received.
• 6 purchases ineligible under the acquisition card utilization policy, three of which related to motor vehicle expenses.

Our analysis of the files also established the following:

• 1 cardholder had not made any transactions since March 2006.
• 1 cardholder had made only one $75 transaction for 2007 but his credit limit was $15,000.
• 1 cardholder had a credit limit of $150,000, which was changed as soon as this was pointed out.
• several monthly statements were not forwarded to the Winnipeg Service Centre, despite numerous reminders, because no transactions had been made on the card.
• 7 monthly statements included interest charges.

We also noted that, when an acquisition cardholder makes purchases for persons reporting to another cost centre, the cardholder's manager, rather than the manager of the other cost centre, signs the S.34 FAA authorization. This practice may incur a risk of unauthorized expenditures.

Recommendations

7. The Director General for Western and Northern Canada should examine the possibility of strengthening the use of BMO's online reports to improve tracking of acquisition card transactions.

8. The Director General for Western and Northern Canada must ensure that cardholders comply with the rules governing acquisition card use.

9. The Director General for Western and Northern Canada must ensure that each cardholder file contains the signed form accepting the responsibilities and obligations respecting acquisition card use.

10. The Director General for Western and Northern Canada must ensure that all monthly statements are forwarded to the Winnipeg Service Centre.

11. The Director General for Western and Northern Canada must ensure that all expenditures using acquisition cards are authorized by the manager responsible for the cost centre used.

6.5 Expenditures on Travel

Yellow

Moderate improvements needed

Some controls are in place and functioning. However, major issues were noted and need to be addressed. These issues could impact on the achievement of program/operational objectives.

To determine whether due diligence is being exercised in the financial process relating to travel and whether controls in place are adequate to ensure compliance with policies, we have used the following audit criteria:

C1- Guidelines and procedures governing travel expenses exist in the field unit/service centre and are in compliance with TBS and PCA policies and directives.

C2- Adequate training/instruction is provided at all levels to ensure that staff are informed of and understand policies and procedures governing travel.

C3- Compliance with the policies and procedures governing travel is monitored.

C4- Travel and travel advances are properly authorized prior to travel (general or individual authorization), with S.34 FAA certification.

C5- Travel advances are reasonable and not given to travel cardholders, and payment is approved by a person authorized under S.33 FAA.

C6- Travel claims are in compliance with the TBS Travel Directive, and expenditures are verified for accuracy and eligibility.

C7- Travel claims include S.34 FAA certification.

Observations

DG Western and Northern expenditures on travel totalled $575,654.00 for 2006–07, representing approximately 43% of expenditures on goods and services. As of September 30, 2007, these expenses totalled $216,864.43, or 56% of expenditures on goods and services already incurred for 2007–08.

At the beginning of the year, most of the employees who travel regularly were granted non-lapsing authorization to travel within Canada, to facilitate operations. Employees without such authorization must, prior to departure, obtain travel authorization signed by the competent authority. In each case, the document must be included in the employee's file as confirmation of travel authorization.

No financial commitment is made for travel expenses. Since travel expenses represent nearly half the total goods and services budget for DG Western and Northern Canada, commitment of some travel costs would ensure better budget planning.

All air travel by public servants is reserved through the Travel AcXess system. Travel authorization numbers, indispensable for reserving air tickets, are kept by a finance officer in a register and distributed as required, to reduce the risk of inappropriate use.

Use of the AMEX travel card is encouraged and most frequent travellers do use it. The travel card coordinators are responsible for issuing and cancelling AMEX cards. When an employee leaves the organization, the travel card coordinators must complete and sign their section on the employee departure form; the card is then cancelled. However, when an employee is absent for over three months, the card is suspended in the AMEX system but may be retained by the user if desired.

Due to the lack of documented work instruction other than the Agency's policy available online, whenever changes are made to travel policy, an information e-mail is sent to all employees informing them of the nature of the changes. Also, when a claim is processed by the Winnipeg Service Center, particular attention is paid to the rates used by the claimant.

Travel claims are authorized by the manager responsible and then forwarded to Finance. The accuracy of the travel expenses is checked. If corrections are required, they are made right on the form and a note is sent to the claimant. If, however, questions remain or supporting documents are missing, a note is sent to the claimant and the documents are attached to the claim. The purpose of the finance group's check is to minimize the risk of non-compliance with the Agency's travel policy.

A total of 42 travel claims were audited for analysis. The sample represents an amount of $43,874, or 20% of the expenditure item for the current fiscal year.

Overall, travel claim processing is adequate. However, the following instances of noncompliance were discovered in the review of travel claims:

• 18 travel claims failed to supply travel authorization. The claimants had non-lapsing authorization to travel, but the document was not submitted to the service centre.
• 1 travel claim contained a travel authorization form but no cost estimate.
• 2 travel claims failed to included information on the cost of the prepaid air ticket. This information is necessary to show the actual cost of the trip, since the Agency must publish superintendents' travel costs.
• 1 instance of expenditure incurred for a full-size rather than intermediate rental vehicle, without justification.
• 3 travel claims contained errors. The rates used by the traveller were inaccurate.
• 1 travel claim contained hospitality expenditures. That invoice should have been submitted to ensure its compliance with the hospitality policy.
• the form used for travel expenses by the Executive Director, Mountain Parks, omits information, making it impossible to properly check travel expenses.

As a best practice, conference registration invoices should be included with the travel documents to make it easier to check expense claims and accelerate claim processing.

Recommendations:

12. The Director General for Western and Northern Canada should consider the possibility of committing some travel costs when budgeting, to optimize budget tracking.

13. The Director General for Western and Northern Canada must ensure that all travel authorizations are sent to the service centre's finance staff.

14. The Director General for Western and Northern Canada must ensure that travel claims contain all supporting documents and that only eligible expenses are reimbursed.

15. The Director General for Western and Northern Canada must ensure that travel rules are enforced.

6.6 Payments to Suppliers

Yellow

Moderate improvements needed

Some controls are in place and functioning. However, major issues were noted and need to be addressed. These issues could impact on the achievement of program/operational objectives.

To determine if the payments to suppliers process is exerciced with due diligence and if controls in place are adequate to ensure compliance with TBS and PCA policies and practices, we used the following audit criteria:

C1- Policies, guidelines and procedures regarding the purchase of/payment for goods and services from suppliers exist at the Field Unit/Service Centre and they adhere to TBS and PCA policies.

C2- Adequate training/instruction is provided at all levels to ensure awareness and understanding of the policies and procedures.

C3- Adherence to the policies and procedures is monitored.

C4- Procurement of goods & services is appropriately initiated and authorized, and funds are properly committed in the financial system.

C5- Goods and services on suppliers' invoices are matched to P.O /contract specifications.

C6- Price and quantities on invoices are in accordance with POs/contracts.

C7- A person with the appropriate delegated authority signs S.34 FAA.

C8- Advances and progress payments are made only when in accordance with the terms of the contract.

Observations

Processing of payments to suppliers is the responsibility of finance staff within the Western Service Center located in Winnipeg, except in the case of the Mountain Parks Directorate, where this is the responsibility of the Banff Field Unit's finance staff. The supplier payment procedure is not documented. However, staff assigned to these duties have a good understanding of the process, having years of service in their positions.

Control activities follow the policy on financial audit and sampling. Each month, finance staff in Winnipeg check the transaction lists selected. Finance staff in Banff perform this exercise inadequately. Our review of the documents has established that transactions identified by finance staff as being adequate were, in fact, erroneous. However, the policy requires constant monitoring of the processing of financial operations. In addition to statistical sampling, finance staff exercise other minimal controls. For example, documents require an S.34 FAA signature. Yet it was impossible to verify the signature on some payments because memos announcing management replacements are not forwarded to the finance section. Also, the persons with S.33 FAA payment authority perform random checks on regular transactions, focussing especially on at-risk transactions. The following transactions are considered at risk by finance staff:

• hospitality expenses
• international travel
• conference fees
• membership
• relocation
• training costs

When a contract must be paid, the invoices are submitted to a contracts officer, who ensures that the terms of the contract have been met. The invoice is then initialled, to certify compliance, and forwarded to a finance officer for payment.

As a general rule, any expenditure over $1,000 must be committed in the financial system. Purchase orders are required for expenditures between $1,000 and $5,000. Sometimes, however, invoices over $1,000 are sent to finance without having been committed in STAR. These invoices are simply paid directly and are not committed after the fact. For purchases over $5,000, the manager must contact the contracting officer for advice on which goods or services procurement method to use. For the Mountain Parks Directorate, only expenditures relating to special projects and translation are committed. An expenditure commitment system should be introduced to improve tracking of operating budgets.

Finance staff in the Winnipeg Service Center use e-mail to inform all employees of financial policies or policy amendments.

Suppliers' invoices are received in the mailroom and date-stamped. Next, they are forwarded to the respective managers, who must certify S.34 FAA compliance, authorize the supporting vouchers and assign a financial code. Once they have been authorized, the invoices are sent to the finance group in the Winnipeg Service Centre for processing.

In our audit, we sampled 66 transactions involving various suppliers. The following instances of non-compliance were identified:

• 1 expenditure recorded in the books was undocumented.
• 1 payment was made for a contribution. The Chief Executive Officer, who is the only person with power to authorize expenditures of this nature, did not authorize the invoice.
• 1 payment was made concerning professional membership dues. The expenditure was greater than the allowed delegation.
• 1 payment of over $5,000 was made without a purchase order or contract being provided.
• 3 payments lacked the appropriate S.34 FAA authorization. It was impossible to verify the signature because the specimen signature card was not available.
• 6 payments received S.34 FAA authorization by managers not designated for that cost center.
• 3 payments received S.34 FAA authorization for expenditures on goods and services used by the person signing, contrary to the segregation of duties.

We noted several instances of payments where no purchase orders or receiving slips for the merchandise were included with the invoice. This discrepancy makes it difficult to determine whether duties are properly segregated in the goods procurement process and means that only the S.34 signature attests to the accuracy of the information. We also observed notations on some payment documents to the effect that they had not been verified. The service centre's finance officer explained that, owing to payment processing delays, mainly during vacation periods, staff do not always have time to conduct checks before issuing the cheques.

Recommendations

16. The Director General for Western and Northern Canada must ensure that work instructions are developed and documented to clearly define the roles of finance staff with respect to supplier payments.

17. The Director General for Western and Northern Canada must ensure that expenditures greater than $1,000 are entered in the financial system.

18. The Director General for Western and Northern Canada must ensure that:
    • all invoices have the appropriate S.34 FAA authorization.
    • purchase orders and receiving slips are enclosed with the payment documents.
    • finance staff exercise proper control over document compliance before issuing payment.

6.7 Financial Coding

Yellow

Moderate improvements needed

Some controls are in place and functioning. However, major issues were noted and need to be addressed. These issues could impact on the achievement of program/operational objectives.

To determine if the financial coding process is exercised with due diligence and if controls in place are adequate to ensure compliance with TBS and PCA policies and practices, we used the following audit criteria:

C1- Coding guidelines and procedures at the Field Unit/Service Center exist.

C2- Adequate training/instruction is provided at all levels to ensure awareness and understanding of coding procedures.

C3- Adherence to chart of account is monitored.

C4- An individual with proper knowledge does coding.

C5- Coding is validated when entered in STAR.

Observations

Managers with spending authority or their assistants are responsible for financial coding. When invoices are received, they are stamped and the financial code is entered by hand. The chart of accounts and any information necessary to select the appropriate financial codes are available on the Agency intranet under "Financial Policies."

Finance staff within the service center examine the financial codes only for payments subject to detailed checks, i.e., those selected by statistical sampling, high-risk transactions and payments chosen by random checks. For all other payments, finance staff may occasionally encounter and correct coding errors.

A total of 56 transactions were examined. From the sample, 19 cases were discovered in which coding errors occurred in the ledger account used, representing a percentage error of about 34%. We also noted that one cardholder routinely codes all his/her expenses to the miscellaneous ledger account, even though the statements report several types of expenditures. Charging an expense to the wrong account could affect the accuracy of the financial information contained in the financial statements.

Overall, we find that the controls in place concerning financial coding need to be strengthened.

Recommendations

19. The Director General for Western and Northern Canada must ensure stricter use of the chart of accounts by managers and minimize use of the miscellaneous account.

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