Internal Audit Report - Audit of the Municipal Rural Infrastructure Fund (MRIF)

Final Report - January 2011

Table of Contents

  1. Executive Summary
  2. Background
  3. Audit Objective
  4. Audit Scope
  5. Audit Approach
  6. Audit Findings
  7. Audit Opinion
  8. Statement of Assurance

1 Executive Summary

In Budget 2003, the Government of Canada announced that $1 billion would go towards the Municipal Rural Infrastructure Fund (MRIF) to address the specific needs of Canada's municipalities, particularly those of less than 250,000 residents. Another $200 million augmented the program in December 2006. MRIF has been designed, in part, to encourage cooperation between federal departments and agencies, provinces/territories (P/Ts) and municipalities. Through the engagement of regional, provincial/territorial and municipal expertise and knowledge, the delivery structure also ensures that project funding directly addresses municipal and rural community needs while still adhering to the overall objectives of the MRIF program. The governance structure of the MRIF program is based on a federal partnership arrangement between Infrastructure Canada (INFC) and five federal departments, referred to as Federal Delivery Partners (FDPs), where INFC is:

  • responsible to ensure that effective financial and program controls are in place for managing MRIF;
  • accountable for the overall management of MRIF funds, which are part of its reference levels; and
  • responsible for reporting to Parliament.

In that context, the audit reviewed the partnership structure between INFC, the FDPs and the P/Ts (organizational and accountability structures, roles and responsibilities, communication, monitoring and reporting mechanisms) to determine whether it was adequate to effectively support the MRIF program activities and reporting requirements. More specifically, the audit scope covered the following Management Accountability Framework components: Governance, Stewardship, Accountability, and Results and Performance.

Based on our audit work, our opinion is that while the overall partnership structure is adequate, some shortcomings were noted in the controls and mechanisms within that partnership structure which require management action.

The following summarizes the audit findings and areas for improvement with respect to each of the Management Accountability Framework components that were audited.

Governance: The audit found that the general roles and responsibilities of the parties involved in the MRIF Program (INFC, FDPs, P/Ts), as well as the governance and accountability structure have been defined and documented. That being said, the documentation regarding the roles and the responsibilities of the various players involved in MRIF oversight within INFC, including roles with respect to governance, risk management and control processes could be improved. In addition, while mechanisms are in place to facilitate the sharing of information between INFC, the FDPs and the P/Ts, the audit found that they are not always working as intended; the information requested and received by INFC to support its oversight responsibilities does not always meet the pre-established requirements. Furthermore, INFC's monitoring and follow-up mechanisms need to be improved to ensure FDPs fulfill their responsibilities and submit all the pre-established documents and information to INFC.

Stewardship: While the audit found that forecasts are monitored on a regular basis, it is also noted that the monitoring is performed at a high level and that it does not include a challenge function. The audit found limited evidence of reviews conducted by INFC to analyze and explain financial variances. Some of this information should come from the FDPs but is not systematically obtained or reviewed by INFC.

Accountability: The audit found that authority, responsibility and accountability, including the Department's accountability in support of collaborative initiatives have been defined and documented, and that a clear structure has been established. That being said, the mechanisms established by the Memorandum of Understanding (MOUs) and the Contribution Agreements (CAs) to support INFC in carrying out its roles and responsibilities do not always work as intended.

Results and Performance: The audit found that the communication of the financial and non-financial reporting could be improved. The audit also noted that the information to allow management to monitor performance against planned results is not always readily available.

Management is in agreement with the audit findings and recommendations. Action plans have been developed by Management and have been included in the report to address the recommendations.

Original signed by

Linda Saunders
Chief Audit and Evaluation Executive
Office of Infrastructure Canada

Date

Yaprak Baltacıoğlu
Deputy Minister of Transport,
Infrastructure and Communities

Date

2 Background

In Budget 2003, the Government of Canada announced that $1 billion would go towards the Municipal Rural Infrastructure Fund (MRIF) to address the specific needs of Canada's municipalities, particularly those of less than 250,000 residents. Another $200 million augmented the program in December 2006. MRIF has been designed, in part, to encourage cooperation between federal departments and agencies, provinces/territories (P/Ts) and municipalities. Through the engagement of regional, provincial/territorial and municipal expertise and knowledge, the delivery structure also ensures that project funding directly addresses municipal and rural community needs while still adhering to the overall objectives of the MRIF program.

The governance structure of the MRIF program is based on a federal partnership arrangement between INFC and five federal departments, referred to as Federal Delivery Partners (FDPs). This governance structure, as well as the general roles and responsibilities of INFC and the FDPs regarding the delivery of the MRIF Agreement in a specific P/T are documented in a Memorandum of Understanding (MOU). Under this model, INFC is able to leverage the knowledge and expertise and resources of each FDP in relation to each P/T. MOUs have been signed between INFC and the following FDPs for each of the P/Ts in brackets:

  • Western Economic Diversification – WD – (British Colombia, Alberta, Saskatchewan, Manitoba);
  • Industry Canada – IC – (Ontario);
  • Canada Economic Development for Quebec Regions – CED-Q – (Quebec);
  • Atlantic Canada Opportunities Agency – ACOA – (Prince Edward Island, New Brunswick, Newfoundland and Labrador, Nova Scotia); and
  • Indian and Northern Affairs Canada – INAC – (Yukon, Northwest Territories, Nunavut).

While INFC is responsible for the overall management of the MRIF program, the FDPs are responsible for the day-to-day activities of the program. The responsibility for the implementation of the program is largely fulfilled through a Management Committee (MC) that is established by a Contribution Agreement (CA) between Canada (represented by INFC and the relevant FDP) and the P/T, and composed by two federal members and two provincial/territorial members. The tasks of the MCs include, among other things, approving individual projects within the delegated authority limits, reviewing and approving claims, and ensuring the completion of program and project audits in compliance with the Canada – P/T Reporting – Audit – Evaluation Guideline. In this context, INFC is:

  • responsible to ensure that effective financial and program controls are in place for managing MRIF;
  • accountable for the overall management of MRIF funds, which are part of its reference levels; and
  • responsible for reporting to Parliament.

Within INFC, the oversight role is performed by the Program Operations Branch (POB), which is responsible for the overall management of the program, and for reporting on MRIF performance. Until June 2010, this oversight role was performed by the Intergovernmental Operations Directorate within POB. In June 2010, POB went through a branch reorganization, moving from a program-based organizational structure to one that is based on geographical regions. The reorganization also included the creation of a new, "Program Integration" Directorate. Under this new structure, the program analysts and managers under the Regional Directorates are responsible for the oversight within their respective Regions, while the Program Integration Directorate is responsible for developing solutions to facilitate effective program delivery by providing the Regional Directorates with consistent program policies and tools. Financial oversight is performed by INFC's Finance and Administration Division within the Corporate Services Branch (hereinafter referred to as "Finance"). On a quarterly basis, INFC's Finance provides FDPs with cash flow information for each P/T, and requests and reviews actual program expenditures as well as adjustments to the cash flow requirements.

The MCs are composed of officials equally represented by the federal, provincial or territorial governments. In nine of the 13 jurisdictions, the MC is supported administratively by a Joint Secretariat. There are two federal officials on each MC: a federal co-chair, who is a voting member, and federal member. In all cases, the federal co-chair is an FDP official. As for the federal members, at the beginning of the program, ten were FDP officials, and three were INFC officials. Further to the signing of the MOUs, INFC was able to increase its representativeness on the MCs and additional INFC officials were nominated as Federal members on a number of MCs. As of March 2010, there were eight INFC officials sitting on the MCs as federal members. INFC's role on the MCs varies from one jurisdiction to another, from being a simple observer (e.g., on the Quebec – Canada MC), to participating in discussion, contributing to agenda items and concurring with project amendments (e.g., on the Nova Scotia – Canada MC). INFC still has no representation on the MCs with the following jurisdictions: New Brunswick, Manitoba, Saskatchewan, Alberta, and British Colombia.

With the announcement of additional funds in amount of $200 million to top-up the existing MRIF funding, all P/Ts accepted to match up the federal contribution except for the Province of Ontario. Amended contribution agreements were signed with each of the P/T, except for Ontario. Treasury Board approved the unilateral federal delivery of the program in Ontario. As a result, a new MOU between INFC and Industry Canada was approved for the delivery of the MRIF top-up in the Province of Ontario. Under this MOU, INFC and Industry Canada are jointly responsible for the review, ranking and recommendations of projects. Once projects are approved, Industry Canada is tasked with the management and administration of their delivery. In lieu of an MC composed of provincial and federal representatives, this MOU establishes an Oversight Committee comprised of one director general, supported by analysts, from each Department (INFC and Industry Canada). The Oversight Committee is responsible for reviewing and monitoring the status of the MRIF top-up agreements and for the overall delivery of the MRIF top-up program in Ontario.

Authority to conduct this Audit

In June 2008, the INFC Departmental Audit Committee (DAC) approved an Assurance Audit of MRIF. While preliminary work for the planning stage started at the end of 2008, the audit was delayed due to operational demands in Program Operations and a shift in risk focus to Economic Action Plan (EAP) programs. The audit was reinitiated in February 2010. In view of the fact that MRIF program funding was scheduled to sunset in 20111, the audit team had reassessed the value in conducting an audit of the Management Control Framework of MRIF and reduced the scope to focus on certain areas of the MCF in an effort to provide INFC with a level of assurance on the areas of highest risks.

3 Audit Objective

The objective of the audit was to provide assurance that the partnership structure between INFC, the FDPs and the P/Ts (organizational and accountability structures, roles and responsibilities, communication, monitoring and reporting mechanisms), is adequate to effectively support the MRIF program activities and reporting requirements.

4 Audit Scope

The scope of the audit included an assessment of the partnership between INFC, FDPs and P/Ts and the ability to monitor and report on MRIF results. More specifically, the audit scope covered the following Management Accountability Framework (MAF) components:

Governance: The audit examined the governance process in place to support the MRIF program. Within the context of the governance process; the risk management, the monitoring and oversight function, communication mechanisms, and the overall organizational and accountability structure were assessed.

Stewardship: The audit examined INFC's control regime integration and effectiveness to support the ability for INFC to monitor and report on MRIF results. This included assessing the monitoring mechanisms in place for ensuring financial and program compliance.

Accountability: The audit examined FDP-INFC's CAs with the P/Ts, as well as the MOUs between INFC and the FDPs to ensure that roles, responsibilities, and accountabilities for results for the MRIF Program, are clearly assigned, communicated and understood, and that delegations are appropriate to responsibilities and accountabilities.

Results and Performance: The audit reviewed the process in place to support monitoring and reporting of relevant information on results of the MRIF Program and determined the extent to which it is used to support Program decisions. The audit also examined the mechanisms and processes in place to ensure complete, accurate, and relevant information is available in a timely manner to support planning, monitoring, decision-making and reporting requirements.

5 Audit Approach

The audit was conducted in accordance with the Treasury Board Secretariat's (TBS) Policy Suite on Internal Audit and the Institute of Internal Auditors' Professional Standards.

The examination phase of this audit commenced in March 2010 and concluded in October 2010. The examination employed various techniques including interviews, review of financial and non-financial documentation, sampling of files/records and analytical reviews.

The audit criteria were based upon TBS's Core Management Controls. The Core Management Controls document was developed by the Office of the Comptroller General and summarizes the controls that can reasonably be expected to be in place in all federal departments and agencies. Core controls have been developed for each MAF component. The specific criteria used for this audit are listed under each finding presented in the following section of this report. The reference included before each criteria relates to the Core Management Control used. For example, G-1 relates to the core control #1 under Governance and Strategic Direction. It should be noted that:

  • G refers to Governance and Strategic Direction;
  • CFS refers to Client-Focused Service;
  • ST refers to Stewardship;
  • AC refers to Accountability; and
  • RP refers to Results and Performance.

For purposes of this report, the residual risk rankings associated with findings use a low, moderate, high three-point scale and are subjectively judged based on our knowledge of the MRIF management control framework gathered during the audit. The subjective criteria are:

High – Threats/Opportunities have very significant impact on INFC's objectives, are imminently likely and no or uncertain mitigation measures are in place.

Moderate - Threats/Opportunities have significant impact on INFC's objectives, have a longer-term likelihood and reliable mitigation measures are planned or are being established.

Low - Threats/Opportunities do not have a significant residual risk to INFC's objectives.

6 Audit Findings

6.1 Governance – Oversight, Mandate and Objectives

Criteria
G-1
An effective oversight body has been established.
G-2
The oversight body has a clearly communicated mandate that includes roles with respect to governance, risk management and control processes.
G-4
The organization has in place operational/program objectives for MRIF aimed at achieving its strategic objectives.
Observation
Moderate Risk

As established through a Treasury Board Submission, INFC is responsible for the overall oversight of MRIF while the FDPs are responsible for the day to day activities of the program. The audit specifically looked at the presence and the role of an oversight body within INFC. In conducting this audit, we expected to be able to identify, within INFC, an oversight body responsible for MRIF, with a defined mandate, including objectives and roles with respect to governance, risk management and control processes. While oversight activities are performed by POB and Finance, the audit found that the responsibility for oversight is not attributed to a specific body/person but rather rests on POB as a whole. The audit also found that the oversight function could be strengthened and could be supported with better documentation of decisions and actions. Furthermore, the documentation regarding the roles and the responsibilities of the various players involved in MRIF oversight within INFC, including roles with respect to governance, risk management and control processes, could be improved.

The audit found that the general roles and responsibilities of the parties involved in the MRIF Program (INFC, MCs, FDPs, P/Ts) have been defined and documented in various program key documents. The documents reviewed also described the governance and accountability structure for the overall program, and the program risk profile, including a program risk assessment and mitigation strategies. That being said, the audit found that these documents are not specific enough with respect to INFC's oversight role. The details of how INFC's oversight role is to be performed and by whom within INFC are not documented. In addition, while the program risk profile and risk mitigation strategies have been documented, this was done in March 2007 and it is unclear who is responsible, within INFC, to re-assess risks, and update control processes as required. Without having a clearly articulated mandate that describes the roles with respect to governance, risk management and control processes, there is a risk that INFC's oversight may not be adequate or effective.

The audit did note, however, that oversight activities were taking place. As the new POB structure was implemented during the conduct phase of the audit, the audit looked at the oversight mechanisms in place before the reorganization. At that time, the oversight exercised by the sector directors was performed through a series of measures such as participating at the MC meetings and communicating with FDPs and P/Ts via telephone and emails. Similar oversight activities continue to be conducted under the new organizational structure.

The audit found that physical records of information resulting from the oversight activities performed through emails or phone discussions with FDPs have not been kept on file at INFC. POB also holds regular meetings with different levels of the Branch, INFC Senior Management, and Finance (as required), where provincial/territorial project issues are brought forward and resolved. Similarly, records of these discussions, decisions and follow-up actions are not systematically documented and kept on file. Not documenting minutes or records of decision during INFC's internal meetings or when discussing with an FDP could result in lost corporate knowledge and create challenges when files are reassigned to new analysts or managers.

In addition, the audit found that for those MCs where INFC has no representation, the MCs' information, such as meeting minutes and record of decisions, were not systematically provided to INFC on a timely basis. Furthermore, for those MCs where INFC is represented, there were also cases where minutes were provided at a later date or upon request only. Late or missing minutes become an issue as there were instances where INFC representatives were unable to attend certain MC meetings due to other operational priorities. When INFC is not present at MC meetings and minutes are delayed and not analyzed in time, INFC's ability to participate in the decision-making process and to perform its oversight responsibilities is hindered.

The audit also noted that financial oversight was performed by INFC's Finance. This will be further discussed under Finding 6.3 – Stewardship.

In addition to POB and Finance, the SIMSI Steering Committee is also involved in the oversight of the MRIF program. SIMSI is the Shared Information Management System for Infrastructure; it is a web-based bilingual program management system to support the continued online management and delivery of INFC's full suite of infrastructure programs. With respect to MRIF, each P/T is required to use SIMSI to enter their project information. The SIMSI Steering Committee is responsible to outline and correct issues pertaining to data entry and monitoring in SIMSI. The members of the Committee are representatives from FDPs, P/Ts and INFC Senior Management, including POB officials. This allows for the coordination of the information/issues related to SIMSI between the various key players. Minutes from the SIMSI Steering Committee meetings are documented, posted on the Infranet, and sent directly to the non-INFC members.

Recommendations Management Action Plan

1.1. ADM, Program Operations Branch should document its mandate, objectives and control processes with respect to its oversight role, including the specific responsibilities of the various players involved within INFC. Taking into consideration that MRIF is sunsetting, the focus should be on INFC's oversight role at the end of the program to ensure the terms and conditions of the MOUs and CAs are met before the final payments are released.

1.1a As stated, Program Operations Branch (POB) has modified its organizational structure and established a new Governance Structure for the branch since the conduct of the present audit. Under the new structure, the Legacy Committee was formed and identified as the governance body responsible for performing oversight of the MRIF program, along with other sunsetting programs managed by INFC (the Canada Strategic Infrastructure Fund, the Border Infrastructure Fund and the Infrastructure Canada Program). The Chair of the Committee is a Senior Official, serving as the champion for legacy programs, and other members are analysts responsible for the programs delivery. Terms of Reference of the Committee represent the foundational document defining the mandate, objectives and responsibilities of the members with respect to legacy programs oversight. Committee meetings are normally occurring on a bi-weekly basis and Records of discussions of each are made available on the POB Sharepoint Site.

The Legacy Committee is subordinated to the Program Implementation Committee (PIC) which is responsible for overseeing activities of the Legacy Committee and resolving any MRIF issue that could not be solved at the Legacy Committee. PIC is chaired by the Director General of Program Integration and composed of directors drawn from POB. PIC's Terms of Reference and Records of Decisions of meetings are also made available to analysts on the POB Sharepoint Site. (Completed)

1.1b As a manner of re-affirming responsibilities of the parties involved in the implementation and close-out of MRIF, INFC will leverage the new partnerships and forums recently established for the delivery of the Building Canada Fund – Communities Component (BCF-CC) and on which Federal Delivery Partners (FDPs) involved in the management of MRIF are represented to jointly revise the MOUs, as required.

1.1c INFC will develop a Program Business Model for MRIF that will outline business processes and role and responsibilities of the stakeholders involved in MRIF delivery, including INFC's Finance and Administration Division within the Corporate Services Branch. This will contribute to the effective monitoring of the program by INFC analysts for each jurisdiction.

1.1d INFC will verify the appropriateness of the MRIF risk profile of the RMAF-RBAF2 and update as required to address potential issues moving forward in the implementation of MRIF and for a timely and appropriate program closure.

Manager Responsible:

1.1a, 1.1b, and 1.1d: ADM Program Operations Branch
1.1c: ADM, Program Operations Branch
ADM, Corporate Services

Due Date:

March 31, 2012

6.2 Governance – Information Sharing, Communication

Criteria
G-6
The oversight body/bodies request and receive sufficient, complete, timely and accurate information.
CFS-1
Lines of communication exist between INFC, the FDPs and the P/Ts.
Observation
Moderate Risk

According to the MOUs signed between INFC and the relevant FDPs for each P/T, INFC is accountable for the management of MRIF funds and for the reporting on MRIF performance, notwithstanding the FDP's responsibilities set out in the MOUs. Further, MRIF terms and conditions state that INFC will ensure that effective financial and program controls are in place for managing MRIF, and that due diligence is exercised in the management and administration of the program. The Treasury Board Submission also specifies that INFC's role is to: "ensure coherence and consistency in program delivery across Canada through stepped-out oversight3 of program implementation." For INFC to appropriately fulfill its due diligence and oversight role, it is paramount that the Department receives sufficient, complete, timely and accurate information from the FDPs and the MCs.

Various mechanisms have been put in place to ensure timely information sharing between INFC, the FDPs and the P/Ts. These comprise of the MOUs themselves, the MCs and supporting Joint Secretariats, as well as diverse guidelines which form an integral part of the Contribution Agreements with the P/Ts and of the MOUs.

While these mechanisms are in place to facilitate the sharing of information between INFC, the FDPs and the P/Ts, the audit found that they are not always working as intended; the information requested and received by INFC to support its oversight responsibilities does not always meet the pre-established requirements. More specifically the audit found that FDPs responsibilities have been designed to support INFC in fulfilling this role, but that INFC's monitoring and follow-up mechanisms are not adequate to ensure FDPs fulfill their responsibilities and submit to INFC all the pre-established required documents/information. In particular, the INFC-FDP MOUs state that the FDPs should work through the MCs and its Secretariat to provide INFC with information pertaining to budget, cash flow and expenditures; complete the project audits and submit to INFC the annual progress reports in accordance with Canada – P/T Reporting – Audit – Evaluation Guidelines ("the Guidelines"); and ensure access to written minutes of meetings of the MC.

The audit team reviewed a judgmental sample of 7 of the 13 P/T files to determine if the FDPs had fulfilled their responsibilities. The audit team found that the FDPs generally complied with the requirements to provide INFC with information pertaining to budget, cash flow and expenditures. However, the audit found issues with respect to the submission of MC meeting's minutes as discussed under Finding 6.1.

Further, with respect to completing project audits and submitting to INFC the annual progress reports in accordance with the Guidelines, the audit found that the information provided by the FDPs was incomplete or not timely. More specifically, in the files reviewed, the audit found that: regular annual audit plans and annual progress reports were on file only for a limited number of P/T's. There were also instances where these documents did not meet the Guideline requirements. The guidelines also required that annual audits be submitted to INFC. The audit reports that were in the files did not meet the requirements of the Guidelines. While there was usually at least one audit report in the files reviewed, in most cases the audits covered the earlier years of the program and did not include the most recent ones. In addition, certain audits did not address all the audit objectives laid out in the Guidelines.

Not having on file the required information limits INFC's abilities to provide a complete overview of the MRIF program and to perform its due diligence and oversight role. While requirements are established in the various guidelines that form part of the CAs and MOUs, they are not reflected in the files. The audit determined that this was due to a combination of factors, including: staff turnover; lack of an adequate file checklist; and key players (MCs, FDPs, INFC analysts) not being fully aware of the requirements or misunderstanding them.

During the conduct phase, POB put in place a file checklist identifying the information to be included in each file. While this is acknowledged as a good practice, we also noted that the checklist could be improved with respect to certain requirements. For instance, the checklist does not include all the documents required under the Canada – P/T Reporting – Audit – Evaluation Guidelines. In addition, the checklist is not specific enough with respect to the documents that are required on a periodic basis (e.g. one of the elements on the checklist is an audit plan; the checklist should specify that the audit plan is required on an annual basis, and allow space to capture whether it was received for each of the relevant years.)

Recommendations Management Action Plan

2.1. ADM, Program Operations Branch should develop and implement mechanisms to ensure documents required from the Management Committees and the Federal Delivery Partners under the MOUs are received in a timely manner, and determine an appropriate course of action whenever there is a delay in receiving the required documents. These mechanisms should include such measures as:

  1. improvements to the existing file checklist; and
  2. development and use of communication tools to clarify requirements (expectations, schedule etc) to the MCs and FDPs.

2.1a INFC will update the MRIF file checklist to ensure all required documentation is on file in a timely manner. (Due date: June 30, 2011)

2.1b INFC will leverage the partnerships and use the various forums recently established for the implementation of Building Canada Fund – Communities Component to communicate and clarify expectations with respect to the provisions of the required documents.

Manager Responsible:

ADM, Program Operations Branch

Due Date:

March 31, 2012

6.3 Stewardship

Criteria
ST-4
Forecasts are monitored on a regular basis.
ST-15
Reviews are conducted to analyze, compare and explain financial variances between actual and plan.
ST-17
Management reallocates resources to facilitate the achievement of objectives/results.
ST-22
Management has established processes to manage/monitor third-party agreements.
Observation
Moderate Risk

While the audit found that forecasts are monitored on a regular basis by Finance, it is noted that the monitoring is performed at jurisdictional (P/T) level, not at the project level, and it does not include a challenge function. Reviews to analyze and explain financial variances between actual and plan are found to be limited.

More specifically, the audit found that Finance has published a procedure to account for expenditures related to the MRIF Program. Finance has also developed detailed administrative procedures to ensure that the accounting of all MRIF transactions is compliant with the requirements outlined in the MOU and CAs. These procedures describe the responsibilities of INFC Finance (i.e., the Financial Planning and Analysis Unit, as well as the Accounting Operation Unit), the FDPs, the MCs and the recipients. The procedures were updated on April 1, 2009 and have been applied accordingly. However, these procedures do not cover the role of POB. No formal procedures have been defined to assist the INFC analysts and managers within POB in discharging their monitoring responsibilities towards the MRIF program.

While Finance reviews the financial information provided by the FDPs on a regular basis, they do not perform a challenge function. Furthermore, the monitoring is conducted at the jurisdictional (P/T) level, not at the project level. Finance responsibilities include the monitoring of current spending requirements and forecasted lapses, to ensure sound cash management of the program. Five times a year, Finance communicates with the FDPs through a call letter process to obtain the required financial information (expenditures to date, PAYEs info, current year forecasts, etc). Finance uses standard emails to communicate with the FDPs, and a call letter process schedule, including the information required under each call letter, is documented. The information provided by the FDPs is used to determine the value of the advances to be issued to the FDPs and to assess the need to reprofile part of the allocation amount.

Our review of a sample of spreadsheets on revised forecast and expenditures maintained by Finance does indicate that they monitor forecasts and expenditures on a regular basis. It should be noted, however, that the audit found discrepancies in the tracking sheets. While the explanations provided to explain these discrepancies were found to be adequate, these were not documented in the national budget expenditure summary report to explain the nature of the discrepancy and to create an appropriate audit trail.

POB's involvement in the fund transfer process to the FDPs, and cashflow monitoring is limited to sending the call letter to the FDPs in conjunction with Finance. When an FDP forecast indicates that the full annual allocation for a P/T will not be used by the year-end, a challenge function to analyze the forecast is not performed. Further, the FDPs are not asked to document the reason why the annual allocation will not be fully used and that reprofiling will be requested. That being said, the FDPs should provide this information as part of their annual progress reports required under the Canada – P/T Reporting – Audit – Evaluation Guidelines. This information should be reviewed by the program analysts in POB but the audit has found that such a review is not taking place. More specifically, the annual progress report should include a detailed program status and a budget update: which should provide a summary of "the planned and actual expenditures" for the fiscal year and explain any variation from the approved allocation along with the intended course of action to remedy the situation. Any areas of concern or new risk factors affecting the budget of the MRIF program in the P/T should also be provided.

This information, along with the audit reports also required under the Canada – P/T Reporting – Audit – Evaluation Guidelines would allow for POB to monitor MRIF on a more detailed level, but, as mentioned under Finding 6.2, these reports are not provided to INFC on a regular basis. In addition, in cases where the reports are received, the audit did not find evidence that they were reviewed by program analysts within POB.

Overall, the audit found that the monitoring process needs to be strengthened because not all documentation specified in the MOU is obtained from the FDPs as required; and there are no formal procedures in place to assist the INFC analysts in discharging their monitoring responsibilities towards the MRIF program. Without adequate monitoring mechanisms in place, INFC maybe unaware of issues that are going on, and take corrective action as required. They may also have inadequate or insufficient information for decision-making and reporting purpose.

Recommendations Management Action Plan

3.1. ADM, Program Operations Branch should develop and implement procedures to ensure INFC program analysts effectively perform their monitoring responsibilities. Such procedures should complement the administrative procedures put in place by the Corporate Service Branch's Finance and Administration Division and include:

  • The roles and responsibilities;
  • The documents to be reviewed;
  • The review, analysis, and challenge process;
  • The corrective mechanisms; and
  • The reporting process.

3.1a INFC will rely on the implementation of items 1.1c, 1.1d, 2.1a and 2.1b of the Management Action Plan to address this recommendation.

Manager Responsible:

ADM, Program Operations Branch / ADM, Corporate Services

Due Date:

March 31, 2012

See also Recommendation 5.2 under finding 6.5.

INFC will rely on the implementation of item 1.1c of the Management Action Plan to address this recommendation.

Manager Responsible:

ADM, Program Operations Branch / ADM, Corporate Services

Due Date:

March 31, 2012

6.4 Accountability

Criteria
AC-1
Authority, responsibility and accountability are clear and communicated.
AC-3
A clear and effective structure is established and documented.
AC-4
The organization's accountability in support of collaborative initiatives is formally defined.
Observation
Moderate Risk

The audit found that authority, responsibility and accountability, including the Department's accountability in support of collaborative initiatives, have been defined and documented. That being said, as discussed in the previous sections of this report, the documentation regarding the roles and the responsibilities of the various players involved in MRIF oversight within INFC, including roles with respect to governance, risk management and control processes could be improved. Additionally, the audit found that mechanisms established by the MOUs and the CAs to support INFC in carrying out its roles and responsibilities do not always work as intended.

Roles and responsibilities of the parties involved in the MRIF program (INFC, MCs, FDPs, P/Ts) have been defined and documented in the key program documents. A review of these documents has shown that there were no inconsistencies in the definition of the roles and responsibilities of each entity. The Treasury Board Submission, the MOU and the CAs have all clearly defined the roles and responsibilities of INFC and the FDPs, as follows:

  • INFC has been defined as the authority accountable and responsible for the overall management of MRIF funds and for the reporting on MRIF performance, and
  • The FDP's main responsibility is to administer, monitor and manage the Canada – P/T Agreement.

INFC financial authority has been delegated to the FDPs in the MOUs. They are responsible on behalf of INFC to ensure that Section 34 of the Financial Administration Act is properly executed. INFC Finance authority is to ensure that the accounting for the MRIF funds transactions is in accordance with the procedures outlined in the MOU and with TB related policies. The audit team found that, on an ongoing basis, the Financial Planning and Analysis Unit monitors the multi-annual and annual allocations and, that on a quarterly basis, they request and approve proof that Section 34 has been executed on eligible expenditures prior to proceeding with the transfers of allocation.

The program delivery authority has been delegated to the FDPs as federal co-chairs of the MCs. For the top-up portion for the Province of Ontario, the authority lies with the Oversight Committee where INFC is one of the co-chairs along with Industry Canada. POB is responsible to monitor, perform oversight and ensure that the MRIF program is applied in a consistent way across all P/T, and that the terms and conditions of the program are respected. The POB staff works in collaboration with the FDPs and help to prevent and resolve issues within the program.

The fact that INFC is not a voting member on the MCs and, in certain cases, does not have representation on the MCs, limits INFC's ability to make decisions with respect to the program and creates certain challenges at that specific forum. That being said, this is not inconsistent with the fact that the FDPs are responsible for the day-to-day administration of the program. Still, INFC is accountable for the use of MRIF funds and to ensure due diligence is exercised in the selection and approval of applications and in the management and administration of the program. The agreements and the MOUs include mechanisms to support INFC in carrying-out its roles and responsibilities. For example, the FDPs, as the co-chair of the MCs should ensure that annual audits are completed. INFC should use such audits to confirm that the Terms and Conditions of the CAs were complied with and that expenses were eligible under the CAs. However, as discussed under finding 6.2, the audit noted that audit requirements as defined in the Canada – P/T Reporting – Audit – Evaluation Guidelines were not always met. Without obtaining and reviewing the required audit annual plan and reports, INFC may not have sufficient assurance regarding the eligibility of the expenses claimed and the level of compliance with the Contribution Agreements and the program Terms and Conditions.

In terms of structure, as mentioned under the background section of this report, POB recently went through a branch reorganization including the creation of a new Directorate which role is to facilitate effective program delivery by providing the Regional Directorates with consistent program policies and tools. If effectively implemented, these tools will help the organization improve the degree of consistency in program delivery across the regions. Changes to the organizational structure have been communicated internally to INFC staff, and a formal communication letter was prepared and sent to the FDPs and the P/Ts.

Recommendations Management Action Plan

Recommendations 1.1, 2.1 and 3.1 presented under findings 6.1, 6.2, and 6.3 address this finding.

INFC will rely on the Management Action Plan for those recommendations to address this finding.

Manager Responsible:

Building Canada Fund – Communities Component, Program Operations Branch

Due Date:

March 31, 2012

6.5 Results and Performance

Criteria
ST-20
Appropriate and timely financial and non-financial reporting is communicated internally and externally.
RP-3
Management monitors actual performance against planned results and adjusts course as needed.
Observation
Moderate Risk

The audit found that the communication and reporting of financial and non-financial information could be improved. The audit noted that while Management has identified performance measures and indicators, as well as data sources and responsibilities for data collection, the information needed to actually monitor performance against planned results is not always readily available.

When it comes to collecting data to report on ultimate outcomes, the responsibility has been assigned to the FDPs. The results of that data collection should be part of the required annual progress reports and include an update of qualitative and quantitative program benefits (environmental, economic, social, cultural, safety, etc.) along with results or successes achieved during the fiscal year to allow INFC to report nationally on the program. As discussed in the Governance section of this report (i.e., Finding 6.2), the audit team found that FDPs have not fully met their requirements in providing annual progress reports. The audit also found that certain of the measures identified in the RMAF could be extracted from SIMSI but that the information contained within SIMSI is not subject to a quality assurance process and is not necessarily up-to-date.

In accordance with the Information Management SIMSI Guideline, which forms part of the CAs between Canada and the P/Ts, each jurisdiction is required to enter their project information in the national reporting system, i.e. SIMSI. SIMSI is considered a formal process to communicate information between the FDPs, the P/Ts and INFC. It was found, at the beginning of the program, that not all P/Ts were using SIMSI to report information. Over the years, the situation has improved and today with the exception of the Northwest Territories, all other P/Ts are reporting their information into SIMSI. For the Northwest Territories, the information is submitted to INFC through an excel spreadsheets. This situation has been brought to the attention of Senior Management and it was decided that Northwest Territories could continue to forward their information via spreadsheets.

In addition to SIMSI, at the time of the audit, POB also used SCOTIC4 pages and a National MRIF Report as briefing tools. SCOTIC pages were updated on a monthly basis and covered the following elements: cash flow information, program overview including number of projects by project status, benefits, and key dates. INFC analysts kept the SCOTIC pages and the National MRIF Report current by extracting the information from SIMSI and validating it with the respective FDPs. When discrepancies were found (usually due to timing issues), corrective action was taken by both the analysts and the FDPs. The INFC analysts did not challenge the information provided by the FDPs, and they did not validate it against supporting documentation.

The audit reviewed information in SCOTIC pages and compared it to SIMSI as well as to the financial reports maintained by Finance. The audit found that the information in SIMSI was not always up to date or accurate, and that while some discrepancies were also found in the SCOTIC pages, the information they included was generally more current than the information in SIMSI. This was especially true with respect to the number of completed projects by jurisdiction, which were significantly higher in the SCOTIC pages than in SIMSI. It was also noted that, for the Northwest Territories, the total approved funding in SIMSI was significantly lower than the one reported on the SCOTIC page. As mentioned above, the Northwest Territories do not enter their information through SIMSI but rather submit a series of spreadsheets. Still, the information they provided should be updated in SIMSI on a regular basis.

When comparing SCOTIC pages with financial reports, the audit found that the total cash flow for each P/T on the SCOTIC pages was consistent with the numbers maintained by Finance. However, the yearly amounts did not always match as the yearly cash flow information in the SCOTIC pages did not take into consideration the re-profiling and yearly adjustments on a consistent basis.

Not having a quality assurance process to ensure the MRIF information, included in SIMSI and other briefing tools (such as SCOTIC pages and the MRIF National Report), is kept current and accurate could hinder INFC's performance monitoring and decision-making capabilities.

Recommendations Management Action Plan

5.1. ADM, Program Operations Branch, in collaboration with the SIMSI Steering Committee, should strengthen the data quality mechanisms to ensure the information obtained from SIMSI to report on MRIF results is sufficient, accurate, and adequate.

5.1a INFC will develop a Strategy aimed at strengthening the data quality and resolving other issues related to SIMSI to ensure MRIF reporting is accurate and adequate. This Strategy will leverage forums established for the implementation of the Building Canada Fund – Communities Component (BCF-CC) in order to engage FDPs in the process. Best practices related to information management for the BCF-CC will also be taken into consideration.

Manager Responsible:

ADM, Program Operations Branch / ADM, Corporate Services

Due Date:

March 31, 2012

5.2. ADM, Program Operations Branch, in collaboration with ADM, Corporate Service Branch should develop and implement mechanisms to ensure relevant financial information is effectively communicated between the two Branches.

5.2a INFC will rely on the implementation of item 1.1c of the Management Action Plan to address this recommendation.

Manager Responsible:

ADM, Program Operations Branch / ADM, Corporate Services

Due Date:

March 31, 2012

7 Audit Opinion

Based on the findings reported, our opinion is that while the overall partnership structure between INFC, the FDPs and the P/Ts (organizational and accountability structures, roles and responsibilities, communication, monitoring and reporting mechanisms), is adequate, some shortcomings were noted in the controls and mechanisms within that partnership structure which require management attention.

The audit found that the general roles and responsibilities, authorities, and accountabilities of the parties involved in the MRIF Program (INFC, FDPs, P/Ts), as well as INFC's governance and accountability structure have been defined and documented. That being said, the documentation regarding the roles and responsibilities of the various players involved in MRIF oversight within INFC, including roles with respect to governance, risk management and control processes could be improved.

Further, the audit found that there are mechanisms in place to facilitate the sharing of information between INFC and its partners; however, these do not always work as intended, and INFC's monitoring and follow-up mechanisms need to be improved to ensure that FDPs fulfill their responsibilities and submit all the pre-established required documents and information to INFC.

Improving these controls/mechanisms would strengthen INFC's oversight, monitoring, decision-making and reporting functions surrounding the MRIF.

8 Statement of Assurance

In our professional judgment, sufficient and appropriate audit procedures have been conducted and evidence gathered to support the accuracy of findings reached and contained in this report. The findings were based on a comparison of the situations as they existed at the time against the audit criteria.

The findings are only applicable for the entity examined. The extent of the examination was planned to provide a reasonable level of assurance with respect to the audit criteria. The evidence gathered meets professional audit standards and is sufficient to provide senior management with proof of the findings derived from the internal audit.

[1] In May 2010, the program end date was extended to March 31, 2014, with a construction completion date extended to March 31, 2013, and the date to submit claims extended to October 31, 2013. This extension did not include additional funding; only the re-profiling of existing funds.

[2] RBAF: Risk-Based Audit Framework; RMAF: Results-Based Management and Accountability Framework

[3] Stepped-out oversight is understood to mean "increased oversight."

[4] SCOTIC: Standing Committee on Transport, Infrastructure and Communities

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