Internal Audit Report - Audit of the Funding for National Recreation Trails (NRT)

Final Report–April 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

Through Canada's Economic Action Plan, the federal government committed $25 million to the National Trails Coalition (NTC) for fiscal year 2009-2010 for an initiative to create, upgrade and sustain non-motorized snowmobile and all-terrain-vehicle trails throughout the country. The Government's contribution was equally matched (50%) by NTC member organizations or their partners.

The NTC is a non-profit association whose member organizations provide stewardship of much of Canada's trail infrastructure. Infrastructure Canada (INFC) flowed funds in up-front instalments, based on regular reporting from the NTC, whose member organizations provide stewardship of much of Canada's trail infrastructure. The NTC, in turn, flowed funds to eligible NTC member organizations whose applications for project funding had been approved by the NTC. Eligible projects include: new trail construction; trail upgrade/improvement; bridge and water crossing construction, upgrade and rehabilitation; signage; trail surveying and tracking; and trail rehabilitation.

This program was a one-time funding initiative that lasted less than one year, as such, the program design and delivery reflected the unique nature of the program and is very different from INFC's other transfer payment programs.

The audit reviewed management practices that were in place to determine a final payment to NTC that was in compliance with the terms and conditions of the Contribution Agreement between NTC and Canada.

Based on our audit work, our opinion is that appropriate management practices were in place to determine a final payment of $1,723,234 to NTC that was limited to funds for projects ($1,623,234) and administrative budget ($100,000) that were in compliance with the terms and conditions of the Contribution Agreement, policies (Treasury Board), and legislation (Financial Administration Act). Some shortcomings were noted in the documentation processes, and in the management practices used to define the requirements of the Contribution Agreement. The following summarizes the audit findings and areas for improvement with respect to the Management Accountability Framework component of stewardship that was audited:

  • Even though the funding for NRT has sunset, the audit has identified opportunities for improvement in program documentation and guidance to recipients that should be considered for future programs with not-for-profit organizations. As part of the control processes established for stewardship, it was anticipated that the principles of cash management, monitoring and reporting would be applied to the funding for National Recreation Trails. The audit found that the external audit (e.g. financial, compliance) requirements were not clearly defined. In addition, the criteria that would be used for the acceptance of the NTC final report, calculation of the final payment and the supporting documentation requirements were also not clearly defined in the terms and conditions of the program. It is acknowledged that these weaknesses were mostly offset by the due diligence developed and performed by INFC program representatives as the program evolved; however, the audit trail is incomplete to demonstrate that the analysis and conclusions drawn were supported by the appropriate file documentation.
  • The audit found that there are no departmental procedures that clearly define the department's decision and approach regarding materiality policy or provide guidelines to determine and integrate materiality concepts into the control framework established for a transfer payment program with a not-for-profit organization. Departmental direction and guidance on materiality would have enhanced management's ability to independently assess the external audit reports and the calculation of final payment to NTC.

We acknowledge that the residual risk associated with these shortcomings is low and do not have a significant residual risk to the achievement of INFC's objective of providing funding to the National Trails Coalition, who in turn provided funding to its partners to create, upgrade and sustain non-motorized, snowmobile and all-terrain-vehicle trails throughout the country.

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

Laura Ruzzier
Chief Audit and Evaluation Executive
Infrastructure Canada and Transport Canada

Date

Yaprak Baltacıoğlu
Deputy Minister of Transport,
Infrastructure and Communities

Date

2 Background

The Government of Canada has a strong commitment to improving infrastructure across Canada. In recent years, the Government of Canada has implemented and overseen several major infrastructure initiatives. On January 27, 2009, the Government introduced Canada's Economic Action Plan (EAP). The Plan has taken extraordinary steps to inject $12 billion in new infrastructure stimulus funding over two years, to jumpstart growth and sustain the recovery. This historic commitment to public infrastructure in Canada includes spending on roads, bridges, green infrastructure and other critical infrastructure.

Through Canada's Economic Action Plan, the federal government committed $25 million to the National Trails Coalition (NTC) for fiscal year 2009-2010 for an initiative to create, upgrade and sustain non-motorized snowmobile and all-terrain-vehicle trails throughout the country. The Government's contribution was equally matched (50%) by NTC member organizations or their partners.

The NTC is a non-profit association whose member organizations provide stewardship of much of Canada's trail infrastructure. The NTC is composed of three not-for-profit organizations: the Canadian Trails Federation, the Canadian Off-Highway Vehicle Distributors' Council and the Canadian Council of Snowmobile Organizations. Membership in these national organizations is drawn from provincial and territorial organizations or from the private sector through the contributions of manufacturers and distributors of trail-related vehicles, products and services. Virtually all forms of trail-based activity are represented under the Coalition banner.

Infrastructure Canada (INFC) flowed funds in up-front instalments, based on regular reporting from the NTC, whose member organizations provide stewardship of much of Canada's trail infrastructure. The NTC, in turn, flowed funds to eligible NTC member organizations whose applications for project funding had been approved by the NTC. Eligible projects include: new trail construction; trail upgrade/improvement; bridge and water crossing construction, upgrade and rehabilitation; signage; trail surveying and tracking; and trail rehabilitation.

Statistics for the Funding of the National Recreation Trails

  • There were 474 approved projects in 10 provinces and 2 territories. There were no approved projects in Nunavut.
  • The total federal funds committed by the NTC for projects were $23,223,234. In addition, $1,000,000 was allocated for the NTC to administer the program.
  • Almost 60% of the projects required federal funds committed by the NTC (NTC Funding) in the amount of $35,399 or less.
  • Only 11% of projects required NTC Funding in the amount of $106,200 or greater.
  • The approved projects were fairly evenly distributed among the three trail types (non-motorized, snowmobile and all-terrain-vehicle) with respect to number of Approved Projects and the federal funds committed by the NTC.

The NTC had calculated notional allocations to eligible projects in each province and territory. Those funds that could not be allocated to eligible projects within 60 days of signing the CA were redistributed to surplus eligible projects in other jurisdictions. The results of the NTC's allocation of funds are outlined in the table below:

Province Percent of all projects NTC Funds Committed Notional Allocation
ON 23.67% $5,497,530 $5,200,000.00
QC 23.51% $5,460,101 $5,200,000.00
BC 14.30% $3,321,041 $3,000,000.00
AB 11.26% $2,614,402 $3,000,000.00
NS 7.32% $1,699,038 $1,300,000.00
NB 6.65% $1,544,687 $1,300,000.00
NL 3.69% $857,326 $1,300,000.00
MB 3.81% $885,054 $1,300,000.00
SK 3.06% $709,550 $1,300,000.00
PE 1.62% $376,310 $400,000.00
YT 0.94% $218,195 $250,000.00
NT 0.17% $40,000 $250,000.00
NU 0.00% $0 $200,000.00
Totals 100% $23,223,234 $24,000,000.00

The following table highlights by trail type the total federal funds committed by NTC.

Classification of trails Proportion Total federal funds committed by NTC for the trail type
Snowmobile 34.33% $7,070,490
ATV 26.39% $7,095,446
Mixed 4.51% $1,830,429
Non-Motorized 34.33% $7,111,685
Water route/bike path 0.43% $115,184
Total 100.00% $23,223,234

3 Audit Objective

The objective of the audit was to provide a high level of assurance that appropriate management practices were in place to determine a final payment that was limited to funds for projects and the administrative budget that were in compliance with the terms and conditions of the Contribution Agreement. Specifically, the audit assessed the management practices that were in place to identify project funds and administrative budget funds that needed to be reimbursed to Canada either through a refund to Canada or a reduction of the final payment to NTC.

To further elaborate, the terms and conditions of the Contribution Agreement between INFC and NTC indicated that the recipient (NTC) was required to repay to Canada any and all disallowed costs, surpluses and overpayments made under and according to the terms of the Agreement, including those funds flowed to eligible recipients.

4 Audit Scope

The scope of the audit included an assessment of the effectiveness and appropriateness of the management practices related to the Funding for NRT to identify projects and administrative budget funds that needed to be reimbursed to Canada either through a refund to Canada or a reduction of the final payment to NTC. To this end, the scope considered all relevant systems, records, personnel (including those under the control of third parties) related to the Funding for NRT from the date in which the Contribution Agreement was signed (May 26, 2009) up to INFC's acceptance of the NTC's final report that included, but was not limited to, the financial and compliance audits performed by the external third-party auditor.

5 Audit Approach

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

The examination phase of this audit commenced in June 2010 and concluded in February 2011. 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 on applicable policies, procedures, and the Contribution Agreement between Canada and NTC.

A non-statistical sample methodology was used by Internal Audit to determine the sample size and select the projects to be examined during the audit. The sample targeted projects based on the following considerations:

  • Risk of potential reimbursement of funds by NTC;
  • National representation; and
  • Representation of approved projects from a range of federal funding levels (large, medium, small).

The sample consisted of 46 approved projects that totaled $5,825,043 in federal funding committed by NTC which represented 25.1% of all the funds committed by NTC.

It is acknowledged that this is not a statistical sample and the results cannot be extrapolated to all projects in the Funding for NRT. With that being said, the sample does serve as an indicator of the quality of the management practices that have been performed to identify projects and administrative budget funds that need to be reimbursed to Canada either through a refund to Canada or a reduction of the final payment to NTC.

6 Audit Findings

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 Funding for NRT 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.

6.1 Stewardship

Criteria

As part of the control processes established for stewardship, it was anticipated that the principles of cash management, monitoring and reporting would be applied to the funding for National Recreation Trails. To this end, the following audit sub-criteria have been identified:

1.a. Monitoring & Reporting–Program (POB) Procedures:
Consistent with Treasury Board policies and directives, processes and procedures are in place and performed by the program area to determine the correct amount for the final payment and if any reimbursements are required from the National Trails Coalition (NTC).
1.b. Monitoring & Reporting–Analysis of Final Report and External Auditor Reports:
Consistent with Treasury Board policies and directives, monitoring and reporting activities were performed to ensure that the final report from the NTC, which includes a financial and compliance audit report, was received and analyzed to identify any reporting irregularities at the project level which may have resulted in a default of the Contribution Agreement (CA).
1.c. Monitoring & Reporting–NTC Financial Statements:
Consistent with Treasury Board policies and directives, monitoring and reporting activities were performed to ensure that INFC can rely on the NTC Financial Report to March 31, 2010.
Observations

In order to ensure that the final payment of funds to the NTC was limited to the funds for projects and the administrative budget that are in compliance with the terms and conditions of the CA, it was anticipated that management practices that include such items as establishing criteria, analysis, and documentation, would be undertaken as part of the program's requirement (on behalf of Canada) to accept the final audited report.

The observations that have emerged through the course of the audit work to examine management practices have been grouped into the following categories:

  1. Departmental Procedures
  2. Due Diligence Process
  3. Calculation of Final Payment
  4. Financial Authorities and Appropriations
Low Risk

A. Departmental Procedures

The CA requirement for the final report to be accompanied by external auditor reports (financial and compliance audit) reflects program management's commitment to ensuring that the level of reporting, including the level of audit assurance required by the NTC, is sensitive to the risks specific to the program and the risk profile of the recipients.

Program management's commitment to the level of assurance provided through the financial audit performed by an external auditor, would require INFC program representatives to consider the materiality threshold employed by the external auditor when examining the results of the audit. Specifically, any financial audit differences identified by the external auditor would have been assessed by program representatives in relation to the department's materiality threshold to determine their significance within the calculation of the final payment.

The audit found that there are no departmental guidelines for use by program management to set a materiality level for financial monitoring, analysis, or reporting purposes. As a result, the analysis of the final report undertaken by INFC program representatives was not risk-based and included all project information included in the final report regardless of the size of the project because no materiality threshold was applied to the project information. By establishing a departmental policy that outlines the Department's decision and approach to materiality, a program materiality can in turn be defined that will enable INFC program representatives to undertake a more risk-based approach to analyze the financial information received from recipient and ensure that their assessment is consistent with departmental practices. In addition, the file documentation prepared from the risk-based assessment will support the analysis performed and the conclusion reached regarding the calculation of the final payment to the recipient.

In addition, the audit also established that INFC program representatives did not request a listing of unreconciled audit differences identified by the external auditors during the course of their audit work because the department, as standard practice, accepts the materiality threshold determined by the external auditor. Program representatives acknowledged that the materiality threshold determined by the external auditor can be different than the threshold adopted by the program.

We also found that the financial and compliance audits performed by the external auditor did not meet all of the requirements specified in the CA. Specifically, the CA required that the external financial audit provide an opinion (by the external auditor) as to whether all (100%) of the financial information contained in NTC's final report is complete and accurate. The opinion provided (by the external auditor), however, was based on a statistical sample of NTC's financial transactions and concluded that the financial statements present fairly, in all material respects, the financial position of NTC as at March 31, 2010. We recognize that the statistical sampling methodology utilized by the external auditor for the conduct of the financial audit is in accordance with Canadian generally accepted audit standards and provides a reasonable assurance that the financial statements are free from material misstatement.

In regards to the analysis and assessment of the external audit reports by the INFC program representatives, we found that program representatives did assess the external audit reports to confirm that they met the requirements of the CA. The file documentation prepared to support the analysis performed, however, did not sufficiently document the analysis and rationale that was performed by INFC program representatives to conclude that the external audit reports fulfilled the program's requirements. In particular, we found that there was no reference in the program's analysis that indicated that the external financial audit was accepted on the basis of the results achieved through the use of a statistical sample of NTC's financial transactions.

Recommendations Management Response

1a. Even though the funding for NRT has sunset there are opportunities for improvement that the ADM, Program Operations Branch (POB) should consider for future programs undertaken with not-for-profit organizations. To this end, the ADM, POB should, in collaboration with Legal Services and the ADM, Corporate Services Branch, consider improving the guidance provided to recipients with respect to the compliance and financial audit as well as program close-out documentation.

Management agrees that it will review the guidance provided to recipients for future programs undertaken with not-for-profit organizations with respect to the requirements for compliance and financial audits (including criteria for acceptance), as well as program close-out documentation.

1b. In addition, the ADM, POB, in collaboration with the ADM, Corporate Services Branch should consider the feasibility of developing and implementing a policy or directive that outlines the Department's decision and approach regarding materiality. Such guidance would ensure that the analysis of the financial information received from recipients is risk-based and its acceptance is consistent with the Department's direction.

We have considered approaches on materiality. Establishing reasonable materiality limits for any contribution program is difficult. Based on practices established for other transaction types, it is normal to use dollar values (0.5% to 1.5% depending on risk). For contributions, this dollar limit must be applied at the project rather than program level since there are several variables in determining dollar-related risk. For the NRT program of $25M, even a high risk assessment of 0.5% would establish a materiality limit of $125,000 as there was no reasonable way to differentiate or break this down into several hundred projects.

As an alternative, materiality for contribution programs is usually determined on a case by case basis, without using a dollar threshold. This assessment, which is more subjective, requires an analysis of several non-monetary factors such as past experience with the recipient, reliance on audited information by third parties, the objective of the payment, etc. The development of a policy or directive for contributions to non-profit organizations would have to be very general in nature and of limited value.

Manager Responsible:

1a – ADM, POB

1b – ADM, POB and ADM, Corporate Services

Due Date:

1a – As needed

1b – Not required

Low Risk

B. Due Diligence Process

The audit determined that the program's acceptance of the final audit report was a central element to release the final payment to NTC. To this end, it was anticipated that the due diligence process undertaken by INFC program representatives would include the following activities:

  1. Establish program procedures to determine the acceptance of the reports (NTC final report and the final version of the financial and compliance audits performed by the external auditor) received from the NTC.
  2. Analyze the reports received from NTC and draw conclusions on how this information would be integrated and affect the calculation of the final payment to NTC.
1. Program Procedures:

As part of the procedures prepared to assist INFC program representatives with their determination regarding the acceptance of the reports received from NTC, it was expected that they would include documenting the following in the program file:

  1. Feedback received from internal consultations (e.g. Finance, Legal Services and Program Integration) with respect to the NTC final report, the financial and compliance audit reports, the calculation of the holdback payment, and the interpretation of specific terms and conditions of the CA.
  2. Analysis of the information received from internal consultations and follow-up (if required).
  3. Conclusions drawn in terms of relevance to the calculation of the final payment of funds.

The audit found that while feedback and explanations were received through internal consultations, the analysis of the information received and conclusions drawn by INFC program representatives were not consistently documented, which meant that the audit trail did not fully reflect the level of analysis and discussions that took place. Specifically, the audit trail was not complete to demonstrate that program representatives:

  1. Documented their analysis of the concerns that were expressed through internal consultations.
  2. Concluded on the feedback received from internal consultations (including its relevance and potential impact on the calculation of the final payment).
2. Analysis of the NTC Final Report and External Audit Reports:
  1. Assessment of the External Audit Reports (Financial & Compliance Audits):

    As part of the terms and conditions of the CA for the Funding for NRT, the final report was to be submitted to INFC program representatives by the NTC no later than June 30, 2010 and was to be accompanied by a financial and compliance audit.

    The audit found that INFC program representatives received the final version of the financial and compliance audits performed by the external auditor at the request of the NTC on July 26, 2010. In regard to the program's examination of the audit reports, the audit found that program representatives did not consistently document their detailed analysis or conclusion of the NTC management response to the observations made by the external auditor in the compliance audit report. Program representatives acknowledged their assessment was documented and followed up based on trends they identified in the report and specific projects.

  2. Analysis of Explanations provided by the National Trails Coalition (NTC):

    The audit established that as part of the requirements for the final report (NTC final report); the report was to contain the same information identified for the bi-monthly progress reports. For the acceptance of the NTC final report; however, we observed that there were no clearly defined criteria aside from what was outlined in the CA.

    In regard to the program's examination of the NTC final report, the audit found that INFC program representatives did undertake a comprehensive analysis of the NTC final report, that included follow up with the NTC (for those projects where there may have been a risk of non-compliance) and documentation of their acceptance that all differences between the NTC final report and the previous accepted bi-monthly report were reasonable. With that being said, however, the program files did not include sufficient documentation that would provide specific details to support the program's conclusion. The audit has also found that project by project conclusions were not adequately and consistently documented in a way to support the overall analysis and conclusion on the reported values.

    Finally, in terms of the program's assessment of the explanations received from the NTC in regard to those projects where there may have been a risk of non-compliance, it was anticipated that the analysis of the explanations would have been documented in the program file. The audit found that the explanations received from NTC were documented in the program file; however, there was no detailed documentation prepared by INFC program representatives to support their analysis of the NTC explanations on an item by item basis.

    In conclusion, the shortcomings observed in the file documentation and analysis are the result of weaknesses in the procedures for program documentation that overlooked the need to clearly define the criteria that would be used for the acceptance of the NTC final report as well as the supporting documentation requirements.

    We acknowledged that the weaknesses in the procedures for program documentation were mostly offset by the due diligence developed and performed by the INFC program representatives as the program evolved. However, the audit trail is incomplete to demonstrate that the analysis and the conclusions drawn are supported by the appropriate file documentation.

Recommendations Management Response

2. Even though the funding for NRT has sunset, there are opportunities for improvement in program documentation that the ADM, POB should consider for future transfer payment programs with not-for-profit organizations. To this end, the ADM, POB should strengthen the procedures to ensure that INFC program analysts complete their file documentation of the analysis performed during their due diligence processes (including final report acceptance and calculation of the final payment) and the steps taken (including consultations with subject matter experts (i.e. Finance and Legal Services)) to draw a conclusion.

For future programs of a similar nature, management will review its standards for documentation of due diligence procedures and of consultations with internal subject matter experts to ensure a sound audit trail.

Manager Responsible:

ADM, POB

Due Date:

As required

Low Risk

C. Calculation of Final Payment

The audit recognized that as part of the program's requirements, as defined in the CA-Canada-NTC Agreement for Funds for Recreational Trails, INFC program representatives (on behalf of Canada) could release to the NTC up to ninety percent (90%) of the program funds, under the Agreement. The balance of funds (the 'Holdback', – ten percent (10%)) could be released to NTC upon the program's acceptance of a final audit report.

We further observed that the program did not clearly establish the criteria or informational elements required to determine the calculation for the balance of funds. As a result, there was a requirement for the program area to develop a basis for its calculation and the corresponding rationale for its consideration which would include such items as compliance, program results, audit results, and counsel from subject matter experts.

The audit established that INFC program representatives (on behalf of Canada) accepted the NTC final report on September 30, 2010. This action triggered, as per the CA, the release to the NTC of the balance of the funds (the 'Holdback' – ten percent (10%)) as the final payment. The final payment of funds ($1,723,234) to the NTC was paid on October 15, 2010. The final payment of funds included: $1,623,234 for the balance of the project amounts, and $100,000 for outstanding administrative costs for NTC.

Program representatives documented the calculation of the final payment amount through a Note to File. The calculation was determined as the difference between the project funds committed by the NTC to date and the maximum administrative budget less the funds already received by the NTC from the program (on behalf of Canada). Support for one excluded amount (interest expense) was provided in the Note to File.

While the calculation of the final payment was documented, the audit found that there was limited documentation on the rationale for the informational elements included in or excluded from the final payment and their corresponding consideration. Specifically:

  1. Program representatives did not cross-reference the amounts used in the calculation of the final payment to supporting documentation (i.e. external financial audit report).
  2. While the rationale to exclude interest expense from the calculation of the final payment was documented, there was insufficient evidence that the impact on the calculation was assessed and documented by program representatives for the following considerations:
    1. Reporting delays by the NTC during the life of the CA that can be interpreted as non-compliance with specific terms and conditions of the program;
    2. Compliance of the financial and compliance audits with the requirements of the CA-Schedule C.3.1 and C.3.2.;
    3. Observations of potential non-compliance provided by the external auditors;
    4. Analysis of the reasonability of the cash flow projections based on the actual results to date; and
    5. Feedback received from internal consultations with subject matter experts regarding the non-compliance exceptions identified in the external auditor's compliance audit report.

In conclusion, the shortcomings observed in the file documentation prepared to support the program's justification for the informational elements included in or excluded from the calculation of the final payment stems from program management not clearly defining in advance what considerations should or should not be included in the calculation of the final payment and ensure that they are clearly identified in program procedural documents.

Recommendations Management Response

See Recommendations: Recommendation 1a. and Recommendation 1b. – Departmental Procedures, and Recommendation 2 – Due Diligence Process

N/A

Manager Responsible:

N/A

Due Date:

N/A

Low Risk

D. Financial Authority and Appropriations

The audit found that the final payment of funds ($1,723,234) to the NTC was paid (October 15, 2010) from the 2009-10 appropriation that was received by the department for National Recreational Trails. The accounting treatment for the final payment was through a Payable at Year End (PAYE) and was in compliance with the TBS Policy on PAYE. The decision to use the PAYE was based on the criterion substantial completion of projects by March 31, 2010 being adopted as the required eligibility criteria that needed to be met (as per the TBS Policy on PAYE).

The audit acknowledges that program representatives and Finance had worked together to examine alternative accounting treatments; however, the program or finance files did not include all the adequate documentation that supported the analysis of the alternative courses of action before the conclusion was reached to treat the final payment for NRT as a PAYE.

Finally, delegation of financial payment authorities constitutes a key internal control mechanism that plays an essential role in the expenditure process and achieving departmental and government priorities and objectives. In this regard the audit found that the final payment to the NTC did receive the appropriate approvals from the duly authorized signing officers for Financial Administration Act Section 33 and Section 34, as specified in the department's delegation of financial authorities.

Recommendations Management Response

See Recommendation 2 – Due Diligence Process

N/A

Manager Responsible:

N/A

Due Date:

N/A

7 Audit Opinion

Based on the findings, our opinion is that, overall, appropriate management practices were in place to determine a final payment that was limited to funds for projects and the administrative budget, that were in compliance with the terms and conditions of the Contribution Agreement. However, the following shortcomings were noted that will require management attention.

  • Even though the funding for NRT has sunset, the audit has identified opportunities for improvement in program documentation and guidance to recipients that should be considered for future programs with not-for-profit organizations. As part of the control processes established for stewardship, it was anticipated that the principles of cash management, monitoring and reporting would be applied to the funding for National Recreation Trails. The audit found that the external audit (e.g. financial, compliance) requirements were not clearly defined. In addition, the criteria that would be used for the acceptance of the NTC final report, calculation of the final payment and the supporting documentation requirements were also not clearly defined in the terms and conditions of the program. It is acknowledged that these weaknesses were mostly offset by the due diligence developed and performed by INFC program representatives as the program evolved; however, the audit trail is incomplete to demonstrate that the analysis and conclusions drawn were supported by the appropriate file documentation.
  • The audit found that there are no departmental procedures that clearly define the department's decision and approach regarding materiality policy or provide guidelines to determine and integrate materiality concepts into the control framework established for a transfer payment program with a not-for-profit organization. Departmental direction and guidance on materiality would have enhanced management's ability to independently assess the external audit reports and the calculation of final payment to NTC.

Improving these management practices would strengthen INFC's program documentation and determination of a final payment for future programs.

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.

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