Internal Audit Report - Audit of the Provincial-Territorial Infrastructure Base Funding Initiative

Final Report–June 2011

Table of Contents

  1. Executive Summary
  2. Background
  3. Audit Objectives
  4. Audit Scope
  5. Audit Approach
  6. Audit Observations and Findings

  7. Audit Opinion
  8. Statement of Assurance

1 Executive Summary

The Government of Canada's Budget 2007 announced the Building Canada Plan (BCP) – a seven-year, $33 billion initiative to provide long-term, predictable, and flexible infrastructure funding to provinces and territories via both program funding and base funding. The $2.275 billion Provincial-Territorial Infrastructure Base Funding initiative (PT Base Fund) is part of the base funding component under which, as originally designed, each province and territory would receive an annual allocation of $25 million for seven years, for a total of $175 million per jurisdiction.

The PT Base Fund was designed to contribute to the restoration of the fiscal balance while at the same time contributing to the enhancement of Canada's public infrastructure system. One of the main objectives of the Fund is to demonstrate federal responsiveness to the concerns and needs raised by the provinces and territories during consultations on the fiscal balance in summer of 2006, in particular:

  • Provincial and territorial desire for long-term, predictable funding;
  • More flexible program design to address regional and local priorities;
  • Streamlined and simplified program structure and criteria; and
  • Simplified reporting and auditing mechanisms, with a greater reliance on existing provincial accountability regimes.

The PT Base Fund was initially envisioned as a seven-year initiative; however, further to the stimulus measures announced under the Government of Canada's Economic Action Plan (EAP), provinces and territories were eligible to accelerate some or their entire PT Base funding envelope by the end of fiscal year 2010-11.

To date:

  • PT Base Funding Agreements have been signed between the Government of Canada and all thirteen (13) provinces and territories;
  • Eight (8) jurisdictions have opted to accelerate their funding while five (5) have opted to remain under the Fund's original terms and conditions; and
  • $1,499,738,000 has been delivered to provinces and territories to support the implementation of their respective strategic infrastructure plans (as at May 3rd 2011).

Policy and Communications Branch is the Infrastructure Canada (INFC) functional group responsible for the management and administration of the PT Base Fund.

The overall objective of this audit assurance engagement was to provide reasonable assurance that the management control framework (MCF) in place for the PT Base Fund is adequate and effective to support the achievement of its objectives, and that the MCF is in compliance with its terms and conditions and with the Treasury Board (TB) Policy on Transfer Payments and Directive on Transfer Payments. The MCF for the PT Base Fund refers to the governance, risk management and internal control processes involved in the management, delivery and oversight of the Fund. Specifically, these refer to the Infrastructure Framework Committee and the IFC co-chair relationship, as well as the processes and controls involved in the due diligence review and approval of provincial-territorial Annual Capital Plans, Annual Expenditure Reports, and payments.

The scope of the audit examined the following Management Accountability Framework (MAF) areas: Accountability; Policy and Programs; Governance; Risk Management; Results and Performance; and Stewardship.

Overall, based on the audit procedures performed and the evidence gathered to support conclusions against the established audit criteria, we obtained a reasonable level of assurance that the management control framework in place for the PT Base Fund is adequate and effective to support the achievement of its objectives, and compliance with its terms and conditions, and with the TB Policy on Transfer Payments and Directive on Transfer Payments.

We observed examples of good management practices in the MAF areas of Accountability, Policy and Programs, and Risk Management, including the documentation and communication of roles and responsibilities, eligible infrastructure investment categories, and a risk management approach that is aligned to the design considerations and objectives of the PT Base Fund.

We also observed opportunities for improvement in the MAF areas of Governance, Results and Performance, and Stewardship; however, these were not identified as significant issues that would place the achievement of PT Base Fund objectives at risk. The following summarizes the opportunities for improvement that we have noted through our audit work:

  • monitoring of Annual Capital Plan (ACP) and Annual Expenditure Report (AER) by adopting a more active monitoring approach; and
  • file documentation and checklists to help ensure that documentation is on file to support the results of key decision-making actions related to IFC co-chair meetings, Annual Capital Plan and Annual Expenditure Report submissions, and to support payment recommendations to the INFC Minister and Assistant Deputy Minister of Policy and Communications.

We acknowledge that the residual risk associated with these issues is Low and does not have a significant risk to the achievement of PT Base Fund objectives; however addressing them will help strengthen INFC's monitoring and documentation practices.

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

Original signed by

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

Date

Yaprak Baltacıoğlu
Deputy Minister of Transport,
Infrastructure and Communities

Date

2 Background

The authority to undertake this audit assurance engagement beginning in Q3 of fiscal year 2010 was derived from the INFC Risk-Based Audit Plan that was approved by the INFC Departmental Audit Committee (DAC) in June 2010.

During the planning phase of the audit, we met with the Assistant Deputy Minister, management and staff representatives within Policy and Communications to discuss the audit objectives and to set out mutual expectations for the conduct of the engagement.

3 Audit Objectives

The overall objective of this audit assurance engagement was to provide reasonable assurance that the management control framework (MCF) in place for the PT Base Fund is adequate and effective to support the achievement of its objectives, and that the MCF is in compliance with its terms and conditions and with the Treasury Board (TB) Policy on Transfer Payments and Directive on Transfer Payments. The audit focused on areas of the MCF that are the most critical to the achievement of PT Base Fund objectives.

Within this overall objective, the following sub-objectives were identified as part of our risk assessment and were aligned to the risks identified for the PT Base Fund:

Sub-Objective 1.1 – The engagement assessed the extent to which the PT Base Fund governance structure and funding model supports the delivery and achievement of results in a manner that is considerate of its objectives, risks, and accountability requirements, and compliant with its terms and conditions, and the TB Policy on Transfer Payments and Directive on Transfer Payments.

Sub-Objective 1.2 – The engagement examined the internal controls and accountability mechanisms in place within PT Base Fund and the extent to which these help to ensure that funding is used for intended purposes.

4 Audit Scope

The scope of the audit assurance engagement involved an examination of the management control framework (MCF) in place for the PT Base Fund for the period between inception and December 31st, 2010. Specifically, this included an examination of the practices in place with respect to the approval, monitoring, reporting, and payment process aligned to both the original and accelerated PT Base Fund terms and conditions.

The following MAF areas were examined in the scope of this audit assurance engagement:

  • Accountability;
  • Policy and Programs;
  • Governance;
  • Risk Management;
  • Results and Performance; and
  • Stewardship.

5 Audit Approach

The approach to and the conduct of the PT Base Fund audit assurance engagement was risk-based and focused on the areas of highest risk. Accordingly, the audit procedures were designed to collect sufficient audit evidence to provide a reasonable level of assurance relating to the adequacy and effectiveness of the PTBF management control framework to support Fund activities, mitigate the highest risk areas, and help ensure compliance.

The audit procedures were based upon the review of relevant documentation, interviews with key PT Base Fund management and staff representatives, selected provincial-territorial stakeholders, as well as a review of provincial-territorial files maintained by INFC. The audit was conducted in accordance with the Treasury Board Policy on Internal Audit and the Institute of Internal Auditors International Standards for the Professional Practice of Internal Auditing.

The conduct phase of this audit began in January 2011 and concluded in May 2011.

The audit criteria were based upon the TBS Core Management Controls as well as Office of the Auditor General of Canada's (OAG) expectations for the performance of the Economic Action Plan (EAP). The Core Management Controls document was developed by the Office of the Comptroller General (OCG) 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 TBS Management Control Framework (MAF) area.

For purposes of this report, the residual risk rankings associated with findings use a low, moderate, and high three-point scale and are assigned based on our analysis of the results of our audit procedures and the resulting observations and findings.

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 Observations and Findings

6.1 General

Criteria

An appropriate risk-based framework for governance, risk management, and control is established.

Observations and Findings
Low Risk

Observation #1: A management control framework identifying the key governance, risk management and internal control considerations has been established for the management and oversight of the PT Base Fund.

We observed further to our review of a number of relevant PT Base Fund documents that there was consistency across / between the documents with respect to the coverage and content of PT Base Fund governance, risk management, internal controls and other related Fund information.

Observation #2: The management control framework in place for the PT Base Fund is appropriate, effective, and has been communicated internally at INFC and externally to provincial–territorial stakeholders.

Based on the comments provided by PT Base Fund representatives and provincial-territorial stakeholders during the engagement planning and conduct phases, there was consensus that the management control framework in place for the PT Base Fund is appropriate, effective, and has been communicated internally at INFC and externally to provincial and territorial stakeholders.

Internally, PT Base Fund representatives cited a number of documents as their reference points for the management and delivery of the Fund, including the PT Base Accountability, Risk and Audit Framework (ARAF), Program Business Model, Process Maps, and the Treasury Board (TB) submissions. We observed that the content of the PT Base Funding Agreements, ARAF, Program Business Model were aligned to and consistent with the original and amended TB submissions with respect to the Fund's terms and conditions, and roles and responsibilities.

Externally, provincial and territorial stakeholders confirmed that their roles and responsibilities have been clearly communicated via their Funding Agreements. No significant issues were raised by provincial or territorial stakeholders with respect to the communication and understanding of their roles and responsibilities under the PT Base Fund.

Recommendations Management Response
Manager Responsible: N/A
Due Date: N/A

6.2 Accountability

Criteria
  • The organization's accountability in support of collaborative initiatives is formally defined.
Observations and Findings
Low Risk

Observation #1: INFC's roles and responsibilities under the PT Base Fund have been clearly defined and communicated.

We observed that INFC's accountabilities have been formally and consistently documented and communicated within INFC and to all provincial and territorial stakeholders.

Based on our review of the TB submissions and PT Base Funding Agreements, the role of INFC under the PT Base Fund focuses primarily on oversight and administration. The province and/or territory is responsible for the implementation of and the accountability reporting on the initiatives funded under their approved Annual Capital Plans (ACP), as well as the audited Annual Expenditure Reports (AER) which provides INFC with an assurance-based opinion regarding the jurisdiction's financial and other compliance with the terms and conditions of the PT Base Funding Agreement, including the expenditures made against funding approved for the ACP. We noted and confirmed through our interviews with PT Base Fund representatives that the acceleration of PT Base funding under the Economic Action Plan (EAP) did not lead to any changes in roles and responsibilities for INFC or for the provinces and territories.

Consultations with PT Base Fund representatives confirmed that their respective roles and responsibilities have been clearly communicated as part of their respective job descriptions and role profiles. Factors contributing to the clarity and understanding of roles and responsibilities were attributed to a clear and concise program design, documented procedures via the Program Business Model, streamlined approach to reporting and payments and good working relationships between INFC and provincial-territorial stakeholders. It was also noted that their roles and responsibilities are not confined solely to the PT Base Fund; rather their work falls under the broader mandate and portfolio of the Economic and Community Initiatives group under the Policy and Communications Branch – Policy and Priorities Directorate.

No inconsistencies were observed between the comments provided by PT Base Fund representatives with respect to their described performance of the activities comprising their roles and responsibilities with those described in the Program Business Model.

Recommendations Management Response
Manager Responsible: N/A
Due Date: N/A

6.3 Policy and Programs

Criteria
  • The organization has a formal and rigorous approach to policy and program design;
  • Clear and well-defined eligibility criteria (i.e., eligible investment categories/eligible proponents) are documented, commonly understood, and applied consistently by INFC towards decision-making / approvals; and
  • PT Base Fund management helps to ensure that initiatives within Annual Capital Plans comply with relevant environmental legislation.
Observations and Findings
Low Risk

Observation #1: The rationale for the design of the PT Base Fund was found to be:

  • Consistent with, and compliant with Government of Canada priorities, the TB Policy on Transfer Payments and the Directive on Transfer Payments; and
  • Considerate of the needs of provincial and territorial stakeholders.

The original TB submission documents the context and the rationale for the design of the PT Base Fund, wherein, the objective of the Fund was designed to contribute to the restoration of the fiscal balance between the federal and provincial-territorial governments while at the same time contributing to the enhancement of Canada's public infrastructure system.

The genesis of the PT Base Fund was the summer 2006 fiscal balance discussions between the federal, provincial and territorial governments which articulated the following four objectives:

  1. Provincial and territorial desire for long-term, predictable funding;
  2. More flexible program design to address regional and local priorities;
  3. Streamlined and simplified program structure and criteria; and
  4. Simplified reporting and auditing mechanisms, with a greater reliance on existing accountability regimes.

The PT Base Fund is categorized as an Other Transfer Payment under the TB Policy and Directive on Transfer Payments. The design of the Fund and the eligible infrastructure investment categories balance the infrastructure funding objectives and priorities of both the Federal Government and the provinces and territories.

We compared the PT Base Fund design elements against the TB Policy on Transfer Payments and the TB Directive on Transfer Payments and observed that its design was consistent and compliant with their respective key performance expectations for transfer payment programs.

We also observed that the design of the PT Base Fund was aligned to and consistent with a number of key recommendations made by the Report of the Independent Blue Ribbon Panel on Grant and Contribution Programs, particularly with regard to: streamlining the design of the PT Base Fund; the provision of predictable and flexible funding to provinces and territories; and simplified accountability reporting processes that recognize the maturity of provincial and territorial accountability regimes.

Our consultations with INFC representatives noted that Treasury Board was consulted regarding the PT Base Fund design and delivery approach and was satisfied with INFC's risk mitigation measures established for the Fund, specifically the Annual Capital Plans and Annual Expenditure Reports.

Overall, provincial and territorial stakeholders confirmed that the PT Base Fund has been successful in addressing the four above-mentioned objectives. Below are some noteworthy comments provided by stakeholders during our consultations:

  • Some stakeholders suggested that the PT Base Fund might be a delivery model to consider for future infrastructure programs;
  • Stakeholders identified a marked contrast between the Fund's approach to reporting compared to other INFC / federal government infrastructure programs whose requirements entail a higher frequency and therefore, a more costly level of effort. There was agreement among stakeholders that the reporting approach via the Annual Capital Plan and Annual Expenditure Report submissions is more streamlined compared to other programs as it reduces the frequency of reporting while maintaining an emphasis on compliance over the funding lifecycle; and
  • Unlike the Gas Tax Fund which is a permanent transfer, some stakeholders noted that the sun setting of the PT Base Fund in 2014 removes a mechanism to address the fiscal balance, along with long-term and predictable funding for infrastructure.

Observation #2: The eligible investment categories have been clearly documented and communicated to PT Base stakeholders.

We observed that the eligible categories of investment under the PT Base Fund have been documented and communicated in a clear and consistent manner, both internally at INFC and externally to the provincial and territorial stakeholders. Signoff on the PT Base Funding Agreement confirms that the Parties agree to the terms and conditions as set out therein. We also compared the eligible infrastructure investment categories identified under Schedule A of the Funding Agreements and observed these were consistent with those identified in the TB submissions.

Based on discussions with selected provincial and territorial stakeholders, there was consensus that INFC clearly communicated, and provided effective guidance regarding the eligible infrastructure investment categories and costs. No significant issues were raised by the respondents with respect to the clarity of the eligible categories and costs, although it was noted by some stakeholders that some interpretation discussions were held with INFC regarding the eligible categories and costs and these were resolved.

Observation #3: Information provided in Annual Capital Plan submissions was consistent with PT Base terms and conditions.

The objective of the Annual Capital Plan (ACP) is to provide INFC (via the IFC co-chairs) with a summary of the proposed infrastructure initiatives to be undertaken with federal funding under the PT Base Fund for a given fiscal year.

During our consultations with PT Base Fund representatives and selected provincial-territorial stakeholders, we were informed that INFC provided ACP and AER templates to each province and territory to help assist with the consistency of information presentation and to facilitate INFC's review and approval decision-making on the ACP. In addition, it was noted by provincial and territorial stakeholders that INFC provided good guidance regarding eligible investment categories and eligible costs.

Per our sampling methodology, we examined the most recently approved ACP for each province and territory. We verified that the Funds listed on the ACP were consistent with the eligible infrastructure investment categories in the TB submissions and Agreements and found no discrepancies.

This rate of compliance is attributed to the formal documentation of due diligence review and approval procedures and controls which are required to be performed by INFC officials prior to recommending the ACP to the Minister for approval.

Observation #4: INFC's environmental assessment approach with regard to the PT Base Fund was consistent with the interpretations of the Canadian Environmental Assessment Act (CEAA).

CEAA subsection 7(2) states that an assessment is not required where a federal authority exercises power (i.e. approval) in relation to a project and where the essential details of the project are not known before or at the time the power is exercised. Under the PT Base Fund, the INFC Minister approves a proposed plan of initiatives as opposed to individual projects and at the time of the capital plan's approval, limited information is known about individual initiatives.

We consulted with the INFC environmental review group as well as Legal Services to obtain their perspective on INFC's compliance with CEAA as regards the PT Base Fund. There was consensus of opinion that INFC's approach towards environmental assessments (EA) in the management of the PT Base Fund as per CEAA subsection 7(2) has been consistent and with CEAA EA legislation.

We also observed that INFC has established mitigating controls to obtain assurance from the provinces and territories related to environmental assessments, including:

  • The provincial-territorial IFC co-chair, when submitting the ACP to the federal co-chair must certify that the ACP complies with Section 6.1 of the PT Base Funding Agreement: "Compliance with Environmental Legislation, Environmental Assessments" which requires the province or territory to undertake a number of activities to ensure environmental assessments are conducted in a timely and transparent manner.
  • Per Schedule C of the PT Base Funding Agreement, the conduct of AER financial and compliance audits requires an opinion as to whether the province or territory has complied with Section 6.1.
Recommendations Management Response
Manager Responsible: N/A
Due Date: N/A

6.4 Governance

Criteria
  • Effective oversight bodies have been established for the PT Base Fund;
  • The oversight body has a clearly communicated mandate that includes roles with respect to PT Base Fund governance, risk management and control; and
  • The oversight body in place for the PT Base Fund requests and receives sufficient, complete, timely, and accurate information.
Observations and Findings
Low Risk

Observation #1: The Infrastructure Framework Committee has helped to establish and maintain an effective governance mechanism to facilitate the federal and provincial-territorial bilateral relationship on the national infrastructure portfolio.

The Infrastructure Framework Agreement (IFA) established the Infrastructure Framework Committee (IFC) to act as the principal forum where federal, provincial and territorial parties under the Building Canada Plan (BCP) would discuss and coordinate issues and priorities related to federal funding of infrastructure in the provinces and territories. IFAs have been signed between Canada (INFC) and all 13 provinces and territories, and Committees have been established for each jurisdiction.

The IFC mechanism places an emphasis on the relationship between the federal and provincial-territorial co-chairs. The federal co-chair is the INFC Assistant Deputy Minister, Policy and Communications, and the provincial-territorial co-chairs consist of Deputy Minister and Assistant Deputy Minister equivalents from the responsible provincial-territorial departments and ministries. Therefore, the nature of relationship between the federal and provincial-territorial co-chairs exists at senior executive levels. PT Base Fund management and provincial-territorial representatives confirmed this arrangement as the appropriate level to oversee and deliver the PT Base Fund, and the broader BCP.

Observation #2: The clarity and appropriateness of the IFC's mandate and roles and responsibilities has been confirmed by PT Base Fund stakeholders.

Based on the results of consultations with INFC representatives and provincial-territorial stakeholders, respondents noted that the IFC was successful in helping to establish and maintain an effective governance mechanism to facilitate the bilateral working relationship between INFC and the provincial-territorial co-chairs. This was attributed to a clear role and mandate for the IFC, as well as the nature of the IFC relationship between the federal and provincial-territorial co-chairs.

Observation #3: Matters relating to PT Base Fund governance, monitoring and reporting requirements are discussed at IFC meetings.

Further to our review of IFC meeting Minutes, we observed that matters pertaining to PT Base Fund governance, monitoring, and Annual Capital Plan (ACP) and Annual Expenditure (AER) reporting requirements were discussed during Committee meetings, as well as provincial and territorial infrastructure priorities specific for the Fund, as well as overall jurisdiction infrastructure priorities.

Observation #4: The IFC governance structure has evolved to reflect the needs of stakeholders; however, there have been no significant changes in the INFC and provincial-territorial relationship.

Subsequent to the acceleration of the Building Canada Plan (BCP) program portfolio funding as part of the federal government's stimulus measures under the Economic Action Plan (EAP), PT Base Fund representatives and provincial-territorial representatives confirmed that an evolution occurred in the bilateral relationship between INFC and the provinces and territories whereby there was a shift away from formal and documented meetings. INFC representatives noted that the practice of using conference calls as means to hold discussions is a continuous and ongoing practice. INFC representatives noted that it would not have been possible to plan for and implement the EAP without consultations with their provincial-territorial counterparts. Per the IFA, Committee quorum requires both IFC co-chairs to be present.

INFC representatives acknowledged that the current state of the IFC is not what it was originally envisioned to be. However, INFC and provincial-territorial representatives confirmed that there have been no significant changes to the nature of the bilateral relationship between the federal and provincial-territorial co-chairs with respect to the expectations of the PT Base Fund in relation to the submission and acceptance of the ACP and AER – as these continue to be formally exchanged between the co-chairs via official letters of submission and acceptance. Both INFC and provincial-territorial representatives concurred that at present the management and delivery of the PT Base Fund is most appropriate at the functional management level via informal, albeit regular contact on Fund (and other BCP) related matters. INFC and provincial-territorial representatives confirmed that they have clear respective points of contact.

Observation #5: Co-chair discussions are not formally documented.

We found no compliance issues in not documenting the results of co-chair discussions. However, at the decision-making levels, if there are decisions involving the PT Base Fund resulting from these discussions, it is a reasonable expectation that these be documented. For example, a memo, note to file or calendar reference of the meeting between the co-chairs should be on file, with a brief summary of the results. Formal documentation would help clarify in the event there are differing interpretations resulting from co-chair discussions.

Recommendations Management Action Plan

1) The following recommendation is made to the Policy and Communications Branch to improve the documentation of co-chair discussions / decisions on file:

1.1) Placing on file evidence of co-chair decisions involving the PT Base Fund in the provincial or territorial file as a means of documenting the results of the discussion, including any decisions.

1.1 Policy and Communications will continue to ensure that the paper files for PT Base for each province and territory include copies of documents arising from IFC meetings where PT Base issues are raised and discussed.

Where discussions take place between the federal and provincial or territorial IFC co-chairs (outside the context of a formal IFC meeting) that include key decisions on PT Base issues, best efforts will be made to include a record of these discussions and decisions in the paper file to help ensure that decision-making under the program is better documented.

Assistant Deputy Minister Responsible: ADM, Policy and Communications
Due Date:

June 2011

6.5 Risk Management

Criteria
  • PT Base Fund management identifies the risks that may preclude the achievement of its objectives; and
  • PT Base Fund management has assessed the risks it has identified.
Observations and Findings
Low Risk

Observation #1: INFC has identified relevant PT Base Fund risks in a manner considerate of its design objectives which is consistent with Treasury Board expectations for transfer payment programs.

The following two risks related to the advance of funding and reporting requirements. We noted in the original TB submission that these risks have been developed in the context of the purpose and objectives of the PT Base Fund – i.e., to address the fiscal balance, increase flexibility in program design, and respect provincial and territorial accountability mechanisms.

Risk #1: Provision of PT Base funding upfront, (rather than as a reimbursement of costs incurred) may weaken INFC's ability to ensure that the terms and conditions of the program have been respected and that projects indicated in the Annual Capital Plan actually go ahead and are completed

Risk #2: There is a risk that streamlined accountability and reporting structures may impede the ability of the Minister and/or the Government of Canada to report on, and be accountable for, the flow of funding under the PT Base.

Observation #2: INFC has established measures and controls to help mitigate the risks it has identified for the PT Base Initiative.

As noted under 6.3 Policy and Programs, our consultations with INFC representatives noted that Treasury Board was consulted regarding the PT Base Fund's design and delivery approach and was satisfied with INFC's risk mitigation measures established for the Fund, specifically, the Annual Capital Plans and Annual Expenditure Reports. Other mitigation measures include the inherent commitments made by the Parties upon signing the Funding Agreements, as well as the reliance on the provincial and territorial accountability regimes.

We observed that these measures and controls were:

  • Aligned with the design considerations of the PT Base Fund;
  • Appropriate and sufficient in design / scope to undertake internal due diligence and obtain assurance on the jurisdiction's compliance with the terms and conditions of their Funding Agreements; and
  • Balanced between INFC's accountability reporting and assurance requirements while respecting the accountability regimes of provinces and territories.

INFC has assessed both these risks as "Low". When a re-assessment of risks was undertaken at the time of PT Base funding acceleration under EAP, INFC representatives confirmed that acceleration did not create any changes in the management, delivery, or risks related to the PT Base Fund. Rather, acceleration was a voluntary option for the provinces and territories.

We compared the PT Base Fund design elements against the TB Policy on Transfer Payments and the TB Directive on Transfer Payments and observed that the design of the Fund was consistent with the expectations of the Policy and Directive with respect to risk management.

Audit procedures designed to test the performance of the above mitigation measures and controls by INFC, provinces, and territories noted some exceptions. These exceptions are discussed and described below under 6.7 Stewardship.

Recommendations Management Response
Manager Responsible: N/A
Due Date: N/A

6.6 Results and Performance

Criteria
  • PT Base Initiative management has identified appropriate performance measures linked to planned results; and
  • PT Base Fund management monitors actual performance against planned results.
Observations and Findings
Low Risk

Observation #1: INFC has developed a performance measurement approach that is aligned to the design objectives of the PT Base Fund.

Consistent with the PT Base Fund's design approach to streamline reporting requirements, jurisdictions are not required to report on more traditional and tangible contribution indicators / measures (ex: # of jobs created, funding leveraged, etc). Rather, for the PT Base Fund, INFC has focused performance reporting at a higher level while emphasizing accountability for the expenditure of funds. Moreover, for the PT Base Fund, performance measurement focuses more on a holistic view of expected results via: collaborative partnerships; increased investment in sustainable infrastructure; economic growth; a more sustainable environment (cleaner air and water, better land use, etc); and strong and healthy communities to improve the quality of life for Canadians.

Further, the performance measurement approach via the Annual Capital Plans (ACP) and Annual Expenditure Reports (AER) enables the collection of information on the number of initiatives approved, the amount of funding leveraged by funding partners towards supporting the implementation of the ACP, as well as the direction of federal funding towards eligible infrastructure investment categories.

Stakeholders identified a marked contrast between the PT Base Fund's approach to reporting compared to other INFC / federal government infrastructure programs whose requirements entail a higher frequency and, therefore, a more costly level of effort. There was agreement among stakeholders that the reporting approach via the Annual Capital Plan and Annual Expenditure Report submissions is more streamlined compared to other programs as it reduces the frequency of reporting while maintaining an emphasis on compliance over the lifecycle of the Fund.

Observation #2: Performance monitoring roles and responsibilities have been documented and communicated.

Through our consultations with both INFC and provincial and territorial stakeholders, and our review of PT Base Funding Agreements, we confirmed that roles and responsibilities related to performance monitoring, data collection and reporting have been documented and communicated.

Observation #3: INFC is monitoring and reporting PT Base results using performance measures and reporting tools aligned to Fund terms and conditions.

INFC reports results of the PT Base Fund to Canadians via the annual Report on Plans and Priorities (RPP) and Departmental Performance Report (DPR) mechanisms. The Annual Capital Plans (ACP) and Annual Expenditure Reports (AER) are effective, efficient, and sufficient to the extent that they capture information based on the streamlined reporting requirements established by PT Base Fund terms and conditions.

In addition to the AER, there are complementary monitoring and tracking tools used by both Policy and Communications Branch, and Finance. Policy and Communications uses an Excel spreadsheet to track fiscal year payments based on approval of ACP and AER submissions, which also includes Funding Agreement information such as approved cashflows and signature dates, and ACP details including the status of individual initiatives. Finance uses a disbursement monitoring spreadsheet to track, monitor and forecast fiscal year funding by jurisdiction.

Low Risk

Finding #1: Concerns have been raised regarding the effectiveness and efficiency of established INFC review and approval processes for Annual Capital Plans and Annual Expenditure Reports.

Concerns were raised by some provincial and territorial stakeholders regarding the effectiveness and efficiency of established INFC review and approval processes for Annual Capital Plans and Annual Expenditure Reports. Given that approval of Annual Capital Plans and Annual Expenditure Reports act as payment triggers (in most cases based on our file review), approval delays can and have for some provinces and territories created operational and financial constraints with the planning, provisioning, and implementation of their Annual Capital Plans.

Finding #2: Not all provinces and territories are providing their Annual Capital Plan and Annual Expenditure Reports to INFC in a timely manner.

We observed through our file review that some provinces and territories have not submitted their Annual Capital Plans and Annual Expenditure Reports in accordance with Funding Agreement timelines and / or otherwise timely manner. This finding is discussed under 6.7 Stewardship.

Finding #3: Performance monitoring and reporting tools do not reflect an active monitoring approach.

The Excel spreadsheets offer management with an efficient informal tool to track ACP / AER submissions and payments; however, would be more useful as an active monitoring tool if the spreadsheet were to include expected ACP and AER submission, and payment deadlines (where applicable). In addition, while the spreadsheets used by both Policy and Communications and Finance are complimentary in nature, they duplicate monitoring efforts and do not offer an integrated, risk-based tool to facilitate active monitoring of recipient reporting and ongoing compliance with Funding Agreement terms and conditions.

Although jurisdictions do not receive payment until their submitted ACPs and AERs have been approved, not submitting these documents in a timely manner means they may not receive their funding in a timely manner to implement their ACP initiatives. Furthermore, ACP and AER submission delays may hinder INFC's ability to report performance results / progress in a complete manner and / or on a timely basis.

Recommendations Management Response

2) The following recommendations are made to the Policy and Communications Branch to improve the monitoring of required reporting submissions:

2.1) Policy and Communications Branch should identify required reporting timelines, actively monitor, and communicate with jurisdictions to provide their Annual Capital Plan and Annual Expenditure Report submissions in a timely manner to facilitate the review, acceptance, and approval of payment by INFC.

2.2) Policy and Communications Branch and Finance should develop an integrated monitoring spreadsheet to capture both performance and financial information. The information requirements of this spreadsheet should be consistent with PT Base performance indicators to help ensure the data collection strategy is consistent with PT Base Fund terms and conditions.

2.1: Policy and Communications undertakes active monitoring of its PT Base files in the form of follow-up with the provinces and territories in advance of ACPs or AERs due. This monitoring has been done on an ongoing and ad hoc basis through regular contact with provincial-territorial counterparts.

Policy and Communications agrees to formalize an even more active monitoring process by adding a monitoring section with any applicable Funding Agreement submission deadlines for ACPs and AERs in its PT Base Excel database. This monitoring section would include proposed dates for INFC follow-up and confirmation of type and dates for the monitoring activities that are undertaken with regard to the deadlines set out in the applicable Funding Agreements.

The proposed monitoring activities above will take into account the document review process under the PT Base Fund whereby provinces and territories normally submit draft versions of proposed ACPs or AERs in advance of the formal submission dates. Any issues relating to the Plans or other reporting are raised as part INFC's review of these early drafts. Of note, as actual formal submission of Plans or Expenditure Reports generally comes at the end of a review process and consultation between INFC and provincial or territorial officials, this may result in tracked formal submission dates that surpass the scheduled timelines as per the Agreements.

INFC will also continue to encourage provinces and territories to raise any other issues at any time as they arise.

2.2: Policy and Communications and Corporate Services agree to explore options around the development of an integrated monitoring spreadsheet and agree to consider whether this would better meet the needs and requirements of both Branches while also better ensuring consistency with INFC's data collection needs.

Manager Responsible:

2.1: ADM, Policy and Communications

2.2: ADM, Policy and Communications and ADM, Corporate Services

Due Date:

For 2.1: July 2011

For 2.2: August 2011

6.7 Stewardship

Criteria
Observations and Findings
Low Risk

Observation #1: Management has put in place review and approval controls procedures for the Annual Capital Plans and Annual Expenditure Reports.

We observed that INFC Policy and Communications Branch and Finance have put in place and formally documented review and approval control procedures for the Annual Capital Plans (ACP) and Annual Expenditure Reports (AER) in the Program Business Model (PBM).

As part of our audit procedures, we met separately with both PT Base Fund and Finance representatives and performed walkthroughs of the PBM and the process maps which were developed based on the ACP, AER, and payment activities and controls outlined in the PBM. The objective of these walkthroughs was to confirm and clarify the sequence of these activities and the roles and responsibilities for the performance of these activities and controls. The results of our walkthroughs, observed no inconsistencies or variances in the manner in which identified activities are performed compared to how they are documented.

Per our audit sampling methodology, we examined the most recently approved ACPs and AERs and observed in all instances that these were approved by appropriately delegated INFC officials. We found that for the ACPs and AERs, all submitted documents were completed as required by providing the required information.

We also observed that the ACPs and AERs were supported by Memos to the Minister and / or ADM recommending approval based on INFC due diligence activity to help ensure that PT Base Fund terms and conditions had been met.

Low Risk

Finding #1: Exceptions were observed.

Annual Capital Plans (ACP): We observed exceptions where provincial and territorial ACP submissions exceeded PT Base Fund management's expected submission deadline of March 31st for the upcoming fiscal year. In addition, we observed one instance where further to the approval of an ACP, payment was not made within the expected three month timeline. We also observed exceptions where required attestations to Funding Agreement Section 6.1 – Environmental Assessments were not present on the ACP transmission letter from the province and/or territory.

Finally, we did not observe evidence on file of ACP review by INFC other than the statements contained in the Memo to the Minister to approve the ACP. Further to our request, we were provided examples of correspondence between INFC and the province and / or territory to support INFC's review of the ACP.

Annual Expenditure Reports (AER): We observed exceptions where provincial and territorial AER submissions exceeded the required deadlines established by the PT Base Funding Agreements. We also observed that in the case of one province/territory, the AER was not signed by a delegated provincial and/or territorial authority; rather, it was signed by the external auditor.

Similar to the ACP finding above, we did not observe evidence on file of AER review by INFC other than the statements contained in the Memo to the Minister to approve the AER. Further to our request, we were provided examples of correspondence between INFC and the province and / or territory to support INFC's review of the AER.

We also observed exceptions in the file management practices of Policy and Communications Branch whereby required documents for each jurisdiction file per the "Checklist of Items for Common Filing System" were not on file. For example, in all 12 jurisdiction files examined, documents pertaining to the most recent payment were not found in the provincial and/or territorial files managed by Policy and Communications Branch. Rather, these were found in the files managed by Finance. These documents included: Memos to the ADM / Minister; the Commitment Request Form (S.32 FAA); and the Contribution Payment Form (S.34 FAA and S.33 FAA).

Therefore:

  • The files maintained by Policy and Communications do not contain complete information as required by their Checklist; and
  • There is not a common file management system for documenting the lifecycle of PT Base Funding Agreements.
Low Risk

Observation # 2: Overall, payment to provinces and territories were made in accordance with established review and approval procedures.

Overall, the process to approve payments to the provinces and / or territories – whether further to the review and approval of an Annual Capital Plan (ACP) or Annual Expenditure Report (AER) – was observed to be consistent with the established procedures outlined in the Program Business Model (PBM).

Each payment reviewed was supported by the following documents:

  • Memo to the ADM and / or Minister recommending the approval of the payment to the province or territory;
  • Commitment Request Form (S.32 FAA); and
  • Contribution Payment Form (S.34 and S.33 FAA)

All payments were authorized by an INFC official bearing the required delegated financial signing authority, per the INFC Delegation of Financial Signing Authorities Matrix.

In addition, we observed the presence of a "PT Base Payment Checklist" developed by INFC Finance for the review of 1st and 2nd fiscal year payments to the provinces and territories. Both Checklists, once completed are signed by the reviewer. We were informed by Finance that these Checklists were developed in 2009; however, their use has varied. Recently, a decision was made by Finance to use both Checklists consistently on a going forward basis.

Low Risk

Finding #2: Exceptions were observed.

We observed that all payments were authorized by an INFC official bearing the required delegated financial signing authority; however, we observed exceptions with the performance of S.32, S.34, and S.33 FAA authorizations whereby the date of signoff by the delegated authority was not always present.

When performing a delegated financial signing / other authorization, it is a reasonable management expectation that the authorization bear both the signature of the delegated official and the date of their signature. This practice helps to mitigate the perception of pre-approval without due diligence review; and therefore, mitigate the risk of non-compliance with the FAA.

Recommendations Management Response

3) It is recommended that Policy and Communications Branch, along with Corporate Services Branch, consider the following improvements to the file documentation and the Finance checklist:

3.1) Any analysis conducted by INFC Policy and Communications / Finance should be documented on the central project file to support payment recommendations to the ADM and / or Minister.

3.2) Since payment files are maintained by Finance, PT Base Fund management should ensure that any payment approval documentation be copied and kept in the files maintained by Policy and Communications Branch to help create a complete and central record.

3.3) The use of the INFC Finance Checklists for 1st and 2nd fiscal year payments should be continued, as this is a good management practice. The checklists should be amended to include a verification of delegated signing authority confirming that FAA Sections S.32 and S.34 were signed and dated by an appropriately delegated official.

3.1: Payments under the program are triggered by federal acceptance of Capital Plans or Expenditure Reports. Currently, detailed INFC correspondence with provinces and territories relating to the federal review of these documents are kept in electronic format (i.e. emails) in employees' folders. Policy and Communications agrees to add to the central, physical files, copies of the key emails/correspondence in support of recommendations to the Minister or ADM for acceptance of these documents.

3.2: Policy and Communications and Corporate Services agree to ensure that final signed copies of any payment authorization documentation will be copied to the paper files maintained by Policy and Communications Branch, which will help ensure that a complete and central record for each province and territory is created. Original signed copies of the payment documentation will remain with Corporate Services.

3.3. Corporate Services (Finance and Administration) commits to the ongoing use of its Checklists for 1st and 2nd payments under PT Base, including verification that FAA Sections S.32, S.34, and S. 33 were signed and dated by an appropriately delegated official.

Manager Responsible:

3.1: ADM, Policy and Communications

3.2: ADM, Policy and Communications and ADM, Corporate Services

3.3: ADM, Corporate Services

Due Date:

3.1 May 2011

3.2 October 2011

3.3 May 2011

7 Audit Opinion

Overall, based on the audit procedures performed and the evidence gathered to support conclusions against the established audit criteria, we obtained a reasonable level of assurance that the management control framework in place for the PT Base Fund is adequate and effective to support the achievement of its objectives and compliance with its terms and conditions, and with the TB Policy on Transfer Payments and Directive on Transfer Payments.

We observed examples of good management practices in the MAF areas of Accountability, Policy and Programs, and Risk Management, including the documentation and communication of roles and responsibilities, eligible infrastructure investment categories, and a risk management approach that is aligned to the design considerations and objectives of the PT Base Fund.

We also observed opportunities for improvement in the MAF areas of Governance, Results and Performance, and Stewardship; however, these were not identified as significant issues that would place the achievement of PT Base Initiative objectives at risk. The following summarizes the opportunities for improvement that we have noted through our audit work:

  • monitoring of Annual Capital Plan (ACP) and Annual Expenditure Report (AER) by adopting a more active monitoring approach; and
  • file documentation and checklists to help ensure that documentation is on file to support the results of key decision-making actions related to IFC co-chair meetings, Annual Capital Plan and Annual Expenditure Report submissions, and to support payment recommendations to the INFC Minister and Assistant Deputy Minister of Policy and Communications.

We acknowledge that the residual risk associated with these issues is Low and does not have a significant risk to the achievement of PT Base Fund objectives; however addressing them will help strengthen INFC's monitoring and documentation practices.

8 Statement of Assurance

In our professional judgment, sufficient and appropriate audit procedures have been conducted and evidence gathered to support the accuracy and completeness of the observations and findings contained in this report as well as the opinion provided. The observations, findings and opinion are based on our analysis of the audit evidence against the established audit criteria and audit sub-criteria.

The observations, findings and opinion are only applicable for the PT Base Fund. The design and scope of the audit procedures was intended to provide a reasonable level of assurance with respect to the audit criteria and the audit sub-criteria. The evidence gathered meets professional audit standards and is sufficient to provide senior management with substantiation for the observations of the findings contained in this audit report.

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