INTERNAL AUDIT MUNICIPAL RURAL INFRASTRUCTURE FUND (MRIF)

Transcription

1 INTERNAL AUDIT COMPLIANCE WITH KEY CONTROLS DURING PROJECT APPROVAL AND PROJECT AMENDMENT PROCESSES, CONTRIBUTION PAYMENT PROCESSES AND BUDGET MONITORING Internal Audit Report For the Fiscal Year Prepared by AUDIT SERVICES CANADA for INFRASTRUCTURE DIRECTORATE BUSINESS DEVELOPMENT AND INFRASTRUCTURE BRANCH October 2008

2 INTERNAL AUDIT COMPLIANCE WITH KEY CONTROLS DURING PROJECT APPROVAL AND PROJECT AMENDMENT PROCESSES, CONTRIBUTION PAYMENT PROCESSES AND BUDGET MONITORING TABLE OF CONTENTS PAGE EXECUTIVE SUMMARY INTRODUCTION 1.1 Background Audit scope Objectives Methodology Acknowledgements AUDIT FINDINGS 2.1 Main stages of the control process Key control points Sampling Findings Key controls for project approval Findings Key controls for project amendment approval and project withdrawals Findings Key controls for contribution payment approval Findings Budgetary control analysis Other findings CONCLUSION 14

3 EXECUTIVE SUMMARY Audit objectives The objectives of the audit were to assess the project approval, project amendment and payment processes, verify the routing of applications received, and identify and describe key controls and ensure that they were being applied in compliance with the processes established for the Program. Audit opinion We believe that the Municipal Rural Infrastructure Fund (MRIF) is being managed in an efficient and reliable manner. No deficiencies were observed. Furthermore, during the period audited, payments under the Program met the Agency's operational requirements in all material respects. Statement of assurance The internal audit was conducted in accordance with the Treasury Board Secretariat (TBS) Policy on Internal Audit. In our professional opinion, the audit procedures that were followed and the evidence gathered are appropriate and sufficient to support the accuracy of the conclusions in this report. The conclusions are based on an examination of situations identified in light of pre-established audit criteria agreed upon by management. The evidence gathered is adequate to satisfy senior management that the conclusions drawn from the internal audit are wellfounded. Summary of the findings Key controls for project approval Compliance tests for key controls relating to the approval of the 53 new projects over the period from April 1, 2007, to March 31, 2008, for a total of $57,049,460 in approved federal contributions, revealed that, in general, the controls were properly applied and complied with established procedures. No deviations were observed during our audit. Key controls for project amendment approval Since the actual population consisted of 15 amendments, we examined all project amendments approved in Our audit revealed no deviations. Controls were correctly applied and complied with established procedures. INTERNAL AUDIT REPORT OCTOBER 2008 PAGE 3

4 Key controls for contribution payment approval Compliance tests conducted on all files for which payments had been made between April 1, 2007, and March 31, 2008 (ie, 25 files involving 34 payments) revealed no deviations from the previously identified key payment controls. In all cases, payment limits were respected, the amounts to be paid were correctly entered in the computer systems, and the sequence of key payment controls was always followed. Budgetary control analysis Our analysis of key budgetary monitoring controls enabled us to verify their existence and application during the entire audit period. Our analysis also enabled us to ensure that, as agreed upon, the total for all of the projects approved under the Agreement does not exceed one third of the eligible costs incurred as at March 31, 2008, for all the projects. INTERNAL AUDIT REPORT OCTOBER 2008 PAGE 4

5 1.0 INTRODUCTION 1.1 BACKGROUND In the wake of the tabling of the Government of Canada's 2003 budget, a new program, the Municipal Rural Infrastructure Fund (MRIF), was created. The MRIF is subject to the same terms as the Canada-Quebec Infrastructure Program Agreement, which was signed on October 20, 2000, and amended on July 18, 2005, and supports infrastructure projects aimed at improving the quality of life of Canadians and the quality of the environment, and sustaining economic growth in communities. The federal government's contribution to this program totals $234,824,000. The objective of this five-year program is to renew and improve Canada's physical infrastructure. The federal government assumes approximately one third of the cost of the infrastructure projects; the other two thirds are assumed by the Government of Quebec, municipal governments and other proponents. For the current period, overall funding for Component 3 of the MRIF was increased by $39,824,000, pursuant to Amendment 1, dated December 11, 2007, and signed by representatives of the Government of Quebec and the Government of Canada. The Agreement provides for an audit framework intended to provide independent and objective assurance regarding the systems and procedures in place with a view to ensuring that the program is managed in accordance with the terms and conditions of the Agreement. The federal portion of the program is administered by the Infrastructure Directorate of Canada Economic Development for the Regions of Quebec (CED), and the provincial portion by the Quebec Department of Municipal Affairs and the Regions (MAMR). A management committee has been set up to manage the Agreement. The primary administrators are a federal co-chair (Director of the CED Infrastructure Directorate) and a provincial co-chair (Director of Infrastructure at MAMR). MAMR is the principal contractor for this infrastructure program. It is in charge of receiving applications and assessing projects to determine whether or not they are eligible under the Agreement. As a result, CED has little direct contact with applicants, except for matters relating to the Canadian Environmental Assessment Act (CEAA). Only eligible projects deemed to be priorities by MAMR are submitted to the CED Infrastructure Directorate, in the form of fact sheets. Advisors assess the projects based on the fact sheets and carry out a compliance review in accordance with the terms and conditions set out in Schedule A to the Agreement and in the Shared Information Management System for Infrastructure (SIMSI), while ensuring that the project complies with CEAA requirements. Before the projects are listed in the Agreement, the fact sheets are signed by the federal co-chair, after which they are submitted for ministerial approval. The project approval process is described in greater detail in section 2.1 of this report. INTERNAL AUDIT REPORT OCTOBER 2008 PAGE 5

6 1.2 AUDIT SCOPE The CED Infrastructure Directorate mandated Audit Services Canada to audit the internal control systems and procedures applied by the CED Infrastructure Directorate in Montreal. An initial audit was carried out between July 2 and July 31, 2007, and covered the period from July 18, 2005, to March 31, The mandate essentially focussed on project approval and amendment controls and the payment approval processes. The audit did not reveal any deficiencies. The current audit was performed between July 2 and August 11, 2008, and covered the period between April 1, 2007 (end of the previous audit period) and March 31, The audit included reviewing the summary of key controls, as well as the project approval, project amendment and contribution payment processes. Four distinct steps were involved: firstly, a review of contribution application approval controls; secondly, a review of project amendment controls; thirdly, a review of contribution payment controls; and lastly, a review of budgetary controls. In addition, reconciliations were carried out to compare the contribution amounts recorded in the MRIF Budget Accounts with data available in the SIMSI, and program management fees recorded in the system with the information available in management fee files. 1.3 OBJECTIVES The objectives of the audit were to assess the project approval, project amendment and payment processes and to verify the routing of applications received, identify and describe key controls and ensure that they were being applied by conducting compliance tests on a sample of MRIF files large enough to enable the auditors to form an opinion. 1.4 METHODOLOGY The audit was conducted in accordance with the Treasury Board Secretariat s Policy on Internal Audit. The mandate included formal planning, a risk assessment, an audit program and a sampling plan. Meetings and discussions were held with Infrastructure Directorate officials in charge of the Program. Because the approach was associative, fact-finding was validated with the parties concerned. The various steps of the project approval and amendment processes and the contribution payment process were validated by the program manager and through information contained in project files, as well as by means of reports generated by information management systems, which were used for walk-through purposes. INTERNAL AUDIT REPORT OCTOBER 2008 PAGE 6

7 1.5 ACKNOWLEDGEMENTS The audit team would like to thank those consulted during the audit the manager and staff members in charge of implementing the MRIF for their availability, exemplary cooperation and relevant comments. INTERNAL AUDIT REPORT OCTOBER 2008 PAGE 7

8 2.0 AUDIT FINDINGS 2.1 MAIN STAGES OF THE CONTROL PROCESS The following employees were on site and provided the CED Infrastructure Directorate with various services during the audit period: Director Federal co-chair of the Agreement Management Committee Manager Alternate federal co-chair of the Agreement Management Committee Two or three project analysts (advisors) Three environmental advisors (corporate services) Two administrative services employees An administrative assistant Two or three communications advisors (corporate services) The main stages of the control process had already been outlined in the Infrastructure Canada Program (ICP) audits conducted between 2002 and 2007 Discussions with program staff and our review of the files led us to conclude that no significant changes had been made to this process for the MRIF. The project approval and amendment procedures are essentially the same for the MRIF. Fact sheets already approved by the provincial co-chair are received from Quebec. The sheets are reviewed by the CED advisors and clarifications are obtained, if necessary. The advisors conduct an analysis using the SIMSI, and a potential commitment is entered in the system. The form is signed by an advisor and approved by the MRIF manager. Based on the fact sheet, the environmental advisors determine whether or not the project is subject to the CEAA. If necessary, the applicant may be asked to conduct a preliminary assessment. Once the assessment is completed, the advisors make their decision. A form for this purpose must be completed and approved by the Director of the Infrastructure Directorate. Conditional approval may be given pending completion of an environmental assessment. A briefing book, covering one or more projects, is prepared for signature. The book is reviewed and signed by the Director of the Infrastructure Directorate, who also signs the provincial government fact sheets as the Agreement's federal co-chair. The briefing book, together with the signed fact sheets, is then sent for approval to the federal minister responsible for implementing the MRIF in the Quebec Region. The documentation is then returned to the Infrastructure Directorate, and a letter from the federal co-chair, along with the signed fact sheets, is sent to the provincial co-chair, confirming the approval of the project by the federal authorities. The provincial co-chair is responsible for notifying the applicant. Finalized commitments can then be recorded in the SIMSI. INTERNAL AUDIT REPORT OCTOBER 2008 PAGE 8

9 The process for project amendments is essentially the same as the project approval process. Amendments resulting in an increase in costs must be approved by departmental authorities or by the Treasury Board of Canada, in accordance with the delegation of approval authority grid for MRIF project amendments. The disbursement procedure is as follows: MAMR submits claims for payment to CED, including a "Claim Summary," which can cover one or more projects, together with a calculation of financial assistance to be paid for each project. Before recommending payment, CED verifies that its share matches the amounts claimed, that the maximum amount of the federal contribution has not been exceeded, and that the project's environmental status allows for payment. Claims are approved by the federal co-chair, after which the data can be entered in the SIMSI. Funds are then transferred from CED to the Quebec Minister of Finance (and not to applicants) by direct deposit. 2.2 KEY CONTROL POINTS After interviewing CED employees involved in the management of the MRIF and examining a significant number of project files, we were able to validate the operational approval process. Our audit enabled us to identify the following key controls for project approval: The fact sheet approved by the provincial co-chair is received to be listed in the Agreement. The fact sheet is assessed by the advisors. The assessment is approved by the Infrastructure Directorate manager. A potential commitment is entered in the SIMSI. An assessment is conducted by an environmental advisor; in the case of projects subject to the CEAA, the environmental advisor's decision is approved by the Director of the Infrastructure Directorate. The environmental advisor signs a CEAA exemption report, if applicable. The application report is prepared and approved by the manager. The fact sheet received by the federal co-chair is approved. The Briefing Book is signed by the federal co-chair. Approval is obtained from the Minister responsible for the implementation of the MRIF for projects involving a federal contribution of under $5 million. Approval is obtained from the Minister of Transport, Infrastructure and Communities for projects involving a federal contribution between $5 million and $15 million, and from the Treasury Board of Canada for projects involving a federal contribution in excess of $15 million. Commitments are definitively entered in the SIMSI. The fact sheet approved by the federal co-chair is returned to the provincial cochair along with a cover letter regarding the environmental assessment. INTERNAL AUDIT REPORT OCTOBER 2008 PAGE 9

10 A letter from the provincial co-chair is sent, informing the applicant that the project has been listed in the Agreement. With regard to project amendment approval, the following key controls were identified: The revised fact sheet approved by the provincial co-chair is received to be listed in the Agreement. The revised fact sheet is assessed by the advisors. The assessment is approved by the manager. The amendment's impact with respect to the benefits of the project and its environmental impact, if any, are assessed. The application report, including the manager's approval of the environmental advisor's decision, is prepared. The Briefing Book is signed by the federal co-chair in the event of an increase in contributions. The federal co-chair approves the revised fact sheet sent by the provincial cochair. Amendments involving an increase in cost are approved in accordance with the Treasury Board of Canada's delegation of authority. The federal co-chair approves amendments resulting in lower costs or amendments with no financial implications. Amended commitments are entered in the SIMSI. The reasons for the amendment must be adequately documented and take into consideration financial aspects, the environmental impact, and the impact on the established work schedule. The revised fact sheet approved by the federal co-chair is returned to the provincial co-chair, along with a letter indicating the decision concerning the environmental assessment. An approval letter regarding the provincial co-chair's review is sent to the applicant in the case of amendments resulting in an increase in costs. As concerns payments, the following key controls were identified. The assistance calculation form received from MAMR. The provincial claim for payment is approved by the federal co-chair. Compliance with environmental requirements is verified before payments are made. Payment limits are respected. Claim Summary amounts are verified. Payment claims are properly recorded. Samples of files were prepared for audit purposes and tests were conducted to verify the existence and application of these key controls. INTERNAL AUDIT REPORT OCTOBER 2008 PAGE 10

11 2.3 SAMPLING An initial representative sample of all projects was prepared using the discovery sampling method, given the limited number of approved projects (53 projects for the period from April 1, 2007, to March 31, 2008, for a total of $57,049,460 in approved federal contributions and $216,090,704 in total eligible costs). Federal contributions accounted for 26.40% of eligible costs, thereby complying with clause 6.4(b) of the Canada-Quebec Agreement, dated July 18, Given the limited number of payments made over the period from April 1, 2007, to March 31, 2008 (the true population was 25 files, accounting for $5,937,221 in payments), all of the projects for which payments had been made were examined in order to verify compliance with key contribution payment controls. A third sample of files was audited with respect to project amendments. As the population consisted of only 15 projects, all of the amendments were examined. 2.4 FINDINGS KEY CONTROLS FOR PROJECT APPROVAL Compliance tests for key project approval controls revealed that, in general, the controls were properly applied and complied with established procedures. No deviations were observed during our audit. 2.5 FINDINGS KEY CONTROLS FOR PROJECT AMENDMENT APPROVAL AND PROJECT WITHDRAWALS Since the actual population consisted of 15 amendments, we examined all the project amendments approved in Our audit revealed no deviations. Controls were correctly applied and complied with established procedures. Only two projects were withdrawn in , upon confirmation by the provincial cochair. Our analysis also permitted us to assure that the funds available for these projects had been decommitted so that they could be added back to the budgetary control system. 2.6 FINDINGS KEY CONTROLS FOR CONTRIBUTION PAYMENT APPROVAL Compliance tests conducted on all files for which payments had been made between April 1, 2007, and March 31, 2008 (ie, 25 files involving 34 payments) revealed no deviations from the previously identified key payment controls. In all cases, payment limits were respected, the amounts to be paid were correctly entered in the computer systems, and the sequence of key payment controls was always followed. INTERNAL AUDIT REPORT OCTOBER 2008 PAGE 11

12 In , the CED Infrastructure Directorate verified approximately 20% of MAMR calculations, which is higher than the 10% originally identified. This procedure allows federal authorities to ensure that computations submitted for MAMR claims are error-free. It should be noted that an external auditor has been appointed under the Canada-Quebec Infrastructure Program Agreement to conduct an annual audit based on the internal audits of the departments in question. The external auditor s objective will be to ensure the adequacy of the systems and procedures put in place for managing the program and the adequacy of the project control and claim verification system. 2.7 FINDINGS BUDGETARY CONTROL ANALYSIS Our analysis of key budgetary monitoring controls enabled us to verify their existence and application during the entire audit period. Our analysis also enabled us to ensure that, as agreed upon, all of the projects approved under the Agreement do not exceed one third of the eligible costs incurred as at March 31, 2008, for all projects. 2.8 OTHER FINDINGS At the request of the CED Infrastructure Directorate, management fees charged to the program were also examined; however, the validity of the amounts claimed was not verified. In clause 7.5(b) of the amended version of the Canada-Quebec Infrastructure Program Agreement dated July 18, 2005, it specifies that, with respect to the MRIF, Canada shall reimburse Quebec an amount of up to $2,925,000 for the cost of managing and administering the Agreement, as determined and approved by the Management Committee. The total amount shall be taken from Canada's contribution of $234,824,000 provided for in section 6.1, with respect to the MRIF. The audit revealed that the maximum amount eligible under the revised Agreement ($2,925,000) had not been reached as at March 31, We also noted that, in accordance with clause A.9.2(d) of Schedule A to the Agreement, and as provided for in the Agreement, funds allocated to MRIF projects carried out in municipalities with fewer than 250,000 inhabitants accounted for, whenever possible, approximately 80% of contributions. The reconciliation between the Program's cumulative expenditures set out in the MRIF Budget Account Report and data available in the SIMSI, on the basis of which the audit sample was established, revealed hat both sources yielded equivalent totals. INTERNAL AUDIT REPORT OCTOBER 2008 PAGE 12

13 3.0 CONCLUSION Based on the compliance tests carried out, it is our opinion that key controls have been correctly applied and operate as described, and that they are effective and appropriately applied by the CED Infrastructure Directorate with regard to the approval of the 53 new projects, the 15 project amendments examined and the approval of 34 contribution payments made. Our audit did not reveal any cases of non-compliance during the period from April 1, 2007, to March 31, INTERNAL AUDIT REPORT OCTOBER 2008 PAGE 13