Payroll Process Final Audit Report Report Nr. 13/12 August 30, 2012

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Shawn Wilcox
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1 Payroll Process Final Audit Report Report Nr. 13/12 August 30, 2012 Distribution: To: President & CEO Senior Vice President & Chief Financial Officer Senior Vice President, Human Resources & Communications Vice President & Corporate Controller Vice President, HR Client Services Assistant Corporate Controller Director, Compensation & Benefits Manager, HR Information Systems & Operations CC: Senior Vice President, Corporate Affairs & Secretary Senior Vice President, Business Development Senior Vice President, Insurance Senior Vice President, Financing Senior Vice President, Business Solutions & Innovation Senior Vice President and Chief Risk Officer Director, Planning & External Relations Principal, Office of the Auditor General Director, Office of the Auditor General Audit Team: Lindsay Schoutsen Allison Lowe Vice President Internal Audit Monica Ryan

Vice President, HR Client Services Assistant Corporate Controller Director, Compensation & Benefits Manager, HR Information Systems & Operations CC: Senior Vice President, Corporate Affairs &

2 Table of Contents Introduction... 3 Audit Objectives & Scope... 3 Internal Audit Opinion... 3 Audit Findings & Recommendations... 4 Conclusion... 4 Payroll Process August 30,

3 Introduction In accordance with our FY2012 Audit Plan, EDC Internal Audit performed an audit of the Payroll and Benefits process. In fiscal year 2011, EDC s salary and benefits expenditure was $154 Million (excluding Pension costs), which represented 54% of the corporation s total administrative expenses of $284 Million. Audit Objectives & Scope The overall objective of this audit was to evaluate both the design and operating effectiveness of controls surrounding the payroll and benefits process at EDC that ensure the accuracy of payments to employees and the recording of payroll costs. The scope of this audit included detailed testing of controls pertaining to: Employee master data; Payments to employees; Reconciliation of payroll clearing accounts and of the payroll register to the general ledger; Variance analysis; and Exception reporting. This audit did not include a review of controls related to EDC s pension plan. Internal Audit Opinion In our opinion the Payroll and Benefits process is Well Controlled. 1 Detailed audit testing confirmed that effective controls exist to ensure payroll costs are authorized, accurately recorded and monitored. Two moderate 2 findings were noted and are described in the following section. 1 Our standard audit opinions are as follows: - Strong Controls: Key controls are effectively designed and operating as intended. Best in class internal controls exist. Objectives of the audited process are most likely to be achieved. - Well Controlled: Key controls are effectively designed and operating as intended. Objectives of the audited process are likely to be achieved. - Opportunities Exist to Improve Controls: One or more key controls do not exist, are not designed properly or are not operating as intended. Objectives of the process may not be achieved. The financial and/or reputation impact to the audited process is more than inconsequential. Timely action is required. - Not Controlled: Multiple key controls do not exist, are not designed properly or are not operating as intended. Objectives of the process are unlikely to be achieved. The financial and/or reputation impact to the audited process is material. Action must follow immediately. 2 The ratings of our audit findings are as follows: Major: a key control does not exist, is poorly designed or is not operating as intended and the financial and/or reputation risk is more than inconsequential. The process objective to which the control relates is unlikely to be achieved. Corrective action is needed to ensure controls are cost effective and/or process objectives are achieved. Moderate: a key control does not exist, is poorly designed or is not operating as intended and the financial and/or reputation risk to the process is more than inconsequential. However, a compensating control exists. Corrective action is needed to avoid sole reliance on compensating controls and/or ensure controls are cost effective. Minor: a weakness in the design and/or operation of a non-key process control. Ability to achieve process objectives is unlikely to be impacted. Corrective action is suggested to ensure controls are cost effective. Payroll Process August 30,

Audit Objectives & Scope The overall objective of this audit was to evaluate both the design and operating effectiveness of controls surrounding the payroll and benefits process at EDC that ensure

4 Audit Findings & Recommendations 1. Monitoring Controls Through our detailed testing we have confirmed that salaries and benefits are approved and the related payroll costs are accurately and completely recorded. However, we found that responsibility for payroll processing within EDC currently resides with one team. This includes activities associated with the creation and maintenance of employee master data, the review and approval of changes to master data and, issuing and recording payments to employees. The combination of these activities within one team creates a segregation of duty conflict. To compensate, some monitoring of payroll related expenses is being performed. However, the scope of this monitoring does not address all of the risks associated with the lack of segregation of duty. Accordingly, we have recommended that Finance be provided access to payroll records and that additional monitoring controls be implemented and performed by Finance in a manner that maintains confidentiality while providing independent oversight and review of the payroll process. Rating of Audit Finding Moderate Action Owner VP HR Client Services in collaboration with VP & Corporate Controller Due Dates - All actions to be implemented by Q Annual Salary Planning Tool Annual salary planning is completed by EDC team leaders through the use of software designed for this purpose. The salary planning software has restricted access and the final salary updates are approved and then immediately locked down. However, there is no interface between the software and the payroll processing system. As a result, salary planning results must be manually exported from the software and uploaded into the payroll processing system. This movement of data requires a validation check of the data to ensure there are no discrepancies between the approved salary tool and the final pay. This validation exercise is not currently being performed. Our audit testing included a validation check of the 2012 salary planning exercise and no discrepancies were found. We have recommended that a validation be done on an annual basis after each salary planning exercise. Rating of Audit Finding - Moderate Action Owner Director, Compensation and Benefits Due Dates - All actions to be implemented by Q Conclusion The audit findings and recommendations have been communicated to and agreed by management, who has developed action plans that are scheduled for implementation no later than Q We would like to thank management for their support throughout the audit. Payroll Process August 30,

However, we found that responsibility for payroll processing within EDC currently resides with one team.

Financial Statement Closing Process Audit Report Report Nr. 3/14 August 26, 2014

Distribution: Financial Statement Closing Process Audit Report Report Nr. 3/14 August 26, 2014 To: President & CEO Senior Vice President & Chief Financial Officer Vice President & Corporate Controller