Loan Services - audit and Control Style

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Derick Bryant
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1 Distribution: Invoicing & Collections Loans Phase II Final Audit Report Report #9/13 November 12, 2013 To: Acting President & CEO Senior Vice President & Chief Financial Officer Vice President & Corporate Controller Director, Loans Services CC: Senior Vice President, Corporate Affairs and Secretary Senior Vice President, Human Resources and Communications Senior Vice President, Business Development Senior Vice President, Insurance Senior Vice President, Financing Senior Vice President, Business Solutions & Innovation Director, Planning & External Relations Principal, Office of the Auditor General Director, Office of the Auditor General Audit Team: Allison Coons Eric Hunter Allison Lowe Vice President, Internal Audit Monica Ryan

Vice President, Business Development Senior Vice President, Insurance Senior Vice President, Financing Senior Vice President, Business Solutions & Innovation Director, Planning &

2 Table of Contents Introduction... 3 Audit Objectives & Scope... 3 Internal Audit Opinion... 3 Audit Findings & Recommendations... 4 Conclusion... 4 Invoicing & Collections Loans Phase II November 12,

3 Introduction In accordance with our 2013 Audit Plan, EDC Internal Audit performed an audit of the invoicing and collections process for Financing. EDC provides financing on a commercial basis under its corporate account which is the largest program in terms of revenue generating $1,116M in The Loans Services team is responsible for the ongoing administration of EDC's loan portfolio including invoicing and collections activities. This includes invoicing the customer and applying monies against the loan once received. Loans Services also monitors invoices that become past due and takes measures to collect on the overdue amounts. In 2012, Loans Services administered 2,687 financial facilities, composed of 4,427 loans representing $30B in loan assets. Audit Objectives & Scope The overall objective of this audit was to evaluate the operating effectiveness of controls in place within the invoicing and collections process for Loans. This included an examination of controls pertaining to accuracy and timeliness of invoicing, recording of receivables and collections, reconciliation of the Sundry account and effectiveness of reporting applicable to the invoicing and collections process. The accuracy of repayment schedules was specifically excluded from the scope of this audit. Internal Audit Opinion In our opinion, the invoicing and collections process for Loans is Well Controlled 1. Through our detailed testing, we have verified that key controls are operating effectively to ensure that system controls are in place to correctly generate invoices, that cash received is applied timely to customer accounts, that account reconciliations are performed and that exception reports are monitored and followed up as appropriate. A moderate 2 finding was identified and is 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. Invoicing & Collections Loans Phase II November 12,

The Loans Services team is responsible for the ongoing administration of EDC's loan portfolio including invoicing and collections activities.

4 Audit Findings & Recommendations 1. Performance Metrics In order for Loans Services to perform the ongoing administration of loans effectively, it is necessary to have functionality in the system to unbill invoices. There were approximately 7,000 invoices generated as at June 30, 2013 and 13% of these were unbilled. Given that unbills, although necessary, create rework we reviewed the controls around the process. We found that there are no transactional controls such as two-touch validation required to unbill an invoice or to approve the re-bill. To compensate for this, unbills are one of the metrics in the Loans Services monthly Operational Performance Summary. This report tracks month over month and year over year trends for key team metrics. The current structure of the summary shows count information, (i.e. the number of unbills year-to-date) but does not provide insight into the reason for unbills and therefore why the number of unbills was at 13% at June 30 th. It also does not track the timeliness of rebilling. We recommend that Loans Services amend the metrics for unbills to gain better visibility into the process to be able to assess the reasonability of unbills and to ensure that re-bills are completed on a timely basis. Rating of Audit Finding - Moderate Action Owner Director, Loans Services 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. Invoicing & Collections Loans Phase II November 12,

There were approximately 7,000 invoices generated as at June 30, 2013 and 13% of these were unbilled. Given that unbills, although necessary, create rework we reviewed the controls around the process.

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