Audit of Finance and Administration – Financial Resource Management

Prepared by Samson & Associates
for the Office of the Privacy Commissioner of Canada

July 20, 2012


Executive Summary

In accordance with the approved Office of the Privacy Commissioner of Canada (OPC) Multi-Year Risk-Based Audit Plan (covering the period 2011-12 to 2013-14), an audit of the Finance and Administration component was undertaken to provide assurance of its Financial Resource Management.

The main objective of this audit was to provide assurance to the Commissioner on the governance, risk management and controls supporting the OPC planning process, including budgeting, forecasting, and resource allocation. 

This audit focused on the assessment of how resources were managed and forecasted by managers during the year and whether this provided adequate support to senior management decision-making to effectively manage and reallocate resources within the OPC. The audit was OPC-wide in scope and covered budget forecasting for the period of 2009-2010 to 2011-12 with a focus on fiscal-year 2010-11.

The audit assessed the effectiveness of the governance, processes, and controls in place for the initial allocation and subsequent reallocations of OPC funds. The specific objective was to determine:

  • the extent to which resources are aligned with corporate priorities;
  • whether there is an appropriate degree of flexibility to respond to emerging/changing priorities;
  • the availability and use of relevant, timely and accurate information for sound decision-making; and
  • whether managers have the training and support required to manage their resources effectively.

The audit revealed that, overall, the resource allocation and subsequent reallocation processes in place at the OPC are aligned with the federal government expenditure management cycle and that approved branch activities are aligned with corporate priorities and strategies. We also noted that the framework for the business planning process is robust and leads to a formal and disciplined approach to strategic and business planning, and resource allocation. More specifically, we noted that OPC has:

  • a planning process in place by which approved branch activities are aligned with corporate priorities;
  • a well-documented process to produce quarterly reviews and monthly financial statements;
  • provided a framework for communicating results to the Senior Management Committee (SMC) in order to support managerial decision-making; and,
  • developed adequate templates and instructions which are  provided to managers to assist them in preparing their monthly reports, reconciliation, and forecasts.

However, opportunities for improvements have been identified in the following areas:

  • allocation of resources to address branches pressures;
  • accountability of fund centre managers regarding budget forecasting; and,
  • financial information included in the monthly financial status reports.

Audit Opinion

In our opinion, the resource allocation and subsequent reallocation process in place at the OPC is aligned with the federal government expenditure management cycle and corporate priorities. Some opportunities for improvement have been identified in the report to improve efficiency and effectiveness of the accountability, planning, budget management and reporting processes.

Statement of Assurance

In our professional judgment, sufficient and appropriate audit procedures have been conducted and evidence gathered to support the accuracy of the opinion provided and contained in this report. The opinion is based on a comparison of the conditions, as they existed at the time, against pre-established audit criteria that were agreed with management. The opinion is applicable only to the processes examined. The evidence was gathered in compliance with Treasury Board Policy, Directives, and Standards on internal audit for the Government of Canada. The evidence has been gathered to be sufficient to provide senior management with the proof of the opinion derived from the internal audit.

1.0 Introduction

In accordance with the approved Office of the Privacy Commissioner of Canada (OPC) Multi-Year Risk-Based Audit Plan (covering the period 2011-12 to 2013-14), an audit of the Finance and Administration component was undertaken to provide assurance of its Financial Resource Management.

The mandate of OPC is to oversee compliance with both the Privacy Act, which covers the personal information-handling practices of federal government departments and agencies, and the Personal Information Protection and Electronic Documents Act (PIPEDA), Canada’s private sector privacy law. The Commissioner works independently from any other part of the government to investigate federal public sector and private sector complaints from individuals. In public sector matters, individuals may complain to the Commissioner about any matter under Section 29 of the Privacy Act. This act applies to personal information held by Government of Canada institutions. For matters relating to personal information in the private sector, the Commissioner may investigate all complaints under Section 11 of PIPEDA except in the provinces that have adopted substantially similar privacy legislation, namely Québec, British Columbia, and Alberta.

The OPC has a single Strategic Outcome – The privacy rights of individuals are protected and its Program Activity Architecture (PAA) is designed around three core functions and a corporate support function:

  1. Compliance Activities (investigations, inquiries and audits)
  2. Research and policy development
  3. Public Outreach; and
  4. Internal Services

The OPC had a steady increase in reference-level resources for the period of 2007-2008 through 2011-2012, followed by a leveling of funding.  In 2008, the Office received increased funding to deliver programs in light of new legislation such as the Federal Accountability Act and the Proceeds of Crime (Money Laundering) and Terrorist Financing Act. Funds were also allocatedto eliminate the backlog of privacy investigations, expand public outreach, and establish an internal audit function.  The 2008 funding increase of $4.7M was phased in over three fiscal years, 2008-2009, 2009-2010 and 2010-2011.

Since 2010-2011, the OPC budget was further increased by additional resources received through the anti-spam legislation. This amounted to $0.77M in 2010-2011 and a further $1.3M for 2011-2012. This combined increase of $2.0M remains unchanged for 2012-2013 and beyond. In 2011-2012, the OPC plans to spend $22.13M to advance its four corporate priorities, meet the expected results of its Program Activities, and contribute to its Strategic Outcome.

2.0 Audit Objective and Scope

2.1 Objective

An underlying principle of financial management within the Federal Government is sound management of financial resources. Meaning that federal organizations should be reviewing their programs and activities and re-allocating resources on an ongoing basis to ensure that they remain relevant to the current environment and provide value to the Canadian public.

The main objective of this audit was to provide assurance to the Commissioner on the governance, risk management and controls supporting the OPC planning process, including budgeting, forecasting, and resource allocation. 

The audit assessed the effectiveness of the governance, processes, and controls in place for the initial allocation and subsequent reallocation of OPC funds. More specifically, the objective was to determine:

  1. The extent to which resources are aligned with corporate priorities;
  2. Whether there is an appropriate degree of flexibility to respond to emerging /changing priorities;
  3. The availability and use of relevant, timely and accurate information for sound decision making; and,
  4. Whether managers have the training and support required to manage their resources effectively.

2.2 Audit Scope

This audit focused on the assessment of how resources are managed and forecasted by managers during the year and whether this provides adequate support to senior management decision-making for the effective internal management and reallocation of OPC resources.

The audit was OPC-wide and covered budget forecasting for the period of April 2009 to 2011-12 with the focus on 2010-11.

3.0 Observations and Recommendations

3.1 Determining how well resources are aligned with corporate priorities

The Office of Privacy Commissioner (OPC) is funded by parliamentary appropriations which receive parliamentary approval via the Main Estimates in March and through Supplementary Estimates (Supps A in June, Supps B in December and Supps C in March). The Annual Reference Level Updates (ARLU) is the formal process for updating the cost of previously approved operations/programs in order to provide a base for the development of the Main Estimates, which is submitted to Parliament to receive new-year funding. The OPC has only one Parliamentary vote for funding its program expenditures. For 2011-12, Parliament approved a vote of $22,129,000.

Our assessment of resource allocation included roles and responsibilities, the business planning process and the budget allocation process. Special attention was given to assess how OPC develops departmental plans and priorities and aligns the OPC budget with these plans.

3.1.1 Planning Process

The objective of the planning process is to align OPC’s mandate and obligations with corporate priorities and related activities. The planning process includes the development of objectives pertaining to the plan and determining the strategies to achieve its objectives, including operational, financial and human resource strategies.  Planning also integrates targets, performance indicators and the corporate risk profile. The planning process includes two main phases: Strategic Planning and Business Planning. The planning process requires that branch executives include the key performance elements of the business plan in their performance management agreement.

Corporate Services leads the coordination of the planning processes. They provide guidance and instructions, and gather and consolidate information for SMC discussion and approval. The branches are responsible for developing their respective business plans, in line with corporate priorities.

The OPC has a formal strategic and business planning process in place. The planning process forms a cycle, with specific time lines for each phase. One of the results of strategic and business planning is the production of the Report on Plans and Priorities.

Strategic Planning

Each fall a strategic planning session is held, involving the Office’s entire management cadre (20-25 senior and intermediate managers from all areas of OPC business).

The preparations leading to the strategic planning session start late summer/early fall where the following strategic information is put together in advance by the Business Planning and Management Practices Division:

  • An environmental scan identifying external and internal factors that shape the OPC’s operating context;
  • An annual update of the corporate risk profile for the OPC, including the mitigating strategies to manage the risks;
  • An assessment against the Management Accountability Framework to determine what management areas may require attention in the near future;
  • A mid-year review consisting of a financial and non-financial analysis as per the approved branches business plans at the beginning of the year.

This year, the strategic planning session was completed two weeks after the above activities took place. The outcome of the strategic planning session is a short document (one or two pages) containing the annual corporate priorities and associated key commitments for the coming fiscal period. The priorities become the foundation for preparing the OPC strategic plan, which is the Report on Plans and Priorities (RPP). The level of reference (budget) for next fiscal year is also identified by Program Activity at the same period.

Business Planning

Each branch prepares an annual business plan that indicates how the branch will contribute to the strategic plan. The branch business plans include planning elements at the branch level: key risks and mitigation strategies, human resources (HR) plans, budget information and the basis for measuring performance against the plans using the OPC performance measurement framework. Corporate Services sends a call letter to the branches in February with pre-populated templates containing OPC approved priorities and branches’ levels of reference. Instructions are provided with the call letter.

Priorities identified in the strategic plan are translated into the branch business plans. Branches are asked to indicate their priorities, strategies, deliverable and deadline for meeting OPC priorities. At the same time, they are asked to develop their HR plan to support branch business plan implementation. Risk mitigation strategies are also developed for preparation of the annual business plans. The Finance and Administration Division and the HR Division meet with the branch heads each year to discuss priorities and risks associated with the annual business plan.

The branch business plan has three main components: Financial Plan, Business Plan (describing the activities and expected results,) and the HR Plan. Since 2011-12 the branch business plan also includes a column identifying any exceptional or special resources required to undertake these activities. At the beginning of the fiscal year, each executive prepares a performance agreement that includes individual commitments taken from the branch business plans. At the end of the cycle, performance is evaluated against the agreement and reported in a performance appraisal.

Our assessment of the planning process revealed that the framework for planning is robust and leads to a formal, disciplined approach for strategic planning and business planning. The process used for strategic and business planning enables us to conclude that approved branch activities are aligned with corporate priorities.

3.1.2 Budget Allocation

The annual funding process starts in the summer, when the ARLU is revised and agreed upon. Technical adjustments are added to the reference levels of the ARLU. The revised reference levels are then used in the Main Estimates submission to Parliament to receive new-year funding.

The objective of the budget allocation process is to ensure financial resources approved by Parliament are allocated to branches in alignment with approved priorities and activities. Through business plans, the managers define the expected results of specific activities to be carried out during the course of the fiscal year. Budget finalization follows, in order to implement the financial requirements identified in the approved business plans.

The Commissioner is ultimately responsible for approving the annual financial plan and budget and ensuring timely allocation of the approved budgets throughout the fiscal year to all managers with financial authority.

Branches’ financial plans are approved by the Commissioner in late March, and implementation starts on April 1 with the allocation of branches’ approved budgets.

The Commissioner also approves the allocation of the previous year’s surplus that can be carry-forward to the current fiscal year to fund special initiatives. OPC, like most other federal organizations can carry-forward 5% of its operating budget to the next fiscal year. In 2010-11 it represented an amount of $980k.

The OPC uses its annual carry-forward to fund other initiatives or to create a reserve. For example, the 2010-11 carry-forward has been fully allocated to the following initiatives:

  • $130K to reduce structural deficit;
  • $400K for the Case Management System (Ci2) Investment Funds;
  • $300K for renewal of the Inquiries Activity Investment Funds; and
  • $150K for Privacy Act Investigations.

After approval from the Commissioner, the CFO sends an e-mail and a report to SMC communicating the summary of the allocation subdivided by branch. Highlights of the new-year allocation decisions are also communicated. The allocation is based on each branch’s initial budget, including adjustments such as permanent transfers, collective agreements, and reorganizations.

At the beginning of the year, a call letter for budget distribution is sent to branch heads. Distribution is done between the branches’ responsibility centres, by reporting object. The budget distribution exercise is a planning exercise for the new fiscal year. The purpose of this exercise is to indicate how the allocated budget will be spent. Each branch is asked to fill out the “Budget Distribution Form”. The form is made available on the SharePoint system. The completed document is signed by the responsible branch head and sent to the Finance and Administration Division. Upon receipt of the completed and approved “Budget Distribution Form”, the Finance and Administration Division validates and enters the branch’s distributed budget in the financial system.

The OPC has documentation describing the overall planning and budget allocation process. Specific instructions are provided through the call letters and step-by-step instructions are included in the SharePoint system. Branches receive pre-populated templates referencing corporate priorities. We noted that the business planning and allocation process is appropriately supported by policies, guidelines, procedures and templates.

Our assessment of the budget allocation process revealed that the OPC is a relatively stable organization and budget allocation is not zero-based. The process appears to be robust and ensures that branches receive resources to deliver approved ongoing priorities and activities.

We have noted that since 2011-12, templates for the preparation of business plans have been modified to include funding pressures. During the business planning process, Branch Heads identify special initiatives (funding pressures) necessary to deliver their plans for the upcoming year. Those funding pressures are over and above the annual funding they receive for their ongoing operations. Although those funding pressures are integrated in the business planning process, OPC would see advantages to integrate them in a more systematic approach, so they can be listed, prioritized, approved based on corporate priorities and funded if approved.

Recommendation 1:

OPC should further strengthen its business planning and budget allocation process by implementing a more systemic approach to addressing, prioritizing and approving funding pressures identified by branches.

Management Response and Action Plan Responsibility / Deadlines
Management recognizes the importance of sound financial resource management and has implemented a number of improvements to its business planning process in the past years to ensure planning takes into consideration special initiatives and funding pressures. Management agrees with the recommendation to further build on this work by implementing the following:
  • A formal process will be put in place in 2012-13 to address, prioritize, and approve funding pressures identified by branches.
  • The new process will be integrated into the business planning cycle.
Corporate Services Branch – May 2012

3.2 Determining whether there is an appropriate degree of flexibility to respond to emerging/changing priorities

The degree of flexibility to respond to emerging/changing priorities at the OPC was determined by assessing the budget variance analysis and re-allocation process based on its priorities. The forecasting and variance analysis process aims to ensure allocated funds are used in alignment with approved priorities and identified surpluses are reallocated to other OPC priorities.

3.2.1 Forecasting and Reallocation

At the beginning of each fiscal year, managers responsible for a budget are required to provide an annual forecast for all the resources they are allocated on April 1st of each year. The annual forecast is based on the approved branch’s business plan. A monthly review of this forecast is required. Monthly budget reviews are performed by branches and sent to SMC in order to monitor funding allocated to the OPC. In addition, three formal variance analysis and forecasting exercises are in place (Q-1 review, mid-year review and Q-3 review) as well as monthly financial updates starting after Q-3. The Q-1 review is new since 2011-12.  The review also includes the financial and HR variance analysis and forecasts. These reviews are required for assessing funding pressures and reallocations. Monthly budget reviews are discussed at SMC and approval of reallocations is done.

Instructions, forms and templates are developed for managers for the preparation of their respective forecasts. The SharePoint system is used to house this information for the branches. The SharePoint system includes templates, processes, framework, forms and a calendar of budget reviews.  Instructions are provided by the Finance and Administration Division. Quarterly financial reviews are reconciled by the branches and returned to the Finance and Administration Division for consolidation. Results are discussed with each branch head and the Director of Finance and Administration Division.

Quarterly reviews, including the mid-year review, are supported by a formal process. The mid-year review particularly includes financial and non-financial analysis as per the approved branches business plans. Branches are asked to provide their forecasts by type of expenditure (reporting objects) and to justify forecasts. As a result of the mid-year review, the SMC discusses the work undertaken as of mid-year and assesses the risks associated to activities that cannot be accomplished during the current year.

Call letters for the quarterly reviews exercises are sent by the CFO to launch  each exercise. Included in the call letters are indications on where managers should focus their analysis.

The mid-year review is instrumental in the forecast and variance analysis process. The focus is on 3 main objectives: the branch’s accomplishments from April to Sept. 15, based on approved business plan; the commitments (forecasts as per the branches business plans) the branches expect to complete by March 31; and carry-forwards/variances to the next fiscal year from the branch business plan. The branch heads are asked to use their branch business plan and report on their commitments using mid-year review templates, and to highlight their accomplishments from the first six months of the current fiscal year. The Corporate Services Branch finalizes the reports based on input from the branches. The financial risks are identified by the CFO at the mid-year review and communicated to the branch heads at the SMC.

The Third Quarter Budget Review is a very important review for identifying available funds to year-end. This Review is crucial for initiating any significant or large-scale spending that was not known during the budgetary process or for which funding was not available at that time. The purpose of this Review is to ensure that branches produce realistic forecasts and release budget surpluses, if any. The Finance and Administration Division meets with branch heads to further detail commitments and plans with the objective of identifying possible funds for reallocation.

In addition to quarterly reviews, budget updates are prepared for January, February and March to identify possible funds for reallocation and reallocate funds where pressures have been identified. The Finance and Administration Division prepares a table identifying funds available and the pressures (Branch Pressures and Funds Reallocations). In financial updates, branches are required to perform the following updates: (1) review financial commitments/obligations and clear and close them in the financial system if necessary; (2) review the salary forecast and provide the Finance and Administration Division with amendments and changes;(3) provide travel updates; and (4) update the branch’s plans in RDIMS, as required.

The Finance and Administration Division’s role is to challenge the branches throughout their variance analysis and forecasting. This role has been strengthened this year. The Finance and Administration Division supports the branches in the preparation of their free balance reports. The challenge function is also performed at the forecasting level. The responses/strategies managers provide are also monitored. A report on lapsing funds is produced by the Finance and Administration Division. The Division also monitors quarterly and mid-year review decisions. The Finance and Administration Division and the HR Division meet with branch representatives each month to revise financial reports and HR plans. The Finance and Administration Division validates and questions the commitments to confirm that they are realistic and to ensure that they are closed when required. Various G/L balances, such as travel and contracts, are also analyzed.

Branch heads discuss of the delivery of their business plan at the SMC. Funding pressures are identified and prioritized through formal quarterly reviews.  Reallocations are approved by the SMC. Financial reports indicate how the reallocations will be assigned.

Our overall assessment of the variance analysis and forecast process revealed that the OPC has a formal, strong variance analysis and forecasts process in place. Results of the reviews are discussed at the SMC. Monthly financial updates are produced to identify the availability of funds and pressures. The SMC then approves reallocations.

However, although a formal variance and analysis process is in place at the OPC, the organization lapsed $1.9 million or 9% of its total budget in 2010-11. An important portion of this lapse is attributable to Treasury Board funding having been received late in the fiscal year. The OPC received $770K from the Treasury Board in January 2011, following Royal Assent of Canada’s Anti-Spam legislation. Recognizing that it could not spend this money by the end of the fiscal year, and in order to avoid significantly lapsing funds, the OPC sought the approval from Treasury Board to re-profile the equivalent of a large part of this funding to 2011-12. The OPC was not successful in obtaining approval for this re-profiling, which resulted in the Organization lapsing more money than it would otherwise have lapsed. Despite this, it should be noted that some branch surpluses were released through the month of March, making a compounded effect too late to address reallocations. We concluded that although there is a solid variance and forecast analysis process in place at the OPC, the branches have not provided realistic forecasts throughout the various budget reviews.

Late identification of surpluses, resulting from unrealistic forecasts, increases the risk of missing out on opportunities to implement important initiatives at the OPC.

The OPC identified and implemented mitigation strategies to prevent the above situation in 2011-12, including the addition of the 1st quarter financial review and a strengthening of its challenge function by dedicating one FTE to the role of challenging budget forecasts. Furthermore, regular meetings between the Finance and Administration Division and branches are set up to review the monthly reconciliation process. More details are requested from the branches at the monthly reconciliation meetings. The CFO also reports identified financial risks to the SMC at the Mid-year Review.  As a result, managers are more aware of the budget forecasts.

A performance indicator to address HR and Finance issues was added to Performance Measurement Agreements (PMA). Based on the information we have received, the performance measure put in the PMA is: "Implement rigorous HR and Financial Management practices". This performance indicator is too generic to properly address the above issue. Below are some of the best practices we have noted in other federal organizations:

  • PMA indicator specifying that the branch’s lapse as of P-8 needs to be within 3% of the P-8 revised budget;
  • lapsed funds exceeding 3% of the P-8 revised budget will be subtracted from the following year’s budget. The amount will be added to the reserve. In order to have access to the budget, business cases will need to be prepared;
  • A discount on the Branch’s approved budget based on previous years’ performance is applied.

Recommendation 2:

In support of improved financial forecasting at OPC it is recommended that clear performance indicators including specific targets relating to financial management be added to Branch Heads’ Performance Management Agreements (PMA).

Management Response and Action Plan Responsibility / Deadlines
Management recognizes the critical role that accurate forecasting plays in sound financial resource management. Since 2010-11, the OPC has made a number of improvements to ensure financial information is more reliable, including the implementation of a dedicated resource to ensure a challenge function and the addition of a first quarter financial review. Management agrees with the recommendation to further strengthen Branch Heads’ accountability for financial forecasting and will undertake the following:
  • The 2012-13 Performance Measurement Agreement template will be revised to include a more detailed performance indicator on financial management with specific targets in order to ensure accountability for the planning and monitoring of expenses.
Corporate Services Branch – May 2012

3.3 Determining the availability and use of relevant, timely and accurate information for sound decision making

Good management of resource allocation requires that financial and non-financial data be collected and processed, completely and accurately, on a timely basis. The objective is to be able to report on actual expenditures and commitments relative to plans and budgets and draw insights. One objective of effective reporting and analysis is to ensure the availability and use of relevant, timely and accurate information for sound decision making.

3.3.1 Monthly Reports Prepared for SMC

The OPC has a formal process in place to produce the Monthly Financial Status. This process is documented in various records and templates. It aims to provide a common approach to monthly reporting on the status of budgetary expenditures and commitments for both salary and non-salary expenditures. This process is in place to provide a formal framework to communicate the financial position to SMC in order to support managerial decision making.

Each month Corporate Finance and Administration Division sends a Monthly Financial Status report to the branches. This report represents the financial status of each branch for the month. The report includes ‘Original Budget’, ‘Revised Budget’, ’Year to Date Spending’, ’Commitments’ and ‘Free Balance’. Comparatives are made to the previous year’s performance. The report also shows a percentage of budget consumption as a performance indicator. The end result of this report will also be sent to SMC. The reports, however, do not include financial information relating to the branch’s forecast expenditures.

The branches perform a proper, timely reconciliation. Some branches have dedicated an administrative officer to this responsibility. This approach has helped ensure the accuracy of financial information included in the Monthly Financial Status reports. In addition, the support/challenge provided by the Finance and Administration Division and the HR Division at the monthly meetings has resulted in more realistic branch forecasts and variance analyses.

After Monthly Financial Status reports are reconciled by the branches, they are sent to Finance and Administration Division for consolidation. Consolidated reports are presented to the SMC.

3.3.2 Financial Reports from the Financial System

In order to support Branch Heads in their review and production of Monthly Financial Status, OPC’s financial system produces three financial reports for reconciliation purpose. They are: the Free Balance Report-Summary, Amount Analysis Report-Detail, and Commitment/Obligation Analysis Report. Reports for ensuring the financial accuracy of salary expenditures are also available. They include the PBHC 7 - Expenditures and the Forecast by Employee Report. Branches receive reliable financial reports from the financial system. Branches perform monthly reconciliations and commitment adjustments to ensure accuracy. Instructions related to the performance of monthly reconciliations are clear and branches receive proper support from the Finance and Administration Division to complete their monthly reconciliation.

Our assessment of Monthly Financial Status reports sent to SMC revealed that the forecast expenditures are not reviewed on a monthly basis. Consequently, there is a risk that surpluses or pressures will not be identified in a timely manner. The SMC would benefit from receiving revised forecasts on a monthly basis. Furthermore, branch heads would be sensitized to revise their assumptions on a more regular basis since they will be responsible to provide forecast expenditures to Corporate Services.

Recommendation 3:

Corporate Services should include planned expenditures (forecasts) in the Monthly Financial Status reports.

Management Response and Action Plan Responsibility / Deadlines
Management agrees with this recommendation and will undertake the following:
  • A forecast column will be added to the monthly Financial Status Report.
  • Branch heads will be required to provide their monthly forecast on a timely basis to be presented in the monthly Financial Status Report.
  • A calendar and procedures will be provided to Branch Heads to assist them in providing this information in a timely way.
Corporate Services Branch – June 2012

3.4 Determining that managers have the training and support required to manage their resources effectively

Templates and instructions have been developed by the Finance and Administration Division for managers to help them prepare their monthly reconciliation to the Monthly Financial Statements and forecasts. The SharePoint system is used for this process and includes templates, processes, framework, forms and calendar of budget reviews.

The Finance and Administration Division also provides more specific instructions and checklists to branch representatives for performing their monthly reconciliations. Monthly meetings are organized to discuss issues regarding their financial reports.

However, some branch managers either do not like to use or do not understand the financial reports from the OPC financial system described in section 3.3.2. They feel the reports are not user-friendly or that they are inaccurate. Therefore, some branch managers produce Excel reports to monitor their budget. Branch managers then spend time trying to reconcile their Excel reports with the financial reports. However, many discrepancies are due to a time gap, which exists between the certification process (FAA Sec. 34) and the payment process (FAA Sec.33). The normal delay between Sec. 34 and Sec. 33 for payment processing is 2-3 days. However, it may be longer for complex payments such as travel. If the managers were to appropriately use the Commitment/ Analysis report and the Amount Analysis Report-Detail report (detailed actual expenditures), timing issues associated with the payment approval would not be relevant. 

Our assessment of the need for the organization to provide necessary training and tools to employees revealed that the financial reports from OPC financial systems are adequate, but not well understood by some employees. Consequently, time and energy are spent to reconcile Excel reports to Free Balance financial reports. Not using the reports provided by the Finance and Administration Division increases the risk that the financial information included in the OPC’s official financial system is not accurate.

Recommendation 4:

Corporate Services should provide more information sessions to branch representatives on the use of financial reports originating from the financial system.

Management Response and Action Plan Responsibility / Deadlines
Management agrees with this recommendation and will undertake the following:
  • A mandatory training session on financial reports and forecasting will be provided to all managers and administrative staff. This training session will be aimed at assisting managers in interpreting key financial reports and performing accurate forecasting and variance analysis.
  • A module on financial reports and forecasting will be added to OPC’s Sharepoint site to complement the mandatory training session.
  • Targeted one-on-one sessions will be delivered to new managers and administrative staff that join the OPC and to current staff who request it.
Corporate Services Branch – June 2012 and ongoing

Appendix A – About the Audit

Objective

The main objective of the audit was to assess the effectiveness of the governance, processes and controls in place supporting the initial allocation and subsequent reallocation of funds within the OPC. Key areas of focus included (1) assessing the effectiveness of resource management and forecasting, and (2) assessing whether the resource management and forecasting functions adequately inform and support senior management’s effective decision making.

The following four sub-objectives have been used to assess the level of achievement of this objective:

Sub-Objective 1: To determine whether resources are aligned with corporate priorities.
Sub-Objective 2: To determine whether there is a degree of flexibility for responding to emerging/changing priorities.
Sub-Objective 3: To determine the availability and use of relevant, timely and accurate information for sound decision making.
Sub-Objective 4: To determine if managers have the training and support required to manage their resources effectively.

Criteria

We have outlined the criteria used to make assessments under each process and have aligned these processes to the sub-objective to which it is most related. The processes have been mapped to the related Management Accountability FrameworkFootnote 1 and the Core Management ControlFootnote 2 elements, as shown below.

Sub-objective 1: To determine whether resources are aligned with corporate priorities

Roles and Responsibilities

MAF Element Related Management Controls
Accountability AC-1: Authority, responsibility and accountability are clear and communicated.
  • Employees’ duties and control responsibilities are clearly defined.
  • Responsibilities and performance expectations to which managers and supervisors are held accountable are formally defined and clearly communicated. Job descriptions and/or performance agreements should exist for this purpose and be up-to-date.

Business Planning

MAF Element Related Management Controls
Risk Management RM-7: Planning and resource allocations consider risk information.
  • Risk-based planning tools exist and are consistently applied in support of strategic and business planning processes.
  • Risk information is used to support business continuity planning.

Resource Allocation

MAF Element Related Management Controls
Risk Management RM-7: Planning and resource allocations consider risk information.
  • Risk-based planning tools exist and are consistently applied in support of strategic and business planning processes.
  • Risk information is used to support business continuity planning.
Stewardship St-2: A formal process is in place to challenge the assumptions and related resource allocations within the budget.
  • Guidelines to assist with the preparation of the budget have been prepared and communicated to participants in the budget process.
  • Assumptions and related resource allocations and costing practices used to prepare the budget are challenged and decisions resulting from this challenge process are documented.

Sub-objective 2: To determine whether there is an appropriate degree of flexibility for responding to emerging/changing priorities

Forecasting and Reallocation

MAF Element Related Management Controls
Stewardship ST-16: Management compares results achieved against expectations, on a regular basis.
  • Management review is on-going and timely.
ST-17: Management reallocates resources to facilitate the achievement of objectives.
  • Reallocation of resources is supported.
  • Management review results in decision making those impacts on the delivery of the program.

Sub-objective 3: To determine the availability and use of relevant, timely and accurate information for sound decision-making

Reporting & Analysis

MAF Element Related Management Controls
Stewardship ST-4: Forecasts are monitored on a regular basis.
  • Reporting of actual results compared to budgeted amounts is available on a regular basis to permit individuals with budget authority and responsibility to monitor their budget and forecast progress against organizational objectives and facilitate decision making such as reallocation of resources.
  • Individuals with budget authority and responsibility are involved with decisions to change budget allocations.
ST-10: Transactions are coded, recorded accurately and in a timely manner to support accurate and timely information processing.
  • Controls are in place to ensure accuracy of transaction coding and processing.
    • Financial transactions are coded and processed in an efficient and timely manner.

Sub-objective 4: To determine if managers have the training and support required to manage their resources effectively.

MAF Element Related Management Controls
People PPL-4: The organization provides employees with the necessary training, tools, resources and information to support the discharge of their responsibilities.
  • Training on operational business processes and available tools is provided to enable employees to perform their task efficiently
  • Employees have access to sufficient tools, such as software, reports, equipment, work methodologies and standard operating expenditures.

Methodology

The audit was conducted in accordance with the International Standards for the Profession of Internal Auditing and the Treasury Board Standards for Internal Audit.

The methodology consisted of:

  • Review of legislative policy and the guide produced by the Treasury Board Secretariat
  • Interview with members of the OPC management team and operations specialists.
  • Detailed review of the OPC documentation provided.
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