Report on the Audit of the Delegation of Financial Authorities
February 2014
1. Introduction
1.1 Background
5. The delegation of financial authorities constitutes a key internal control in the expenditure processes of the government. When appropriately implemented, the delegated authorities empower managers to achieve Departmental and government priorities and objectives, while maintaining accountability for decisions taken.
6. The requirements for the delegation of financial authorities are primarily set out in the Treasury Board Secretariat’s (TBS) Directive on Delegation of Financial Authorities for Disbursements. This Directive supports the Policy on Financial Management Governance and the Policy on Internal Control and, along with other related policy instruments, directives and relevant legislation, outlines the general principles and elements of financial signing authority in the federal government.
7. Financial Authority comprises the following elements:
- Spending Authority - consisting of:
- Expenditure Initiation;
- Commitment Authority, under Section 32 of the Financial Administration Act (FAA): the authority to carry out one or more specific functions related to the control of financial commitments as required in the Directive on Expenditure Initiation and Commitment Control; and,
- Transaction Authority (contracting): the authority to enter and amend a contract.
- Certification Authority - under Section 34 of the FAA and consisting of:
- Certification of the receipt of goods and the provision of services; and,
- Determination of entitlement, verification of accounts and preparation of requisitions for payment or settlement.
- Payment Authority - under Section 33 of the FAA, is generally delegated to financial officers. This delegation ensures that all payments and all other charges requisitioned against the Consolidated Revenue Fund are timely, properly authorized and legal.
8. At the Department of Justice, financial authorities are formally delegated to generic managerial and functional positions through the Departmental Delegated Financial Authorities Chart (Delegation Chart). There is also a complimentary Table of Equivalent Positions (TOEP), which links generic levels of management to Departmental positions. The exercise of financial authorities is in turn designated to individuals via the use of Specimen Signature Cards (SSC), by supervisors whose positions have been duly delegated authority by the Minister. The Assistant Deputy Minister, Management Sector and Chief Financial Officer, is responsible for the overall management of the delegation of financial authorities.
9. There was a recent consolidation by the Finance and Procurement Branch (FPB) of certain Accounting Operation activities. As of March 2013, the accounts payable activities related to the expenditure verification and payment processing under Section 33 of the FAA are conducted in two hubs, Ottawa, and Edmonton. Prior to consolidation, each regional office individually administered this activity, including the National Capital Region (NCR).
10. The Audit of Delegation of Financial Authorities was approved pursuant to the departmental Three-Year Risk-based Audit Plan, 2012-2013 to 2014-2015.
1.2 Audit Objectives and Scope
11. The objectives of this audit were to:
- Provide assurance that processes and instruments in place for the delegation of financial authorities in the Department comply with the requirements of applicable government legislation and policies; and,
- Assess the effectiveness of controls supporting the ongoing management and exercise of financial authorities in the Department.
12. The scope of the audit included:
- Examination and assessment of Departmental authorities and procedural requirements for the delegation of authorities, relative to requirements set out in relevant legislation, Treasury Board (TB) policies and TBS directives; and,
- Examination of management activities and controls in place (from April 1, 2011 to May 23, 2013), and a review of a sample of payment transactions (from after the consolidation of Accounting Operations). Emphasis was placed on the most recent processes that were expected to best reflect post re-organization and consolidation practices. Salary expenditures were excluded from the scope of this audit.
- Audit activities were carried out between February and June 2013. Transactional audit tests and procedures were undertaken at NCR and in the Edmonton Office of the Prairie Region. In light of the recent consolidation of accounts payable operations in the Department, testing focused on post-consolidation transactions. Interviews were conducted with finance representatives in the NCR and regional locations and with Responsibility Centre Managers (RCMs).
1.3 Risk Assessment
13. A preliminary risk assessment was conducted to determine potential priorities and to focus audit activity. Consequently, the audit was planned and carried out to address potential general risks as detailed below.
- There is a risk that authorities and related instruments for the delegation of financial authorities are not established, communicated or effective resulting in improper use of financial authorities;
- There is a risk that controls for the delegation of financial authorities to individuals are not established or effective resulting in improper delegation to individuals;
- There is a risk that financial authorities and related instruments are not reviewed, revised or maintained leading to authorities that are not up-to-date with TB and TBS requirements or do not reflect Departmental organisational changes; and,
- There is a risk monitoring and training activities are not adequate or effective to support the exercise of financial authorities.
1.4 Audit Criteria
14. Specific criteria to address the audit objectives were developed taking into consideration the identified risks. The criteria were based primarily on guidance from the TBS’ Audit Criteria related to the Management Accountability Framework - A Tool for Internal Auditors; the TBS Directive on Delegation of Financial Authorities for Disbursements and Directive on Account Verification; and, the FAA. (See Appendix A.)
1.5 Approach and Methodology
15. The audit was conducted in accordance with the requirements of the TB Policy on Internal Audit and followed the Internal Auditing Standards for the Government of Canada. This included the conduct of a planning phase to identify key risks and to develop audit criteria. A methodology and detailed programs were developed and carried out during the conduct phase of the audit to address the criteria and conclude on the audit objectives. This included:
- Documentation reviews, including but not limited to: review of Department of Justice delegation of authority instruments; procedures and other relevant documentation related to the delegation and exercise of financial authorities; and, documentation related to training and guidance provided by FPB.
- Interviews and discussions held with FPB representatives and RCMs at NCR and the regional offices that focused on: structure and approach for delegating authorities; training requirements and initiatives; support offered by FPB; ongoing management and administration of SSC Records; account verification and related quality assurance and monitoring processes; and, identification of opportunities for improvement. The list of interviewees is at Appendix D.
- Review and testing of a sample of files and transactions addressing: completion, validation and authorization of the designation of authorities for 40 SSCs; cancellation of authorities for 44 departed employees; and, the process for account verification of expenditures for 139 transactions.
- A benchmarking exercise with six other government departments or agencies, focusing primarily on assessing FAA Section 33 payment verification and related quality assurance methodologies.
16. The results of the audit approaches and methodologies described above were reviewed, analyzed, and interpreted by the audit team. On this basis, professional judgement was exercised, leading to conclusions as to the extent to which each criterion was met, and to an overall audit conclusion addressing the audit objectives.
17. Upon completion of audit fieldwork, a draft report with key findings and recommendations was prepared and presented to the Assistant Deputy Minister, Management Sector and Chief Financial Officer for validation.
1.6 Identified Strengths
18. The audit team identified the following practices and controls in place that reflect compliance to government policy and Departmental requirements. These practices serve to mitigate risks and facilitate operational activities related to the delegation, ongoing management, and exercise of financial authorities in the Department.
19. The Minister and Deputy Minister have formally delegated and communicated financial authorities by position level and title, in writing, through the Delegation Chart. Authorities have been further delegated to named individuals through the use of SSCs and linked to organizational positions through an approved TOEP. (Criteria 1, 2, 5)
20. Responsibility for overall management of the delegation of financial authorities has been assigned to the Chief Financial Officer in accordance with the TB Directive on Delegation of Financial Authorities for Disbursements. The Manager, Financial Policy and Controls Division and the Director, Accounting Operations support the Assistant Deputy Minister, Management Sector and Chief Financial Officer in discharging this responsibility.
21. Policy guidance and procedural support is provided through the Departmental intranet site. The site includes guidance on the types of authorities for financial administration, outlines related general principles and provides a link to the TB Directive on Delegation of Financial Authorities for Disbursements. A comprehensive set of Departmental Supporting Notes to the Delegation of Financial Signing Authorities provides further guidance to specific areas of authority, linked to the respective sections of the Delegation Chart. (Criterion 6)
22. There is an established process including documented procedures and standardized forms for the completion, validation and activation of individual SSCs. The purpose of this control is to: ensure that the delegation is authorized at the appropriate managerial and / or functional levels; that incumbents do not re-delegate their authority; and, that only positions delegated authority by the Minister designate incumbents to exercise financial authorities. There is evidence of diligent adherence to the process. (Criteria 4 and 9)
23. A database, serving as a central repository of all SSCs in the Department, has been created and is a key control in the management of delegated authorities to individuals. This database is centrally maintained by Accounting Operations in the NCR, and is sorted by region and hierarchically thus clearly demonstrating the flow of delegated authorities from the Sector level through Directorates and Divisions to individual Cost Centres. Authorities are identified by type (Active, Acting or On-Demand), including effective dates for the authorities and provides direct links to scanned copies of the respective individual SSCs. The database is thus a very effective and efficient tool in facilitating the authentication of financial authorities exercised. (Criterion 10)
24. There is evidence of review and consultation activities, undertaken by finance, as part of assessing the relevancy and appropriateness of authorities and in updating delegation instruments. An updated Delegation Chart was signed by the Minister in May 2012 and an update of all SSCs commenced in early June 2012. (Criterion 7)
25. There are documented procedures related to account verification for administrative staff and for the finance team members conducting pre-payment verification. (Criterion 14)
26. FPB offered training activities targeted specifically at individuals of the Administrative Services group within the Regional Offices, who in the post-consolidation environment, have assumed the same responsibilities in support of RCM related to requisition and verification activities of the procurement and payment processes, as undertaken by their counterparts in the NCR. Pre-consolidation, such activities were, in large part, carried out by finance representatives supporting business units in the regions. (Criterion 8)
27. The audit also identified areas where opportunities exist to strengthen management practices and controls related to the delegation, exercise and ongoing management of financial authorities. These opportunities are discussed in greater detail in section 2.0 of this report.
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