AUDIT OF KEY FINANCIAL PROCESSES AT MAINLAND NOVA SCOTIA FIELD UNIT FINAL REPORT PREPARED BY PROGESTIC INTERNATIONAL INC.

Transcription

1 AUDIT OF KEY FINANCIAL PROCESSES AT MAINLAND NOVA SCOTIA FIELD UNIT FINAL REPORT PREPARED BY PROGESTIC INTERNATIONAL INC March 2005 Report tabled and approved by A&E Committee

2 TABLE OF CONTENTS 1. BACKGROUND OBJECTIVES AND SCOPE METHODOLOGY ASSURANCE STATEMENT CONCLUSION OBSERVATIONS AND RECOMMENDATIONS Management Control Framework Revenues Contracting Acquisition Cards Travel Payments to Suppliers Stores Inventory and Safeguarding of High Risk Valuable Small Items MANAGEMENT RESPONSE Report tabled and approved by A&E Committee at June 27, 2005 meeting. PARG 2 March 2005

3 EXECUTIVE SUMMARY Parks Canada Agency (PCA) is conducting a series of cyclical audits of field units, service centres and the national office to review key financial, administrative and management practices. The audits focus on compliance with Treasury Board Secretariat (TBS) and PCA policies and practices. The audit of the was conducted as part of this cyclical audit program. The objectives of this audit were to confirm whether due diligence is being exercised in key management processes to provide assurance to senior management that processes and controls in place in the are adequate to mitigate the risk of noncompliance to TBS and PCA policies and practices. The scope of this engagement included the review of the management control framework (MCF) over financial management and the following key financial process areas: Revenues; Contracting; Use of Acquisition Cards; Expenditures for Travel; and Payments to Suppliers. The period from April 1, 2004 to December 2004 was covered in this audit. The was visited twice in January and February Audit work focuses on processes and transactions at the and included the review of relevant documentation, interviews with key personnel, and transaction testing in key financial process areas. In our opinion, sufficient audit work has been performed and the necessary evidence has been gathered to support the conclusions contained in this report. In general, we found that due diligence is being exercised in key management processes in the and that systems and controls in place are adequate to minimize the risk of non compliance to TBS and PCA policies and procedures. We have identified areas to strengthen processes and controls to further mitigate the risk of non- compliance and to improve systems and practices. We have made the following recommendations to Parks Canada: 1. Ensure that key procedures including a description of roles and responsibilities for the financial management and administration of expenditures for the Mainland Nova Scotia Field Unit are developed and distributed to all employees. 2. Ensure that training on key financial and administrative policies and procedures are provided to Field Unit staff on a regular basis. 3. Ensure that additional monitoring activities of financial transactions in the Field Unit are conducted, issues and trends are identified and appropriate measures are taken to mitigate risks. 4. Ensure that instructions and procedures for attendants and financial clerks in the Field Unit are developed or updated to ensure consistency in the implementation and better controls of revenues. 5. Ensure that directives on the documentation of service contracts are developed and distributed throughout the Field Unit and that the Contract Data Sheet is completed for all contracts. PARG 3 March 2005

4 6. The Superintendent should ensure that sole source justifications for projects funded under the Species at Risk Program are more complete and better support the use of one of the exceptions of the Government Contracts Regulations like any other type of contract. 7. Remind employees in the Field Unit of their responsibilities for the use of acquisition cards and of the reporting requirements. 8. Ensure that Travel Authority and Advance (TAA) forms are fully completed and approved prior to the trip taking place and that any discrepancies between the TAA and the expense claims are being justified and documented on file. 9. Ensure that payments to suppliers are made in a timely manner. PARG 4 March 2005

5 1. BACKGROUND PCA is conducting a series of cyclical audits of key financial, administrative and management practices for all field units, service centres and the national office. Field units are groupings of national parks, national historic sites and national marine conservation areas that are usually in proximity to one another. Their proximity allows them to share management and administrative resources. The audit of the was conducted as part of this cyclical audit program. The was established in 1997 and is accountable for a broad range of Parks Canada program responsibilities including: Kejimkujik National Park which has also been designated a National Historic Site for its aboriginal heritage, the Seaside Adjunct to Kejimkujik, ten national historic sites, the Old Town Lunenburg UNESCO World Heritage Site, two national historic districts (Annapolis and the Hydrostone), two national historic theme exhibits in institutions owned by others (Bank Fisheries and Planters), two Prime Ministers grave sites, and the Shelburne Heritage River. The Field Unit is operating with a budget of $7 million (excluding projected revenues of $1.7 million) in The Field Unit management team consists of the superintendent and 6 managers. The administrative and management activities are mostly centralized and performed at the Halifax Citadel Office in Nova Scotia. The Field Unit employs a full-time staff of 70.6 and the Corporate Services Function consists of 6.3 full-time employees including the position of Manager, Finance and Administration, who reports directly to the Field Unit Superintendent. 2. OBJECTIVES AND SCOPE The objectives of this audit were to confirm whether due diligence is being exercised in key management processes and to provide assurance to senior management that processes and controls in place at the are adequate to mitigate the risk of noncompliance to Treasury Board Secretariat (TBS) and Parks Canada Agency (PCA) policies and practices. The scope of the audit included the review of the management control framework (MCF) over financial management and the following key financial process areas: o Revenues; o Contracting; o Use of Acquisition Cards; o Expenditures for Travel; o Payments to Suppliers; and, o Stores Inventory and Safeguarding of High Risk Valuable Small Items. The scope of the audit covered processes in place and transactions entered into between April 1, 2004 and December 31, The audit focussed mostly on processes and transactions at the Halifax Citadel office whose operations comprised a substantial majority of those of the Mainland Nova Scotia Field Unit. 3. METHODOLOGY The methodology included a visit to the and comprised the following activities: PARG 5 March 2005

6 o Interviews with the management and personnel involved in financial management; o Review of relevant documentation including the Sustainable Business Plan for , the Park Management Plan, Organization Charts, PCA delegated Signing Authorities Chart, TBS and PCA policies that deal with the key financial process areas, and financial reports prepared by the Manager, Finance and Administration; and o Examination of a sample of transactions for each of the key financial process areas where applicable. Upon completion of the fieldwork, a debriefing of our preliminary observations was provided to the Field Unit Superintendent and the Manager, Finance and Administration. The audit team would like to thank the personnel in the for their understanding and much appreciated cooperation. Our observations and recommendations have been made in accordance with the Audit Reporting Rating System described below: RED ORANGE YELLOW BLUE Audit Reporting Rating System Controls are not functioning and/or fraudulent activities have Unsatisfactory been detected which will or have a material impact on both the financial statements and operations of the Agency. The control environment is lacking and/or has degraded since Significant Improvements the last audit and is a contributing factor to non-achievement of program/operational objectives. Immediate management actions need to be taken to address the control deficiencies noted. Moderate Improvements Minor Improvements Some controls are in place and functioning; however, several major issues were noted that could jeopardize the accomplishment of program/operational objectives. Many of the controls are functioning as intended; however, some minor changes are necessary to make the control environment more effective and efficient. GREEN Controlled Controls are functioning as intended and no additional actions are necessary at this time. 4. ASSURANCE STATEMENT In our opinion, sufficient audit work has been performed and the necessary evidence has been gathered to support the conclusions contained in this report. 5. CONCLUSION In general, the audit team found that: the management control framework and management practices are appropriate to ensure due regard to economy, efficiency, and effectiveness, financial integrity and compliance; information used for decision-making and reporting is timely, relevant and reliable. risk management strategies and practices are suitable to deliver the intended results. The audit team did however identify some areas where management practices and compliance should be strengthened. The observations and recommendations that follow address these areas. PARG 6 March 2005

7 6. OBSERVATIONS AND RECOMMENDATIONS 6.1. Management Control Framework Observations In order to assess the adequacy of the management control framework in place at the, auditors examined the processes in place for planning and budgeting, training, policies and procedures and monitoring/account verification of financial transactions. Planning and Budgeting The process in place in Mainland Nova Scotia for planning follows the departmental business cycle that is the preparation of a 5-year business plan, which is updated on an annual basis. It also includes input from key partners such as aboriginal groups. Activities in the business plan are discussed at the management table and the budget is allocated to responsibility centre managers. While budget allocation is more historical, each activity is assessed to ensure its adequacy and changes are made to the A-Base accordingly. Funding pressures require constant monitoring and adjustments to the budget especially since the Field Unit relies on revenue projections to implement some of its planned activities. Best practices include: - Internal reporting on the status of projects (i.e. delays in meeting deadlines, cost overruns); - Regular reviews of priorities and reallocation of funds whenever necessary; Policies and Procedures In the course of their work, employees have access to Treasury Board policies available on the TB website. We were informed that the PCA policy on travel is the only policy developed by PCA for the key financial processes audited. The MCF has not been fully implemented in a manner reflecting the decentralized organization of the Field Unit. In this type of environment, we would have expected to find more internal policies and/or directives and procedures to ensure consistency in implementation and a good understanding of roles and responsibilities. While financial issues are discussed at management meetings and with minimal turnover of knowledgeable staff, there is still a risk that Treasury Board requirements are not met entirely. We have been informed that an exercise has recently been initiated to document financial procedures. Training Training is an important tool for management to ensure that roles and responsibilities are well understood and that government policies and requirements are complied with. Regional management has confirmed that little training has been provided in the last few years in the key financial areas. Management has recently taken corrective actions and has organized a training session that covered financial processes in the following areas: acquisition cards, travel, delegation of authority, roles and responsibilities, low dollar procurement and financial coding. Monitoring/Account Verification The primary responsibility for verifying individual accounts rests with departmental staff who have the authority to confirm and certify entitlements pursuant to section 34 (spending PARG 7 March 2005

8 authority) of the Financial Administration Act (FAA). Departmental staff who have FAA section 34 authorities are responsible for the correctness of the payment requested and for the account verification procedures performed. The responsibility for the account verification system and related financial control rests ultimately with those officers who are delegated payment authority pursuant to FAA section 33. These officers must provide assurance of the adequacy of the section 34 account verification, and must also be able to state that the process is in place and is being properly and conscientiously followed. While some monitoring is being performed by the Manager, Finance and Administration who is responsible for FAA section 33, we believe that additional measures should be taken, using statistical sampling, to ensure the integrity of the account verification process. BLUE Minor Improvements Many of the controls are functioning as intended; however, some minor changes are necessary to make the control environment more effective and efficient. Recommendations 1. The Superintendent should ensure that key procedures including a description of roles and responsibilities for the financial management and administration of expenditures for the are developed and distributed to all employees. 2. The Superintendent should ensure that training on key financial and administrative policies and procedures are provided to Field Unit staff on a regular basis. 3. The Superintendent should ensure that additional monitoring activities of financial transactions are conducted, issues and trends are identified and appropriate measures are taken to mitigate risks Revenues The Field Unit derives the majority of its revenues from entrance fees to historical sites and camping grounds. Other sources include but are not limited to rental of facilities for a wide variety of events and related activities (i.e. security services) and the sale of firewood. Revenues for entrance fees are captured in the computerized Point of Sale (POS) system. It operates on old technology (DOS) and is the system generally used in Atlantic. According to our interviews, there are concerns that the system is not always reliable and support for the system will be difficult as the person responsible for its maintenance is retiring at the end of the fiscal year. In the course of our audit, we have been informed that a new reservation system is currently being developed for campgrounds and that a module to capture the entrance fees could possibly be integrated in the system. We have also learned that the Finance Committee has approved a national approach for a point of sales system. A Request for Proposal is currently being developed and should be posted on MERX shortly. Since an important proportion of the Field Unit s revenues are derived from entrance fees, inadequate tools can be a cause of inefficient and ineffective controls. A sample of transactions was selected for four sites (Port Anne, Port Royal, Kejimkujik and the Citadel) and for two different days: August 2, which is a civic holiday and July 15. Our examination revealed that while overall, controls are adequate and that due diligence was exercised in the conduct of their work, some improvements are required to improve those controls. PARG 8 March 2005

9 Examples of controls include: o Revenues related to park, historic sites, campground and firewood are captured in the POS system; o Bank deposits are generally done on a daily basis by escorted attendants or bonded couriers; o Finance staff reconciles POS sales reports and deposit information manually. Bank deposits are reconciled regularly to the SAP system; o Bus tour operators are invoiced usually on a monthly basis in the busy season; o Other revenues such as parking rentals and the provision of security services for events are invoiced shortly after the event has occurred. The Treasury Board Policy on Recording Receipts of Money states that departments must establish procedures to ensure that: receipts of money are properly classified and promptly recorded in both the accounts of the department and the accounts of Canada; and there are proper internal controls over receipts and the recording of money. We have noticed that the instructions and procedures for attendants and financial clerks could be more comprehensive and explicit on management s expectations especially as they relate to the reconciliation of daily sales with bank deposits and SAP. Our examination and reconciliation of the information was difficult because of a lack of uniformity in the processes and documentation used by the various point of sales. The procedures should also include information on the requirement to document or justify circumstances where cash deposits are not identical to the daily sales report. The audit team is of the opinion that guidance on the processes to follow to ensure that all receipts of money are accurately accounted for and adequately controlled to prevent or reduce error, fraud or omission should be provided in an internal policy or in procedures. BLUE Minor Improvements Many of the controls are functioning as intended; however, some minor changes are necessary to make the control environment more effective and efficient. Recommendations 4. The Superintendent should ensure that instructions and procedures for attendants and financial clerks are developed or updated to ensure consistency in the implementation and better controls of revenues Contracting The procurement of goods and services in the is done by using different methods such as service contracts, Standing Offers and Local Purchase Orders. Payments are made by cheque or acquisition cards (see Section 6.4). In the period covered by this audit, the Field Unit was responsible for the administration of 58 service contracts (51 awarded between April and December 31, 2004 and 7 multi-year contracts awarded in previous years) for a total value of $4.7M. Of the total, 44 contracts were awarded at less than $25,000, 8 contracts were between $25,000 and $100K, 4 were between $100K and $999K and 2 were valued at over $1M. The contracts examined were randomly selected using a dollar unit approach and include a two-year contract with the Halifax Citadel Regimental Association to provide fee attendants, guide services, costumer animation and program support at the Halifax Citadel National Historic Site. Overall, we have observed that contracting practices are compliant with TB requirements. There is a need however to ensure that all supporting documents are easily retrievable and PARG 9 March 2005

10 accessible. The Field Unit has recently introduced the Contract Data Sheet (CDS), which is a questionnaire that must be completed by the initiator of a contract. The main purpose of the CDS is to document the selection process and to provide the required information in order to draft the contract and any future amendments, if applicable. The completion of the CDS should ensure that all the information required to support the contracting process is on file and will provide an audit trail. Two of the service contracts reviewed were awarded to two universities for research projects related to Parks Canada s Species at Risk Program. The purpose of the Program is to meet the Agency s legal obligations under the Species at Risk Act (SARA) and to support the National Strategy for the Protection of Species at Risk by contributing to the protection and recovery of species listed under SARA that are found on federal lands administered by the Agency. Parks Canada has established the Species at Risk Recovery Action and Education Fund to implement recovery action on land under its jurisdiction. On an annual basis, the National Office solicits proposals for funding within the Agency for projects targeting one or more species or an ecosystem, which, in the targeted national protected area, have a demonstrated need for conservation action(s). Funding proposals are reviewed by a national committee and are awarded based on specific criteria. Funds are used for different purposes such as the acquisition or rental of specialized equipment, public education activities or hiring experts under contract. Preference is given to projects requesting funding up to $25,000 per year. For approved regional projects, funds are transferred to the relevant responsibility centre who has the responsibility to administer the funds and report on the results. For the projects reviewed, while justifications were on file to support the sole source award, the justifications should be drafted in a way that better reflects the nature of the program, the priority targeted, the process followed to select the contractor and the rationale for selecting that particular contractor. For example, while the justifications reviewed provided information on the expertise of the selected contractors, they did not provide any information to support their claim that there was only one person capable of performing the work. BLUE Minor Improvements Many of the controls are functioning as intended; however, some minor changes are necessary to make the control environment more effective and efficient. Recommendations 5. The Superintendent should ensure that directives on the documentation of service contracts are developed and distributed throughout the Field Unit and that the Contract Data Sheet is completed for all contracts issued. 6. The Superintendent should ensure that sole source justifications for projects funded under the Species at Risk Program are more complete and better support the use of one of the exceptions of the Government Contracts Regulations like any other type of contract Acquisition Cards Observations The Mainland Nova Scotia Field unit has 36 acquisition cards (MasterCard and Visa). Each vehicle has an ARI acquisition card that is issued in the vehicle s name. Given the high volume of purchases and the remoteness of some of the sites, management in the field unit decided that it would be more efficient if the majority of purchases were made using acquisition cards as a method of payment. Twelve (12) AMEX cards have been provided to PARG 10 March 2005

11 staff traveling on a regular basis. These cards facilitate the management of business travel in the Field Unit. Some monitoring is done by the Manager, Finance and Administration in Halifax. To date, the Field Unit reported that there were no instances where cards were stolen or lost and there has been only one cancellation of a card. Our examination of acquisition cards payment files has revealed that, generally, the Field Unit is compliant with TB policy. With one exception, an individual other than the cardholder signed invoices or logs under S. 34 and there was only one invoice not supported by a log. We have noted, however, that when purchase slips are not signed by the cardholder or not attached to the purchase slip, it is difficult to ascertain if the cardholder has actually made all purchases. Moreover, some of the logs have little information on them, which, if done properly, would facilitate the identification of attractive items, and ensure these items are recorded in the inventory. According to our interviews, all items over $400 are to be recorded in the inventory. Employees are also required to fill a register for loans of certain items such as cameras. We have also noticed that payments are not always made within the payment period prescribed by the supplier and that there were no indications on file that the purchase had been pre-approved by a person with S.32 authority. BLUE Minor Improvements Many of the controls are functioning as intended; however, some minor changes are necessary to make the control environment more effective and efficient. Recommendations 7. The Superintendent should remind employees in the Field Unit of their responsibilities for the use of acquisition cards and of the reporting requirements Travel Observations The Travel Directive indicates that Business travel will be authorized in advance in writing to ensure all travel arrangements are in compliance with the provisions of this directive. In special circumstances, travel shall be post authorized by the employer. Our review of 9 travel transactions showed that: the Field Unit is generally compliant with the TB Travel Directive; in 77.8% of the cases, the Travel Authority and Advance (TAA) form was not always completed prior to the trip or did not always include the required information (i.e. estimated costs). any changes between the TAA and the claims report or for unusual circumstances are not always documented and justified on file. In the period covered by this audit, different forms were utilized in the Field Unit for the prior approval of travel and for expense claims. For example, in Kejimkujik, only one form is used to approve travel and report on the expenditures. At the Citadel, the TB forms (TAA and Travel Claims Report) are used. For the files examined in Kejimkujik, it was sometimes difficult to reconcile expenditures for meals since there was not a detailed form to substantiate the claims. The Field Unit has since developed new forms, which will assist financial clerks with their verification of accounts before processing payments. PARG 11 March 2005

12 BLUE Minor Improvements Many of the controls are functioning as intended; however, some minor changes are necessary to make the control environment more effective and efficient. Recommendation 8. The Superintendent should ensure that Travel Authority and Advance (TAA) forms are fully completed and approved prior to the trip taking place and that any discrepancies between the TAA and the expense claims are being justified and documented on file Payments to Suppliers Observations In order to assess compliance with TB requirements for payments to suppliers, interviews with finance personnel were conducted and contract, Local Purchase Orders (LPOs) and acquisition cards payment files were examined. In general, invoices are properly verified, payments are authorized appropriately under FAA section 34 and recorded in the financial system. There were no indications on file, however, that funds had been committed in the financial system at the time the expenditures were initiated. We have been informed that for recurring expenditures such as telephone and photocopiers, global commitments are made at the beginning of each fiscal year based on past expenditures. For LPOs, the commitment is made when the LPO is prepared. Furthermore, it was observed that payments to acquisition card suppliers are not always paid on time (see section 6.4). BLUE Minor Improvements Many of the controls are functioning as intended; however, some minor changes are necessary to make the control environment more effective and efficient. Recommendation 9. The Superintendent should ensure that payments to suppliers are made in a timely manner. 6.7 Stores Inventory and Safeguarding of High Risk Valuable Small Items The Field Unit uses a small asset tracking system (access database) to record and control assets over $1,000 and attractive items such as cellular phones, cameras, black berries and binoculars. They track items over $10,000 by using a module in the financial system (SAP), which allows for the capture of the asset. At the time of this audit, not all items had been recorded into the database but plans were underway to update the list. Corrective action has also been initiated to ensure that items purchased with acquisition cards are better described in the logs supporting the supplier statements (refer to section 6.4 above). While there is no interface between the database and SAP, the Field Unit has developed methods to reconcile the information. Parks Canada will be introducing a new asset management system early in the new fiscal year for assets over $10,000 that will have an interface with the financial system. The Field Unit will continue to record assets under $10,000 and attractive items in their own database. We have reviewed the practices and controls in place for the safeguard of facilities and technology and attractive assets and found them adequate. PARG 12 March 2005

13 GREEN Controlled Controls are functioning as intended and no additional actions are necessary at this time. Recommendation Given that the Field Unit is taking measures to update their asset inventory, no corrective action is recommended. PARG 13 March 2005

14 7. MANAGEMENT RESPONSE 1. Ensure that key procedures including a description of roles and responsibilities for the financial management and administration of expenditures for the Mainland Nova Scotia Field Unit are developed and distributed to all employees. Agree: This suggestion was discussed during the course of the audit and will be a key priority for this fiscal year. 2. Ensure that training on key financial and administrative policies and procedures are provided to Field Unit staff on a regular basis. Agree: Basic training was developed and provided in and an ongoing training program will be developed-implemented in conjunction with National Office and the Service Centre. 3. Ensure that additional monitoring activities of financial transactions in the Field Unit are conducted, issues and trends are identified and appropriate measures are taken to mitigate risks. Agree: The Agency has statistical sampling program in which we participate. Additional monitoring activities will be undertaken at the field unit level to the extent possible with current resources, and in particular, will be implemented in response to weaknesses noted in the audit. 4. Ensure that instructions and procedures for attendants and financial clerks in the Field Unit are developed or updated to ensure consistency in the implementation and better controls of revenues. Agree: Revenue instructions/procedures will be standardized to ensure a basic level of consistency for reconciliation; however, some variation in process may be necessary with regard to camping/reservations. Measures will also be taken to ensure better record keeping and audit trail with regard to differences in cash deposits and sales reports. 5. Ensure that directives on the documentation of service contracts are developed and distributed throughout the Field Unit and that the Contract Data Sheet is completed for all contracts. Agree: Such directives will be developed in conjunction with National Office and the Service Centre. Contract Data sheets are now required for all contracts. 6. The Superintendent should ensure that sole source justifications for projects funded under the Species at Risk Program are more complete and better support the use of one of the exceptions of the Government Contracts Regulations like any other type of contract. Agree: As of April 1, 2005, the Species at Risk Program for Kejimkujik will be administered from the Atlantic Service Centre. However, where the Park may have access to similar research programs in the future, sole source justification will include background information on the particular program and more complete justification to support the use of exceptions to the Government Contracts Regulations. 7. Remind employees in the Field Unit of their responsibilities for the use of acquisition cards and of the reporting requirements. PARG 14 March 2005

15 Agree: Procedures are provided to all staff upon receiving an acquisition card. Some of the audit observations have already been corrected; however, additional monitoring will be undertaken to ensure weaknesses noted in audit are addressed, including late payments. Measures will be taken to ensure staff are reminded of requirements/responsibilities and training program will include acquisition cards use. 8. Ensure that Travel Authority and Advance (TAA) forms are fully completed and approved prior to the trip taking place and that any discrepancies between the TAA and the expense claims are being justified and documented on file. Agree: The recommendation has already been implemented. In addition, the Finance and Administration Manager is performing additional monitoring of travel claims to ensure compliance. 9. Ensure that payments to suppliers are made in a timely manner. Agree: This comment related to acquisition cardholders refer to response # 7. PARG 15 March 2005