HORIZONTAL AUDIT OF TRANSFER PAYMENTS PROJECT - AU1109

Reports 2011


EXECUTIVE SUMMARY

INTRODUCTION

Excluding statutory transfer payments, there are 29 Grants and Contributions (G&Cs) programs, with over 1,000 recipients, and involving approximately $1.9B, or 68% of the Department’s 2010–2011 budget. Of this amount, $1.2B is attributable to the Economic Action Plan.

DEPARTMENTAL RISKS

The 2010–2013 Risk-based Audit Plan identified this audit as a “Very High Audit Priority”. In particular, the significance and public visibility associated with G&Cs contribute to this audit’s priority.

The Office of the Comptroller General (OCG) has also identified the Horizontal Internal Audit of the G&Cs Management Control Framework as a “Very High Audit Priority”, and it is in the process of conducting a government wide audit in 2010–2011 in this area. NRCan is one of several departments selected to participate in the OCG audit.

AUDIT PURPOSE AND OBJECTIVES

The overall purpose of the audit was to examine key elements of the management control framework. Specifically, the objectives of the audit were to:

  • provide assurance to senior management that the G&Cs programs are managed with integrity, transparency and accountability through a management control framework that is risk-sensitive and designed to efficiently address government priorities in achieving results for Canadians, including making progress in implementing the Government of Canada’s Reform of the Administration of Grants and ContributionsFootnote 1;
  • assess whether the internal controls in the Department are effective and adequate to support compliance with the new Policy on Transfer Payments (2008), including compliance with the payment provisions governed by the Financial Administration Act; and
  • identify and document good practices.

INTERNAL AUDIT CONCLUSION

The Department’s control framework for the management of G&Cs is operating well.Footnote 2 The framework is characterized by clearly defined and communicated governance structures and oversight bodies, and there are effective risk and performance management strategies and processes in place. As well, reporting to senior management on both financial and performance information is comprehensive and provides them with the information required for effective decision making. In terms of opportunities for improvementFootnote 3, the Transfer Payment Review Committee (TPRC) may want to consider revising its mandate to provide more strategic advice and direction, and the Centre of Expertise on Grants and Contributions (COE) needs to be strengthened in the areas of communications and training.

Audit results at the program level (i.e., ecoENERGY for Biofuels ($1B), the Clean Energy Fund ($1.5B), and the Pulp and Paper Green Transformation Programs ($1B)) indicate that they are being administered with due diligence and transparency. However, the Terms and Conditions of the Class Grants and Contributions Program ($52M) do not always reflect the funding requirements.

In terms of G&Cs reform being lead by Treasury Board, the Department is making solid progress in implementing the new requirements.

MANAGEMENT RESPONSE

The following textbox captures the summary findings, level of risk and related recommendations, as well as management’s response regarding the results of this audit.
Audit Findings Pg Recommendations Audit Risk Rating Management Response Timing

Governance Process

Overall, the Department has a solid management control framework in place for the delivery of its G&Cs programs. Both at the departmental and program levels, the framework is characterized by clearly defined and communicated governance structures and oversight bodies, as well as effective risk and performance management strategies and processes. In general, the Department’s Centre of Expertise (COE) is providing good support and advice to programs.

In terms of opportunities for improvement, the Transfer Payment Review Committee (TPRC) would give added benefit from being involved earlier in the submissions process to provide strategic input into new programs in the areas of program design and risk management. Opportunities were also identified to strengthen communication and training.

3 1. The TPRC should assess whether its review process should encompass Treasury Board submissions, project proposals and/or contribution agreements, in order to provide advice and strategic direction to Sector ADMs.

Minor

Agreed. The TPRC has completed the assessment and determined that its review process will be expanded immediately to include the review of Treasury Board Submissions with a significant grants and contributions component. This would be in addition to the TPRC’s current practice of reviewing contribution agreements and amendments over $1M, including any high risk agreements over $100K identified and referred by the COE.

Completed

2. The COE should ensure that its proposed process for the review and approval of minor amendments to prior TB approvals is implemented as soon as possible.

Minor

Management agrees with the finding. The COE will implement a new process for the review and approval of Minor Amendments to Ts&Cs with prior TB approval. The TPRC/COE will now require that minor amendments to Ts&Cs be supported by a memorandum and relevant background documentation.

February 28, 2011

3. The COE should develop and implement a formal training strategy regarding the administration and completion of G&Cs. Minor

Management agrees with the finding. The COE has implemented a formal training strategy as of November 2010. This strategy, which includes a variety of delivery methods as well as provides for coverage of the Departments National Capital and Regional Offices will be updated periodically.

To date, within this fiscal year , the COE has successfully delivered 16 training sessions involving 203 participants. Further, the COE will have delivered the training to 3 of the 5 regions by March 31, 2011.

Completed

4. The COE should develop a formal internal communications strategy to help ensure that all relevant departmental management and staff are fully aware of all new or revised policy, procedural and documentation requirements.

Minor

Management agrees with this finding. The COE will develop a formal internal communication strategy by March 31, 2011, to ensure that departmental management and staff are fully aware of new or revised policy, procedural and documentation requirements though, for example, the provision of bulletins and updating of the COE’s intranet site.

March 31, 2011

5. CMSS should complete a detailed analysis identifying the IM/IT requirements that would be necessary to support the effective and efficient management of the G&Cs programs.

Minor

Agreed. CMSS will complete a detailed analysis, by March 31, 2012, identifying IM/IT requirements that would support the effective and efficient management of G&C programs. In assessing options, CMSS will also consider OGD lead practices and the TBS working group’s vision. An action plan will be developed and implemented.

March 31, 2012

Administration of Programs

For ecoEnergy for Biofuels, Clean Energy Fund, and Pulp and Paper Green Transformation, the audit determined that the programs are being administered with due diligence and transparency in accordance with the approved Terms and Conditions. These programs demonstrated that they are exercising risk-based control, monitoring and oversight over their G&Cs programs.

Agreements reviewed under the Class Grants and Contributions Program were eligible under the terms and conditions of the program where NRCan had a valid interest in making a contribution. However, the requirements of the Terms and Conditions approved for Class Grants and Contributions are not all suited to the nature of projects being funded through the Program. The audit team also identified opportunities to improve the monitoring of Class Grants and Contributions.

11

6. Where some of the requirements of the Terms and Conditions of the Class Grants and Contributions Program are not applicable because of the nature of the activities being funded, COE should ensure that the Sectors document the justification for the exceptions being made.

Moderate

Agreed. By February 10, 2011, the COE will advise programs that exceptions to the requirements be documented for justification purposes.

Completed

The COE will implement guidelines on the administration of the Class Grants and Contributions Program by May 31, 2011, which will require that exceptions to the requirements be documented for justification purposes.

May 31, 2011
7. The COE should develop and implement a monitoring and reporting framework for the Class Grants and Contributions Program.

Moderate

Agreed. The COE will develop and implement by May 31, 2011, a risk-based monitoring and reporting framework for the Class Grants and Contributions Program. This will build upon the COE’s department-wide monitoring program that includes coverage of the Class Grants and Contributions Program.

May 31, 2011

Grants and Contributions Reform

The Department is making initial progress in meeting the requirements of Grants and Contributions Reform, from the COE’s establishment of a Department-wide consultation team and program governance structures being put in place to promote cross-federal departmental and agency synergies. The COE needs to strengthen its implementation plan to ensure progress is being made

15 8. To ensure that the Department can demonstrate concrete progress in implementing the requirements of the new Transfer Payment Policy, the COE should include clearly articulated milestones against which progress can be tracked.

Minor

Management agrees with the finding. The COE will revisit its 3-Year Gs&Cs Action Plan to include clearly articulated milestones against which progress can be tracked. The action plan was developed to support the G&C Reform Initiative being lead by the TBS which stems from the Blue Ribbon Panel recommendations. The COE is working with TBS and other government departments (OGDs) to implement the Blue Ribbon Panel recommendations, share best practices and lessons learned, and support the practice of continuous improvement in the management of Gs&Cs. In the spirit of continuous improvement, the COE is also working closely with NRCan program managers through the Program Consultation Team (made up of seasoned NRCan program managers and other internal stakeholders) in order to share best practices, lessons learned and socialize new policy instruments, practices and procedures.

As an example, NRCan recently implemented a new Recipient and Project Risk Management Model (RPRMM) which was developed in consultation with TBS, OGDs and the NRCan Program Consultation Team. The RPRMM enables the Department to manage Gs&Cs using a risk management approach and to tailor oversight and reporting requirements based on the level of risk.

March 31, 2011

Table of Contents


INTRODUCTION

Excluding statutory transfer payments, there are 29 Grants and Contributions (G&Cs) programs, with over 1,000 recipients, totalling approximately $1.9B, or 68% of the Department’s 2010–2011 budget. Of this amount, $1.2B is attributable to the Economic Action Plan.

The 2010–2013 Risk-based Audit Plan identified this audit as a “Very High Audit Priority”. In particular, the significance and public visibility associated with G&Cs contributed to this audits priority.

The Office of the Comptroller General’s (OCG’s) Three-year Risk-based Horizontal Internal Audit Plan for large departments and agenciesFootnote 4 identified the Horizontal Audit of the Grants and Contributions Management Control Framework as a “Very High Audit Priority”. The significance and public visibility associated with G&Cs contribute to its priority as a horizontal audit. The OCG audit is taking place in 2010–2011. NRCan was one of seven Departments/Agencies that participated in the OCG audit. Our audit staff provided feedback on the initial audit criteria provided by the OCG, as well as provided fact sheets at the end of the audit to summarize our findings. The results of this audit will provide valuable input into the planning of the TB evaluation of the Policy on Transfer Payments scheduled to commence in the summer of 2011.

AUDIT PURPOSE AND OBJECTIVES

The overall purpose of the audit was to examine key elements of the management control framework. Specifically, the objectives of the audit were to:

  • provide assurance to senior management that G&Cs programs are managed with integrity, transparency and accountability through a management control framework that is risk-sensitive and designed to efficiently address government priorities in achieving results for Canadians, including making progress in implementing the government of Canada’s reform of the administration of grants and contributionsFootnote 5;
  • assess whether the internal controls in the Department are effective and adequate to support compliance with the new Policy on Transfer Payments (2008), including compliance with the payment provisions governed by the Financial Administration Act; and
  • identify and document good practices.

SCOPE AND METHODOLOGY

The scope of the audit covered the major aspects of the internal control framework with respect to the Department’s G&Cs programs, excluding statutory payments. In addition, recommendations made in previous audit reports relating to transfer payments were also considered.

The audit approach was based on Treasury Board Secretariat’s (TBS’s) guidelines on internal auditing and generally accepted international internal auditing standards, and included the following:

  • a review of relevant background documentation;
  • interviews with key corporate and program personnel; and
  • an examination of corporate and program records and other supporting documentation to determine if effective financial and program controls have been designed and implemented.

The focus of the audit was at the corporate and program levels.

At the corporate level, the audit focused on the following:

  • The Centre of Expertise (COE) on Grants and Contributions;
  • The role of the Transfer Payment Review Committee (TPRC);
  • Performance measurement;
  • Program evaluation;
  • Information systems as they relate to G&Cs management; and
  • Financial management.

To provide this audit with program-level information on the implementation of applicable policies, guidelines and procedures, the following program audits were conducted at the same time:

  • ecoENERGY for Biofuels ($1.5B) (Energy Sector);
  • Clean Energy Fund ($1B) (Energy Sector); and
  • Pulp and Paper Green Transformation Program ($1B) (Canadian Forest Service).

Results of the Clean Energy Fund AuditFootnote 6 and Pulp and Paper Green Transformation ProgramFootnote 7 have been posted on the NRCan Internet Site. The ecoEnergy for Biofuels Audit results will be posted later in 2011.

The Class Grants and Contributions Program (CGCP) allows NRCan to fund grant and/or contribution initiatives that do not fall within other existing approved transfer payment authorities.

The stated broad objective of the general Class Grants and Contributions Program is to support research, development and promotion activities that will contribute to the achievement of the department’s expected results and strategic outcomes as articulated in the MRRS and a supporting Performance Management Framework (PMF).

To better understand the program, the following list provides the type of activities that could be funded:

  • Research papers related to new technology or advancement in sciences related to natural resources;
  • Workshops, conferences and seminars with research and development themes;
  • Development or enhancement of new technology;
  • Forums for discussion on priority areas related to natural resources;
  • Conferences, workshops which promote areas of interest on natural resources;
  • Students in a natural resource field of study; or
  • The dissemination and distribution of publications.

CRITERIA

Audit criteria used by the Audit Branch to assess the adequacy of NRCan’s management control framework for G&Cs are included in Appendix B. The criteria used were basically the same criteria used by the OCG for their Horizontal Audit; however, some minor changes were made to specifically address NRCan’s processes.

FINDINGS AND RECOMMENDATIONS

GOVERNANCE PROCESS

Summary Finding

Overall, the Department has a solid management control framework in place for the delivery of its G&Cs programs. Both at the departmental and program levels, the framework is characterized by clearly defined and communicated governance structures and oversight bodies, as well as effective risk and performance management strategies and processes. In general, the Department’s Centre of Expertise (COE) is providing good support and advice to programs. In terms of opportunities for improvement, the Transfer Payment Review Committee (TPRC) would give added benefit from being involved earlier in the Treasury Board submissions process to provide strategic input into new programs in the areas of program design and risk management. Opportunities were also identified to strengthen communication and training.

RISK AND IMPACT
Risk Type Audit Risk Rating Impact
Strategic Minor As the TPRC does not review submissions at the program approval and Terms and Conditions stage, the Department may be missing an opportunity to identify strategic issues and opportunities earlier in the program/project life cycle.
Compliance Minor Without better co-ordinated communication and training strategies in place, the Department is at risk of programs not being aware of applicable policies and directives in the management of G&Cs.
Supporting Observations

An appropriate governance structure has been implemented for the effective oversight of the Department’s G&Cs programs. It supports the consistent application of approved Terms and Conditions and other relevant policy requirements.

Oversight for the G&Cs programs is provided at three levels:

  • within the individual programs (Manager, Director, Director General, Assistant Deputy Minister, internal oversight committees within the Sector and external oversight committees with stakeholders.);
  • the TPRC; and
  • the Departmental Centre of Expertise on Grants and Contributions (COE).
TRANSFER PAYMENT REVIEW COMMITTEE (TPRC)

The TPRC is the primary oversight body for NRCan’s G&Cs programs. It is comprised of four Assistant Deputy Ministers (ADMs), General Counsel, and the Director General, Financial Management Branch. TPRC is supported by the COE. This Committee meets on a regular basis and has a process in place to consider urgent approvals. The current mandate of the TPRC is to “…serve as a forum for senior departmental officials to provide corporate direction in the selection, design, implementation and performance monitoring of transfer payment programs originating from various sectors of the Department”.Footnote 8

The terms of reference (ToR) for the TPRC states that it is responsible for providing a variety of advice for such matters as:

  • Program design;
  • Information management;
  • Recipient audits;
  • Performance measurement and monitoring;
  • Guidance and tools;
  • Departmental policies;
  • Training; and
  • Identification and implementation of best practices.

The current departmental review for Treasury Board (TB) submissions provides a sound, functional process and involves the expertise of the Financial Management Branch (FMB), the COE, the Risk Management Centre of Expertise (RMCE), Legal Services, Audit, Evaluation, Real Property, Environmental Assessment, Communications Branch, Official Languages and Departmental Submission Control Unit. The TPRC conducts its review at the agreement stage which is after the TB submission has been approved, and after the solicitation request and evaluation of project proposals are complete.

While functional reviewers look at the TB submission from their expertise perspective, the Department is missing an opportunity to identify strategic issues and provide input into such areas as program design and risk management. If TPRC were to provide a strategic review prior to a submission to TB, it may be able to identify issues with program Terms and Conditions that subsequently may create challenges regarding projects.

The life cycle from program concept to project agreement is normally quite long--anywhere from three months to one year--depending on the complexity of the initiative. A strategic review by the TPRC at the program approval stage would help to ensure that the program design has taken into account cross-departmental program-related issues. An earlier review of projects would also help to avoid possible delays at the agreement stage—the final stage of the project development process.

Given the membership of the TPRC, it is ideally placed to provide cross-sector strategic advice and input on the harmonization of the administration of programs across the Department.

DEPARTMENTAL CENTRE OF EXPERTISE ON GRANTS AND CONTRIBUTIONS (COE)

The mandate of the COE is “to support effective management of NRCan’s G&Cs programs while ensuring that the Department maintains an efficient and accountable G&Cs management framework”.Footnote 9

Since a 2006 internal audit report and a subsequent Auditor General’s report in 2009 identified significant breaches of the Terms and Conditions in five contribution agreements within a program, as well as instances of potential conflict of interest, the role of the COE has evolved quite rapidly within NRCan. As a result, the COE’s activities and number of staff have expanded to address the issues identified. Moreover, the COE is currently completing a review of its role and mandate with a view to developing a revised mandate that will reflect its current accountabilities.

Overall the audit confirmed that the COE is fulfilling its existing mandate; however, there were some areas that could be improved.

Minor Amendments to TB approvals

The COE is responsible for the review and approval processes for minor amendments that do not need to return to TB for revised approval. This audit included an examination of three recent minor amendments that were sent to the Minister for approval. It determined that there are opportunities for improvement regarding the quality of the requests for minor amendments, including the clarity of the memoranda regarding what was being requested and the need to include all the relevant background information. There are no written process guidelines for staff; however, a proposed process has been developed by the COE which is currently planning to obtain TPRC approval of the process, including effective review standards.

Training for the Administration and Completion of Transfer Payment Agreements

The COE is also responsible for providing G&Cs training. However, there is no strategic plan in place to guide the process. Training is provided on an ad hoc approach based on demand. Some training is available on the web, however, it provides very basic information. In 2009-2010 16 courses were offered and 270 employees were trained. A training session was held on Values and Ethics, specifically in dealing with Grants and Contributions. The NRCan Managers’ Community also hosted a “town hall” meeting on G&Cs. There has been no training offered in relation to the Class Grants and Contributions Program. The program audits, (Clean Energy Fund, Biofuels and Pulp and Paper Green Transformation) have reported that the training needs of their employees were met when training was requested.

Co-ordinated Communication and Information Sharing

Overall at the corporate level, the availability of policies, procedures and guidelines is diffuse and therefore difficult to find. Policies, procedures and guidelines are not easily available to management and staff. Material is available on the NRCan intranet site; however, navigation of the site is not user friendly, the information is not always up-to-date, more recent policies and directives are not on the site, a number of links lead to out-dated policies or to links that no longer exist, the organization of the site is not intuitive and it does not follow a project life cycle approach. As a result there are impediments to ensuring that staff are fully aware of new or revised policies, procedures or guidelines.

FINANCIAL MANAGEMENT BRANCH (FMB)

The FMB maintains effective control of budgets and allotments and provides regular financial reporting to senior management. It has a functional review and control process in place for the review of TB submissions.

Currently, the Department uses a computerized financial system known as GFS (Government Financial System). G&Cs are managed from a central database using a sub-module of GFS referred to as the “agreement module”. While these systems provide the necessary automated control environment and a basic level of reporting, they do not provide for complete G&Cs contribution life cycle management tools, and there is no capacity for the compilation and analysis of non-financial information.

A major initiative is underway to replace GFS with a new financial system: SAP (System Analysis Program). However, at the present time there are no plans to replace the agreement module. The Department is creating an interface between SAP and the agreement module. The agreement module will need to be carefully monitored to ensure continued availability after SAP is implemented in April 2011, particularly because GFS and the agreement module are no longer supported by the vendor.

While there is some consideration being given to implementing an integrated systems solution for G&Cs in the future, there is no formal commitment to do so at this time.

RISK MANAGEMENT

According to our audit results, there are appropriate risk management policies, procedures and guidelines in place.

  • In September & December of 2010, the DMC reviewed and approved in principle the content for a revised Corporate Risk Profile (CRP)—which is scheduled to be completed by close of fiscal 2010-11. A risk related to financial management that has been identified includes risk drivers related to the management of G&Cs: an increase in volume and complexity of G&Cs; intra-departmental variations in G&Cs management (e.g., contribution audits); and the fact that a past Auditor General’s report identified an instance of conflict of interest in the financial management of transfer payments.
  • The Department’s Risk Management Centre of Expertise offers a range of services, including training, risk management tools and assistance in developing Risk-based Audit Frameworks (RBAFs), including a “How To” template.
  • All agreements being presented to the TPRC (agreements greater than $1 million) and COE (agreements greater than $100,000) must be accompanied by a Risk Assessment and Conflict of Interest Checklist.
  • There is a Recipient and Project Risk Management Model for Contributions which was approved on November 22, 2010 by the TPRC and will be implemented before April 1, 2011 using a phased-in approach.
  • NRCan approached and successfully negotiated a pilot MOU with the Business Development Bank of Canada (BDC) to enable the Department to reasonably assess the financial viability of potential Program proponents prior to the signing of an agreement. This arrangement is considered a “leading practice” in that it leverages the BDC's knowledge and experience in support of NRCan performing its due diligence, especially in cases where programs believe proponent organizations carry a higher financial risk. Further, NRCan's success in gaining additional insight into the assessment of the financial viability of proponent organizations has received interest within the federal public service community at-large.
  • The COE has designed and is in the process of implementing a risk-based monitoring strategy to ensure compliance across the G&Cs life cycle with the TB Transfer Payment Policy, TB-approved program Terms and Conditions, and data integrity in the G&C agreement module.
  • The COE Three-year G&Cs Action Plan contains an item for the development and implementation of Recipient Audit Strategy, which was planned for September 2010, although we were advised that this has been re-scheduled to 2011-2012.
  • Finally, the programs audited have Risk Based Audit Frameworks that identify appropriate risk management strategies. Both the Clean Energy and Pulp and Paper Green Transformation programs were reviewing identified risks on a regular basis. An audit of the Biofuels program recommends regular review of its risk management strategy.
Performance Management and Reporting

There is a comprehensive performance management and reporting strategy and process in place that is based on the Department’s Strategic Outcomes and Program Activity Architecture (PAA) and is characterized by the following:

  • clear and comprehensive directives and guidelines;
  • a strong “Corporate Planning Network”;
  • a comprehensive mid- and end-of-year review process; and
  • regular reporting to senior management.

The three programs audited have appropriate performance management strategies in place and they regularly report on performance.

Values and Ethics

The Department has a Values and Ethics Unit in the Human Resources and Security Management Branch. It provides advice and guidance on a variety of issues, including conflict of interest concerns. A program ADM is the senior official for values and ethics, and there is a senior internal disclosure officer who is responsible for receiving disclosures of wrongdoing. There is a comprehensive intranet site that covers current policies and guidelines, and regular briefings and training are provided to management and staff. Also, there is a Risk Assessment and Conflict of Interest Checklist that requires disclosure by all project participants of real or potential conflict of interest situations, and the checklist must be signed by the program delegated authority.

NRCan has also established a Science and Technology Working Group on Conflict of Interest and is co-chaired by the Director General of the Strategic Science Technology Branch and the Manager of the Labour Relations and Values and Ethics Units. The purpose of the working group is to provide guidance and advice on conflict of interest issues that are unique to a science based department.

Environmental Assessment

The Environmental Assessment group in the Science and Policy Integration Sector provides the necessary assistance to the programs for the determination and/or preparation of strategic environmental assessments and environmental assessmentsFootnote 10. The group is currently in the process of developing a revised Environmental Assessment Directive, which should receive senior departmental committee approval in 2011-2012.

Recommendations

  1. The TPRC should assess whether its review process should encompass Treasury Board submissions, project proposals and/or contribution agreements, in order to provide advice and strategic direction to Sector ADMs.
  2. The COE should ensure that its proposed process for the review and approval of minor amendments to prior TB approvals is implemented as soon as possible.
  3. The COE should develop and implement a formal training strategy regarding the administration and completion of G&Cs.
  4. The COE should develop a formal internal communications strategy to help ensure that all relevant departmental management and staff are fully aware of all new or revised policy, procedural and documentation requirements.
  5. CMSS should complete a detailed analysis and requirements assessment to ensure that the necessary IM/IT tools required to support the effective and efficient management of the G&Cs programs are in place.

Management Action Plan and Time Frame

  1. Management agrees with this finding. The TPRC has completed the assessment and determined that its review process will be expanded immediately to include the review of Treasury Board Submissions with a significant grants and contributions component. This would be in addition to the TPRC’s current practice of reviewing contribution agreements and amendments over $1M, including any high risk agreements over $100K identified and referred by the COE. Completed
  2. Management agrees with the finding. The COE will implement a new process for the review and approval of Minor Amendments to Ts&Cs with prior TB approval. The TPRC/COE will now require that minor amendments to Ts&Cs be supported by a memorandum and relevant background documentation. February 28, 2011
  3. Management agrees with the finding. The COE has implemented a formal training strategy as of November 2010. This strategy, which includes a variety of delivery methods as well as provides for coverage of the Departments National Capital and Regional Offices will be updated periodically. Completed

    To date, within this fiscal year, the COE has successfully delivered 16 training sessions involving 203 participants. Further, the COE will have delivered the training to 3 of the 5 regions by March 31, 2011.
  4. Management agrees with this finding. The COE will develop a formal internal communication strategy by March 31, 2011, to ensure that departmental management and staff are fully aware of new or revised policy, procedural and documentation requirements though, for example, the provision of bulletins and updating of the COE’s intranet site. March 31, 2011
  5. Management agrees with this finding. CMSS will complete a detailed analysis, by March 31, 2012, identifying IM/IT requirements that would support the effective and efficient management of G&C programs. In assessing options, CMSS will also consider OGD lead practices and the TBS working group’s vision. An action plan will be developed and implemented. March 31, 2012

ADMINISTRATION OF PROGRAMS

To provide this audit with program-level information on the implementation of applicable policies, guidelines and procedures, the following program audits were conducted at the same time:

  • ecoENERGY for Biofuels ($1.5B) (Energy Sector)
  • Clean Energy Fund ($1B) (Energy Sector)
  • Pulp and Paper Green Transformation Program ($1B) (Canadian Forest Service)

Reports for the Clean Energy Fund auditFootnote 11 and Pulp and Paper Green Transformation Program auditFootnote 12 have been posted on the NRCan Internet Site. The ecoEnergy for Biofuels audit report will be posted later in 2011.

Samples of agreements from the Class Grants and Contributions Program (corporate) were also selected for review. The Class Grants and Contributions Program is cross-sectoral and its purpose is to allow NRCan to take advantage of opportunities that are not specifically covered under the Terms and Conditions of other G&Cs programs.

Summary Finding

For ecoEnergy for Biofuels, Clean Energy Fund, and Pulp and Paper Green Transformation, audits determined that the programs are being administered with due diligence and transparency in accordance with the approved Terms and Conditions. These programs demonstrated that they are exercising risk-based control, monitoring and oversight over their G&Cs.

Agreements reviewed under the Class Grants and Contributions Program were all for funding requests where NRCan had a valid interest in making a contribution. However, the Terms and Conditions approved for Class Grants and Contributions do not always reflect the type of activities being funded through the Program. The audit team also identified opportunities to improve the monitoring of Class Grants and Contributions.

RISK AND IMPACT
Risk Type Audit Risk Rating Impact
Strategic Moderate Terms and Conditions for the Class Grants and Contributions Program (funding mechanism) should reflect the actual requirements of the program. If they do not, there is the possibility of inappropriate agreements and/or lack of compliance with the Terms and Conditions for the Program. This creates a risk of appearing to use Class G&Cs improperly, and may lead to TB elimination of a funding tool that is valuable to the Department.
Monitoring Minor Reporting is a key component of monitoring; without proper reporting the oversight body cannot fully carry out its mandate.

Supporting Observations

ecoEnergy for Biofuels, Clean Energy Fund, and Pulp and Paper Green Transformation

Program promotion and recipient application is conducted in a manner that is fair and accessible. This was demonstrated through the use of announcements on the departmental website, news releases, follow-up with emails to industry associations and applicant guides. Program updates and changes are also communicated through the departmental website, as well as direct contact with applicable stakeholders (e.g. applicant, industry associations, other government entities).

The three programs also have transparent control processes to ensure the consistent assessment and approval of recipients to meet the objectives of the programs. This was demonstrated through the use of checklists, funding assessment criteria, a number of review committees, and adequate segregation of duties between individuals responsible for project receipt, project evaluation and project approval.

In general, we found that the monitoring of individual recipients is performed proportionately to their risk level and in accordance with the Terms and Conditions of the program. This was demonstrated by the Department’s use of the Recipient and Project Risk Management Model for Contributions. The model provides respective program managers with a risk-based methodology to assess the level of recipient risk and to streamline monitoring and audit requirements, while still ensuring responsible stewardship and accountability.

Use of the model is mandatory for all contributions agreements that are $50,000 or greater. For contributions less than $50,000, use of the model is at the program manager’s discretion. In addition, recipient audit strategies were in place or were being developed. Efforts were being made to coordinate recipient audits across programs within the Department and, to the extent possible, with other government entities (i.e., federal and provincial). Audit clauses are in the funding agreements and, where required, the audits were completed.

A review of recipient audits is included in the audit criteria for all transfer payment audits. Both Pulp and Paper Green Transformation program and Clean Energy Fund were in the early stages of their program life and as such no recipients audits had been completed. Biofuels had completed recipient audits but the results had not been finalized.

As well, there are monitoring and reporting processes in place to support management review and the departmental performance measurement strategy. We determined that program results are routinely monitored and reported to senior management through the monthly/quarterly reporting processes to the responsible Directors General, the sector ADMs and the Deputy Minister. In addition, program performance is reported through the Economic Action Plan updates and the annual Departmental Performance Report.

Although no program evaluations have been conducted on the contributions programs audited, evaluations are planned for the period of 2011 to 2014.

Class Grants and Contributions

Class Grants and Contributions represent less that 1% of the Departments total grant and contribution funding. The TB approval is for $52 Million over 5 years. The average dollar value of a grant funded by the Class Grants and Contributions Program is approximately $35,000 while the average dollar value of a contribution funded by the Class Grants and Contributions Program is $90,000.

The Class Grants and Contributions Program had no publicly available information describing the program on the departmental website or any guides that describe the application process, eligibility requirements and assessment criteria. General feedback from management and staff determined that the nature of the projects and background of the recipients suggest that a mandatory solicitation process is not appropriate or necessary. General compliance with the existing Terms and Conditions is often a challenge in consideration of the actual program requirements and the variety of requests.

Performance measures are outlined in its program funding agreements for the Class Grants and Contributions Program; however, there has been no reporting--neither financial nor performance--to program management. In addition, while recognizing the COE has implemented a grant and contribution monitoring strategy which includes the Class Grants and Contributions Program, there has been no consistent monitoring of results, no compliance review and no recipient audits.

Recommendation

  1. Where some of the requirements of the Terms and Conditions of the Class Grants and Contributions Program are not applicable because of the nature of the activities being funded, COE should ensure that the Sectors document the justification for the exceptions being made.
  2. The COE should develop and implement a monitoring and reporting framework for the Class Grants and Contributions Program.

Management Action Plan and Time Frame

  1. Management agrees with this finding. By February 10, 2011, the COE will advise programs that exceptions to the requirements be documented for justification purposes. Completed

    The COE will implement guidelines on the administration of the Class Grants and Contributions Program by May 31, 2011, which will require that exceptions to the requirements be documented for justification purposes. May 31, 2011
  2. Management agrees with this finding. The COE will develop and implement by May 31, 2011, a risk-based monitoring and reporting framework for the Class Grants and Contributions Program. This will build upon the COE’s department-wide monitoring program that includes coverage of the Class Grants and Contributions Program. May 31, 2011

GRANTS AND CONTRIBUTIONS REFORM

Summary Finding

In February 2007, an Independent Blue Ribbon PanelFootnote 13 provided recommendations aimed at simplifying the administration of G&Cs while, at the same time, strengthening accountability and risk-based approaches for managing the programs. TBS developed The Government of Canada Action Plan to Reform the Administration of Grant and Contribution Programs.Footnote 14

The Department is making progress in meeting the requirements of Grants and Contributions Reform, from the COE’s establishment of a Program Consultation Team, (Department-wide consultation team) and program governance structures being put in place to promote cross-federal departmental and agency synergies. The COE needs to strengthen its implementation plan to ensure progress is being made.

RISK AND IMPACT
Risk Type Audit Risk Rating Impact
Strategic Minor Without a detailed implementation plan in place, NRCan risks not implementing the requirements of the new Transfer Payment Policy in a timely and effective manner.

Supporting Observations

HARMONIZATION

The Transfer Payment Policy defines harmonization as “the alignment and/or integration of two or more transfer payment programs that contribute to similar objectives or serve the same recipients”. The expectation is that departments, where feasible, will harmonize (align or integrate) transfer payment programs within the department and, to the extent possible, with other departments.

The COE has established a committee called the Program Consultation Team. This team is made up of G&Cs representatives from all NRCan branches and COE consults with the team on G&C management reform activities. Its primary role is to ensure that the new Transfer Payment Policy is implemented consistently throughout NRCan.

For those contribution programs that have an impact on other departments (e.g. science-based departments and agencies), the programs have implemented program governance structures among the participating departments as a means to effectively pool resources, coordinate research activities, and improve federal decision making in federal energy science and technology investments.

MOUs have been entered into between branches in NRCan, as well as with other government departments (e.g., Industry Canada, Environment Canada) when opportunities arise to harmonize administrative requirements. The audit noted that two components of the Clean Energy Fund had implemented an integrated recipient audit plan for projects that evolved from research and development to demonstration projects. In addition, consultations are taking place between NRCan and the Government of Alberta—a co-funder of three major carbon capture and storage projects in Alberta—to share the results of each other’s audit processes.

SERVICE STANDARDS

The Transfer Payment Policy states that Deputy Heads are responsible for establishing “reasonable and practical departmental service standards for their transfer payment programs”. Internal service standards have been developed to compare the actual time required to review funding agreements by three levels of oversight: the sector managers, COE, and TPRC.

Programs are at varying stages of developing and implementing external service standards. Some programs have established databases for multiple purposes, including the tracking of applicants from initial contact to signing the contribution agreement to eventual performance reporting, while other programs currently have no service standards plan.

Through the G&C Management Reform Program Consultation Team, the COE is working closely with the programs to develop external service standards that build on their experience and on best practices developed in other departments. The results will be used as a model to be followed by other G&Cs programs in the Department.

Currently, the results of the external and internal service standards that are in place are not collectively analyzed to help develop general service standards, such as responding to initial applications and subsequent inquiries within a certain number of months, etc. This information needs to be formally documented. However, under the leadership of the G&C Management Reform Program Consultation Team, work is now progressing to develop and document service standards that are reasonable and practical.

STAKEHOLDER ENGAGEMENT

Although there are no formal engagement strategies in place, programs have initiated a number of activities to promote stakeholder engagement. Evidence includes stakeholder interaction during the program development, assessment, negotiation and subsequent project monitoring phases. Also, stakeholder input was repeatedly sought and considered in all phases of each program. Internal and external stakeholder engagement will continue to evolve under the leadership of the G&C Management Reform Program Consultation Team, and will result in a formal departmental engagement strategy.

IMPLEMENTATION

The COE has an implementation plan for the new policy; however, it does not include specific/incremental milestones for achievements. This report is provided regularly to the Office of the Comptroller General (OCG). The report does not include specific milestones to identify when implementation will be achieved.

The OCG Three-year Risk-based Horizontal Internal Audit Plan includes an audit that will examine progress in implementing the new Policy on Transfer Payments, including simplifying administration and strengthening accountability in the government-wide operations of G&Cs. The OCG plans to include some of the departments from the current audit of 2010-2011.

Recommendation

  1. To ensure that the Department can demonstrate concrete progress in implementing the requirements of the new Transfer Payment Policy, the COE should include clearly articulated milestones against which progress can be tracked.

Management Action Plan and Time Frame

  1. Management agrees with the finding. The COE will revisit its 3-Year Gs&Cs Action Plan to include clearly articulated milestones against which progress can be tracked. The action plan was developed to support the G&C Reform Initiative being lead by the TBS which stems from the Blue Ribbon Panel recommendations. The COE is working with TBS and other government departments (OGDs) to implement the Blue Ribbon Panel recommendations, share best practices and lessons learned, and support the practice of continuous improvement in the management of Gs&Cs. In the spirit of continuous improvement, the COE is also working closely with NRCan program managers through the Program Consultation Team (made up of seasoned NRCan program managers and other internal stakeholders) in order to share best practices, lessons learned and socialize new policy instruments, practices and procedures.

    As an example, NRCan recently implemented a new Recipient and Project Risk Management Model (RPRMM) which was developed in consultation with TBS, OGDs and the NRCan Program Consultation Team. The RPRMM enables the Department to manage Gs&Cs using a risk management approach and to tailor oversight and reporting requirements based on the level of risk. March 31, 2011

APPENDIX A - STANDARD INTERNAL AUDIT OPINIONS AND STANDARD AUDIT RISK RATING

STANDARD INTERNAL AUDIT CONCLUSIONS

Our standard audit conclusions are as follows:

Operating Well: 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/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/reputation impact to the audited process is material. Action must follow immediately.

STANDARD RISK TYPES

Our standard risk types are classified based on the COSOFootnote 15 Internal Control-Integrated Framework as follows:

Strategy – High-level goals, aligned with and supporting the Department's mission.

Operations – Effective and efficient use of resources.

Monitoring – Accurate assessments or evaluation of activities.

Reporting – Reliability of operational and financial reporting.

Compliance – Compliance with applicable laws, regulations, policies and procedures.

STANDARD AUDIT RISK RATINGS

Audit findings are rated as follows:

Major: A key control does not exist, is poorly designed or is not operating as intended and the related risk is potentially significant. The objective to which the control relates is unlikely to be achieved. Corrective action is needed to ensure controls are cost effective and/or objectives are achieved.

Moderate: A key control does not exist, is poorly designed or is not operating as intended and the related risk 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.

APPENDIX B - AUDIT CRITERIA

The following audit criteria were used to conduct the audit:

1. Governance

The Department has in place effective and efficient governance processes for grant and contribution programs

1.1 Management has an effective control framework for the design and delivery of grant and contribution programs.

1.2 Roles, responsibilities and accountabilities are clearly defined and communicated.

2. Program Administration

Programs are administered with due diligence and transparency in accordance with the approved Terms and Conditions

2.1 Program promotion and recipient application is conducted in a manner that is fair and accessible.

2.2 There are transparent control processes to ensure the consistent assessment and approval of projects to meet the objectives of the program.

2.3 Recipient agreements are consistently developed through a process that is tailored to address risk and recipient requirements.

2.4 Grants and contribution over $25,000 are disclosed in accordance with proactive disclosure requirements.

3. Control, Monitoring and Oversight

The Department exercises risk-based control, monitoring and oversight activities over grant and contribution programs

3.1 Recipient payments are made in compliance with the requirements of the Financial Administration Act (FAA) and the Directive on Transfer Payments.

3.2 Monitoring, reporting and auditing of individual recipients are performed proportionately to their risk level and in accordance with the Terms and Conditions of the program.

3.3 There are monitoring and reporting processes in place to support program review and the departmental performance measurement strategy.

4. Grants & Contributions Reform

The Department is making initial progress in meeting the requirements of grants and contributions reform

4.1 Collaboration exists within and among departments to harmonize grant and contribution programs and to standardize recipient requirements.

4.2 The department has a strategy to implement service standards.

4.3 Recipients are engaged in support of transparency, innovation and continuous improvement.