Internal Audit Report Internal Controls
Audit of Acquisition Cards
Project 6B245

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TABLE OF CONTENTS

1.0   EXECUTIVE SUMMARY
2.0   BACKGROUND
3.0   AUDIT OBJECTIVE
4.0   AUDIT SCOPE
5.0   AUDIT APPROACH
6.0   AUDIT FINDINGS 

7.0   AUDIT OPINION
8.0   STATEMENT OF CONFORMANCE
APPENDIX A - AUDIT CRITERIA

 

1.0  EXECUTIVE SUMMARY

Government credit cards, including acquisition and fleet cards, are charge cards that provide a convenient and practical method of procuring and paying for goods and services. In addition, they generate cost savings in procurement and payment processing. Furthermore, the use of fleet credit cards for the operation and maintenance of government vehicles ensures that vehicle-related expenditures can be tracked and monitored.

The rules and regulations governing credit cards in the federal government are based on the objective: to provide a cost-effective, secure and convenient method of procuring and paying for government goods and services while ensuring effective financial control.

Fisheries and Oceans Canada has spent $187.39 million in more than 650,000 transactions during the period April 1, 2010 to March 31, 2012 using government acquisition and fleet cards. As of March 31, 2012 there were approximately 3,675 government acquisition cards and 1,700 fleet cards in circulation. 

The audit assessed, for the selected regions, the level of compliance of the Acquisition and Fleet Card Programs with the policies governing Government Acquisition and Fleet Card Programs, as well as the adequacy of these practices in ensuring process effectiveness, efficiency, and accuracy of financial information.

Based on the audit findings, our opinion is that, overall, the Acquisition and Fleet Card Programs of the Department have adequate and effective internal controls in place to ensure process effectiveness, compliance with policies, efficiency and accuracy of financial information. The audit identified improvements that should be made as the Department restructures its operations to achieve the changes in procurement and accounting operations that were identified in the Government of Canada’s 2012, Economic Action Plan (Budget 2012). The recommended improvements are as follows:

  • Update the Department’s policies and directives that govern the Acquisition and Fleet Card Programs to reflect all relevant Treasury Board policies, directives and related documents and to align with the new organization structure.
  • Ensure that card management is strengthened to ensure that card applications, signed by the Responsibility Center Manager with the delegated Section 34 authority, are maintained in the cardholder’s file.
  • Improve evidence of control of commitments (Section 32) for credit card transactions.
  • Reiterate the requirement for Responsibility Centre Managers to apply due diligence when executing Section 34 responsibilities, including the verification of the accuracy of financial coding.   
  • Implement a national monitoring system, reinforce the use of existing monitoring tools, and ensure the roles and responsibilities of credit card coordinators are being executed as intended.
  • Clarify and communicate to acquisition card stakeholders the departmental guidelines for custodial asset tracking and reinforce its application.
  • Ensure that employees responsible for the use and management of the acquisition cards and fleet credit cards are provided with the necessary training (including reference material) needed to support the discharge of their responsibilities.
  • Strengthen communication and guidance from the Materiel and Procurement branch in support of the management of Acquisition and Fleet Card Programs to ensure that expectations are clearly stated and understood amongst all stakeholders.

Management Response

Management is in agreement with the audit findings, has accepted the recommendations included in this report, and has developed a management action plan to address them. The management action plan has been integrated in this report. 

  

2.0  BACKGROUND

Government credit cards, including acquisition and fleet cards, are charge cards that provide a convenient and practical method of procuring and paying for goods and services. They simplify the process thereby generating savings in procurement and payment processing. Furthermore, the use of fleet credit cards for the operation and maintenance of government vehicles ensures that vehicle-related expenditures can be tracked and monitored.

The use of government acquisition cards is highly encouraged across government; the total amount spent at Fisheries and Oceans Canada through these procurement and payment mechanisms went from $79.44 million in 2010-2011 to $96.89 million in 2011-2012. The department should be able to provide assurance to stakeholders that prudence and probity are being applied in the management and spending of public funds.

The rules and regulations governing credit cards in the federal government are based on the objective to provide a cost-effective, secure and convenient method of procuring and paying for government goods and services while ensuring effective financial control.

Fisheries and Oceans Canada has spent $187.39 million in more than 650,000 transactions during the period April 1, 2010 to March 31, 2012 using government acquisition and fleet cards. As of March 31, 2012 there were approximately 3,675 government acquisition cards and 1,700 fleet cards in circulation. The following table provides a regional breakdown of these expenses:

Table 1: Acquisition Card Expenditures by Region for April 1, 2010 to March 31, 2012

Region Name Total Dollar Value
(in millions $)
Total Number of
Transactions
Central & Arctic 24.05 77,000
Gulf 8.01 29,000
Maritimes 34.04 81,000
NCR 8.76 27,000
NF & Labrador 31.88 68,000
Pacific 56.67 161,000
Quebec 12.92 43,000
Total 176.33 489,000

Source:Financial system as of April 2012

  

Table 2: Fleet Card Expenditures by Region for April 1, 2010 to March 31, 2012

Region Name

Total Dollar Value
(in millions $)

Total Number of
Transactions

Central & Arctic 1.51 24,000
Gulf 1.11 17,000
Maritimes 2.35 38,000
NCR 0.07 1,000
NF & Labrador 2.12 26,000
Pacific 2.76 39,000
Quebec 1.12 20,000
Total 11.06 165,000

3.0  AUDIT OBJECTIVE 

The overall objective of the audit was to provide assurance that the internal controls in place over government credit cards, including acquisition and fleet cards, are adequate and effective to ensure process effectiveness, compliance with policies, efficiency, and accuracy of financial information. 

4.0  AUDIT SCOPE

Based on the Internal Audit Directorate’s knowledge from earlier audits, document review, interviews with stakeholders and data analysis, the scope of this audit included the Acquisition and Fleet Card Programs management and practices in the Pacific and Newfoundland and Labrador regions for the period of April 1, 2010 to March 31, 2012. 

Based on the results of the engagement planning risk assessment, the audit team identified that further examination was required for the following areas of highest risk:  

  • Departmental policy framework;
  • Management of the acquisition and fleet cards;
  • Use of the acquisition and fleet cards; and
  • Accuracy of financial information.

     

5.0  AUDIT APPROACH

The audit team carried out its mandate in accordance with Treasury Board’s Policy on Internal Audit and the Internal Audit Standards for the Government of Canada. These standards require that the audit be planned and performed in such a way as to obtain reasonable assurance that audit objectives are achieved. The audit included various procedures, as considered necessary, to provide such assurance. They were designed to draw conclusions on the existence and effectiveness of key controls in the scope areas examined. They were not designed to draw conclusions beyond the scope areas. These procedures employed various techniques including, interviews, transaction testing, as well as reviews and analysis of documentation and information.

6.0  AUDIT FINDINGS

The use of acquisition and fleet credit cards within the Government of Canada offers significant opportunities for savings in the procurement and payment process, where appropriate. It is within this context that the Treasury Board Directive on Acquisition Cards strongly encourages the use of an acquisition card when the purchase is within delegated transaction authority and it is efficient, economical and operationally feasible to do so (section 3.3).

It is acknowledged that during the conduct of this audit, the Government of Canada’s 2012, Economic Action Plan (Budget 2012) outlined the Department’s commitment to restructure its operations to achieve changes in contracting and accounting operations. The restructuring will result in the regional acquisition card coordinators’ tasks being transitioned from the regions to a centralized hub, under the responsibility of the Director General, Financial and Materiel Management and Operations, starting in the fall of 2013.

While the findings presented below are based on the existing regional organization structure for Acquisition and Fleet Card Programs, the recommendations in this audit report should be considered with the move to the centralized hub as a means of further ensuring that the Department’s Acquisition Card Program will be compliant with Treasury Board policies and directives, and that applicable controls are adequate and effective to ensure process effectiveness, efficiency, and accuracy of financial information.

The audit was conducted based on the lines of enquiry and audit criteria identified in the planning phase; conclusions by audit criterion are included in Appendix A. This section provides the observations and recommendations resulting from the audit work carried out. Audit findings are structured along the following main themes:

  • Policy Framework;
  • Cards Management;
  • Financial Controls;
  • Monitoring;
  • Accuracy of Financial Information; and
  • Training and Support to Employees.

Based on the audit work performed and our professional judgment, the risk associated with each observation was rated using a three-point scale. The risk ranking (high, moderate, low) is based on the level of potential risk exposure we feel may have an impact on the achievement of Fisheries and Oceans Canada’s objectives, and is indicative of the priority Management should give to the recommendations associated with that observation. The following criteria were used in determining the risk exposure level:

High Controls are not in place or are inadequate.
Compliance with legislation and regulations is inadequate.
Important issues are identified that could negatively impact the achievement of program/operational objectives.
Moderate Controls are in place but are not being sufficiently complied with.
Compliance with central agency/departmental policies and established procedures is inadequate.
Issues are identified that could negatively impact the efficiency and effectiveness of operations.
Low Controls are in place but the level of compliance varies.
Compliance with central agency/departmental policies and established procedures varies.
Issues identified are less significant but opportunities that could enhance operations exist.

6.1     POLICY FRAMEWORK

In order to establish a consistent approach that ensures effective financial controls for the administration of acquisition cards within government departments, the Treasury Board Directive on Acquisition Cards states in section 6.1 that the Chief Financial Officer is responsible for establishing risk-based management practices and controls to ensure economical, efficient and secure use of acquisition cards. In a similar context, the Treasury Board Directives on Fleet Management (Directive on Fleet Management: Light Duty Vehicles and Directive on Fleet Management:  Executive Vehicles) identify control requirements for fleet cards.  Departments elaborate on these central agency directives in their own policies to take into account the context in which they manage their Acquisition and Fleet Card Programs.  

Observations
Low 6.1.1 Policy Framework


The Department's policies for acquisition and fleet credit cards are established and communicated; however, these policies do not reflect the Treasury Board Policies and Directives currently in effect. There are sections within each of these policies that are out-of-date and need to be reviewed and revised to ensure compliance with Treasury Board requirements and alignment with the Department’s current organizational structure. The Chief Financial Officer Sector is aware of these weaknesses and is currently working on updating the policies.
 

The audit found that the Office of the Chief Financial Officer has developed policies to govern the Department's Acquisition and Fleet Card Programs. However, these policies were based on outdated versions of Treasury Board Policies and Directives. The Departmental Policy on Acquisition Cards is dated 2004 while the Treasury Board Directive is dated 2009.  The Departmental Policy on Motor Vehicles is dated 2002 and the Treasury Board Directive is dated 2006.  

Departmental policies were compared with the applicable Treasury Board policies and directives that govern the administration of acquisition cards and fleet management. The comparison found that departmental policies generally agree with the applicable Treasury Board directives, however exceptions were noted.  For example, the Departmental Policy on Acquisition Cards does not have roles and responsibilities for the current organizational structure. In addition, the Departmental Motor Vehicle Policy makes reference to the previous service provider.

As a result of the Department’s policies governing acquisition and fleet cards not being aligned with Treasury Board Directives or the Department’s current organizational structure, there is a risk that the actions taken, or not taken, by Cardholders, Responsibility Center Managers, or card management staff may put the Department in violation of the requirements prescribed by relevant Treasury Board Directives.

 
Recommendation Management Action Plan
R-1. As the Department restructures its operations to achieve the changes in procurement and accounting operations that were announced as part of the Department's commitments in the Government of Canada's 2012, Economic Action Plan (Budget 2012), the Chief Financial Officer should take measures to ensure that the department's policies and directives that govern the acquisition and fleet credit card programs are updated and aligned with all relevant Treasury Board policies, directives and related documents. The Fisheries and Oceans Canada Acquisition Card Policy will be finalized by March 31, 2013. A draft of the department's Vehicle Management Policy will be written by October 31, 2013, sent out for consultation and amended as required by January 31, 2014 and submitted for approval by March 31, 2014.  Both policies will be consistent and aligned with relevant Treasury Board policies, directives and related documents.  These policies will be available to all Fisheries and Oceans Canada users via the Chief Financial Office’s website and will be distributed to all Departmental Acquisition Card Holders.
Office of Primary Interest: Chief Financial Office Sector
Due Date: March 31, 2013 and  March 31, 2014

6.2     CARD MANAGEMENT

To  establish a consistent approach that ensures effective financial controls for the administration of acquisition cards within government departments, the Treasury Board Directive on Acquisition Cards states in section 6.1 that the Chief Financial Officer is responsible for establishing risk-based management practices and controls to ensure economical, efficient and secure use of acquisition cards.

In a similar context the Treasury Board Directives on Fleet Management state the following requirement: Departments must assign a vehicle-specific fleet credit card to each vehicle and must use this card for all fuel purchases, repairs and maintenance of the vehicle (section 5.3.5, Directive on Fleet Management: Light Duty Vehicles and section 5.6.1, Directive on Fleet Management:  Executive Vehicles).

Observations
Low 6.2.1 Card Management (Issuance, limit change and cancellations)


Controls over Government Acquisition Card management are generally adequate and compliant with the Treasury Board Directive and Departmental Policy. Nonetheless, file testing revealed that not all cardholder files had a signed acquisition card application form and/or an acknowledgement of responsibilities and obligations form. In a limited number of cardholder files, supporting documentation was not on file when changes were made to a card. In addition, the application form did not require that the Responsibility Center Manager who approved the request had to have Section 34 authority. 

Fleet nagement processes are generally adequate and effective in ensuring that a separate fleet credit card is assigned to each vehicle as required by the Treasury Board DirectiCard mave and Departmental Policy.

Acquisition Cards (MasterCard)

Currently, the Department's card management processes (issuance, limit changes and cancellation) are managed by Regional Coordinators and are not documented nationally, though some regions have documented their processes.

The issuance process begins with prospective cardholders submitting a card application form that requires the signature of a non-specific “Responsibility Center Manager”. However, the DFO policy on Acquisition Cards states it is the responsibility center manager who has budget responsibility that is accountable for approving the request for the issuance of a credit card.  The application form should be reviewed to make this distinction.

The results of the file review performed by the audit team on 70 cardholder files found that for 33 files a signed acquisition card application form was not on file.  In a limited number of files, the acknowledgement of responsibilities and obligations form (1 cardholder file) or documentation to support card limit changes (5 cardholder files) was missing.  This could be partly due to the fact that many of the cards have been issued years ago and processes may have differed in the past or portions of the file could have been archived. Furthermore, there is no routine process whereby card coordinators review cardholder files to ensure all required documentation is on file. For files with an application on file, they were generally signed by a Responsibility Center Manager.

In cases where there is no signed application on file, there is a risk that acquisition cards may be issued to employees without having been authorized by a Responsibility Centre Manger with the delegated authority. This risk is mitigated by the fact that transactions are coded to a responsibility centre budget and Responsibility Centre Managers must certify acquisition card charges.

Fleet Cards (ARI)

As described in the Treasury Board Directive and Departmental Policy, the Motor Vehicle operations should make use of fleet cards for motor vehicle expenses. The Treasury Board Guide to Fleet Management recommends that a separate credit card should be assigned to capture transactions on each individual vehicle. No more formal card management requirements are stated.

Currently, the Department’s issuance of fleet cards is part of the vehicle purchase process. The card is ordered in the vehicle's name as soon as the vehicle’s information is made available to Fleet Card Coordinators. All cards have a $1,000 limit on transactions; any change requires prior approval from the Responsibility Center Manager and Fleet Card Coordinator. Fleet cards are cancelled when vehicles are taken out of service.

Recommendation Management Action Plan
R-2. As the Department restructures its operations to achieve the changes in procurement and accounting operations that were announced as part of the Department's commitments in the Government of Canada's 2012, Economic Action Plan (Budget 2012), the Chief Financial Officer should ensure that when a new acquisition card is issued, the application is signed by the appropriate Responsibility Center Manager, with the delegated Section 34 authority, and maintained in the cardholder’s file.

As the Department restructures its operations in procurement and accounting operations as announced in Budget 2012, it is currently reviewing the process for issuing new Acquisition Cards, modifying the limits of the cards and cancelling the cards (as required) as an integral part of updating the Acquisition Cards Policy. A checklist will be created to verify completeness of files. The new process and checklist will be available to all Fisheries and Oceans Canada users via the Chief Financial Office’s website.

 
Office of Primary Interest: Chief Financial Office Sector
Due Date: March 31, 2013.
Recommendation Management Action Plan
R-3. The Chief Financial Offer should ensure that when changes are made to acquisition cards (for example, limit changes) that documentation justifying the change is completed and signed by the appropriate Responsibility Center Manager, with the delegated Section 34 authority, and maintained in the cardholder’s file. As the Department restructures its operations in procurement and accounting operations as announced in Budget 2012, it is currently reviewing the process for issuing new Acquisition Cards, modifying the limits of the cards and cancelling the cards (as required) as an integral part of updating the Acquisition cards Policy. A checklist will be created to verify completeness of files. The new process and checklist will be available to all Fisheries and Oceans Canada users via the Chief Financial Office’s website.
Office of Primary Interest: Chief Financial Office Sector
Due Date: March 31, 2013.

6.3     FINANCIAL CONTROLS

The Financial Administration Act legislated the implementation of financial controls such as those described in Section 32 and 34 of the Act to strengthen financial expenditure controls in government. As acquisition and fleet cards are the primary tool to pay for day-to-day transactions, their use falls under the purview of the Financial Administration Act.

Observations
Medium 6.3.1 Financial Controls


There is currently no documented evidence of Section 32 being executed on credit card transactions by those with delegated authority. The Chief Financial Officer Sector is currently discussing options to strengthen this control.

While all acquisition card registers examined had a Section 34 signature, a few supporting documents (e.g. invoices, receipts) were missing in a limited number of registers.  Also, coding errors and non-compliant transactions were present and they were not detected by the Responsibility Centre Managers who certified Section 34.

For fleet cards, the audit noted regional differences in the thoroughness of the application of the reconciliation and certification of Section 34 processes of fleet card invoices. In some cases, the fleet card invoice and supporting receipts were not available, or the fleet card invoice was certified under Section 34 even if all supporting receipts were not available.  In other cases, the fleet card invoice did not have a Section 34 signature.

Section 32

As per the Financial Administration Act, Section 32 approval is required before any contract or other arrangement providing for a payment shall be entered into. File testing did not uncover any documented evidence of Section 32 having been executed. Interviews indicated that Section 32 authority had been implicit or given verbally to cardholders by their Responsibility Center Managers. The lack of evidence to support Section 32 creates a risk that expenditures may be incurred and paid despite a lack of funds. Discussions are ongoing within the Chief Financial Officer Sector as to how to have Section 32 executed / documented for credit card transactions. 

Section 34 

As per the Financial Administration Act, Section 34 is required to ensure that the work has been performed, the goods supplied, or the services rendered. It is the Responsibility Center Manager's responsibility to ensure that all policies are being adhered to by reviewing the transactions, reconciling the receipts with card vendor summaries and certifying Section 34.    

Acquisition cards (MasterCard)

All acquisition card registers examined were signed by a Responsibility Center Manager with Section 34 authority. Despite having a Section 34 signature, file review noted various discrepancies with the registers that had been certified including missing original invoices and instances of wrong coding. The audit has also noted a few instances of non-compliant transactions such as fuel related purchases on acquisition cards, travel, and a double payment.

Fleet cards (ARI)

In February 2010, reconciliation processes were issued for fleet cards by Corporate Materiel Management, in cooperation with Corporate Accounting.  As part of these processes, Responsibility Centre Managers must reconcile the monthly fleet card invoice by verifying all vendor receipts against the transactions listed. The Responsibility Center Managers must then certify Section 34 by signing the monthly invoice and ensuring that the invoice and supporting receipts are maintained on file. Our file review revealed that in some cases, the fleet card invoice and supporting receipts were not provided, or the fleet card invoice was certified under Section 34 even if all supporting receipts were not attached. In other cases, the fleet card invoice did not have a Section 34 signature.

Overall, the number of exceptions observed during file testing indicates a lack of due diligence of some Responsibility Center Managers in the exercising of their Section 34 responsibilities. For example, 35 of 296 acquisition card transactions had coding errors and 15 of the 40 monthly fleet card invoices were missing at least one supporting receipt. There is a risk that the Department is automatically paying credit card balances which may include transactions that are not supported by an invoice, nor were reviewed in a manner that satisfies the Financial Administration Act requirements.

 
Recommendation Management Action Plan
R-4. As the Department restructures its operations to achieve the changes in procurement that were announced as part of the Department's commitments in the Government of Canada's 2012, Economic Action Plan (Budget 2012), the Chief Financial Officer should strengthen evidence of Section 32 for credit card transactions.   The Department will amend the application form to include language and a signature of the Responsibility Centre Manager to satisfy the legal requirement of Section 32. The renewal of this form will be done on an annual basis. 
Office of Primary Interest: Chief Financial Office Sector
Due Date: March 31, 2013.

R-5. On July 27, 2012, the Chief Financial Officer Sector issued “Account Verification Tools for Responsibility Centre Managers with Delegated Signing Authority under Section 34 of the Financial Administration Act”.  As the Department restructures its operations to achieve the changes in procurement and accounting operations that were announced as part of the Department's commitments in the Government of Canada's 2012, Economic Action Plan (Budget 2012), the Chief Financial Officer should continue to reiterate the requirement for  Responsibility Centre Managers to apply due diligence when executing Section 34 responsibilities.   

An In The Loop message will be prepared to remind Responsibility Centre Managers of their obligation to apply due diligence when executing Section 34 responsibilities.
Office of Primary Interest: Chief Financial Office Sector
Due Date: March 31, 2013.

6.4     MONITORING

As per the Treasury Board Secretariat’s Directive on Acquisition Cards and the Directive on Accounts Verification, the Chief Financial Officer is responsible for […] the implementation and monitoring of this directive in their departments […]. This responsibility applies to the monitoring of the Acquisition Card and Fleet Card Programs.

Observations

Medium

6.4.1 Monitoring


There is currently no national monitoring system in place.  Monitoring of transactions by national and regional acquisition card coordinators to ensure compliance with central agency and departmental policies and directives is performed on an ad hoc basis with the exception of one region where it is performed regularly.  This weakness was noted by the Internal Audit Directorate in its 2003 audit.

Acquisition Cards (MasterCard)

As per the Departmental Policy on Acquisition Cards, monitoring of purchases is among the responsibilities of the Acquisition Card Coordinators. They are required to monitor on a regular and ongoing basis the use of acquisition cards in the region, as a minimum, for the following items:

  • Occurrences of possible contract splitting; and
  • Occurrences of restricted transactions.

The audit found that monitoring frequency differed in the regions. In some regions, monitoring was not done or done on an ad hoc basis, while in one region it was regularly undertaken. Monitoring depth and scope also differed from one region to another. Some Regional Card Coordinators use computer-based scripts to generate reports, while others manually review all transactions one by one for a period of time on the card provider website. Another region performs a monthly review on a random sample of ten or so cardholders when the workload permits.

These monitoring techniques, in addition to being inconsistent from one region to another and time consuming, do not allow for trend analysis (i.e. analysis of patterns of card usage). Monitoring is important to provide management with assurance that purchases are compliant with policies. A sound monitoring system could identify and log repetitive errors and recalcitrant users and promote internal control adjustments (strengthening or softening) and/or disciplinary actions.

Fleet Cards (ARI)

Monitoring the use of the fleet cards is done on two levels, first by the card provider and then by regional vehicle managers who must monitor fuel consumption and maintenance costs on a regular basis. However, the level of monitoring undertaken by regional vehicle managers varies among regions. 

Overall, the lack of monitoring impedes the identification of potential risks and procedural shortcomings, which prevent the implementation of more effective controls or the introduction of enhancements to improve the efficiencies of credit card processes. This situation could result in non-compliant purchases being undetected and may lead to repetitive misuse of cards or even fraud.

Recommendation Management Action Plan
R-6. As the Department restructures its operations to achieve the changes in procurement that were announced as part of the Department's commitments in the Government of Canada's 2012, Economic Action Plan (Budget 2012), the Chief Financial Officer should implement a national monitoring system, reinforce the use of existing monitoring tools, and ensure the roles and responsibilities of Acquisition Card Coordinators are being executed as intended.

An In The Loop message will be prepared to remind Acquisition Card stakeholders that all other departmental policies, including those related to delegation of authority and verification of accounts must be respected when using the Acquisition Cards.  Also, as of March 1, 2015, on an annual basis, an e-mail will be sent directly to all responsibility center managers and acquisition card holders to remind them of the rules related to the use of acquisition cards. As well, on an annual basis, as of March 1, 2013, sector heads will be asked to remind their staff of their responsibilities with respect to monitoring card use.

As the Department restructures its operations in procurement and accounting operations as announced in Budget 2012, a standardized national monitoring strategy is being developed to monitor the compliance of the use of the acquisition cards on procurement transactions.

Office of Primary Interest: Chief Financial Office Sector
Due Date: March 31, 2013.

6.5     ACCURACY OF FINANCIAL INFORMATION

The Directive on Accounts Verification outlines the responsibilities for certifying Section 34 authority of the Financial Administration Act. It states that individuals who have been delegated authority to confirm and certify entitlement are responsible for verifying that the financial coding has been provided, is accurate and complete.

The Treasury Board Directive on Acquisition Cards states in section 6.1.6: The Chief Financial Officer is responsible for establishing risk-based management practices and controls to ensure economical, efficient and secure use of acquisition cards. Where acquisition cards are used for capital asset purchases, ensuring such transactions are properly recorded.

Observations

Medium

6.5.1 Accuracy of Financial Information


The process for coding acquisition card transactions is manual. Based on the audit sample, acquisition card transactions were not always recorded accurately. The process suffers from a lack of rigor by Responsibility Center Managers when verifying coding as part of their process to certify Section 34. For Fleet credit card transactions, coding is an automated process, thus, coding errors are non-existent.

Low-dollar-value (under $10,000) asset identification is not performed consistently due to the lack of national consensus on asset recording and communication of departmental practices.

Coding Accuracy

Coding for acquisition card transactions is entered by cardholders or their administrative staff and verified by Responsibility Center Managers as part of the Section 34 certification. When the transaction is high risk or selected as part of the low risk sample selection, they are reviewed by Financial Officers responsible for Accounts Verification. Despite these controls, file testing revealed many instances of Line Object coding errors.  There was also significant variation in Line Object use for similar transactions.

In order to reinforce oversight for the accuracy of coding, the Chief Financial Officer Sector issued a handbook in the Summer of 2012 with instructions and checklists that highlight the necessity for Responsibility Center Managers to verify financial coding when reviewing each payment when certifying Section 34.

Low-Dollar-Value Asset Recording

The Department currently does not have an approved policy addressing the recording of low-dollar-value assets. The audit team noted differing opinions between departmental staff at headquarters and the regions on accepted procedures related to the recording of low-dollar-value assets. Transactions in the two regions visited included many instances where assets above $1,000 and below $10,000 were not recorded, in contradiction with headquarters’ position on the recording of low-dollar-value assets. Inconsistency in the recording of low-dollar-value assets is partially due to the lack of guidance from national Headquarters. Low-dollar-value asset recording weaknesses impede their tracking and safeguarding and have a negative effect on asset management. This deficiency may lead to the loss of valuable and/or attractive items.

Recommendation Management Action Plan

R-7. As the Department restructures its operations to achieve the changes in procurement and accounting operations that were announced as part of the Department's commitments in the Government of Canada's 2012, Economic Action Plan (Budget 2012), the Chief Financial Officer should continue to reiterate the requirement for Responsibility Centre Managers to verify the accuracy of financial coding when executing Section 34 responsibilities.

An In The Loop message will be prepared to remind Responsibility Centre Mangers of their obligation to verify the accuracy of the financial coding when executing Section 34 responsibilities.
Office of Primary Interest: Chief Financial Office Sector
Due Date: In The Loop Message twice a year.
Recommendation Management Action Plan

R-8. The Chief Financial Officer should clarify and communicate to acquisition card stakeholders the departmental guidelines for custodial asset tracking.  

The Department of Fisheries and Ocean’s Directive on Moveable Assets will be finalized by March 31, 2014. This Directive will include departmental guidelines for custodial asset tracking into the financial system. The directive will be available to all DFO users via the Chief Financial Officer’s website and communicated via In The Loop.
Office of Primary Interest: Chief Financial Office Sector
Due Date: March 31, 2014.

6.6     TRAINING AND SUPPORT TO EMPLOYEES

To establish a consistent approach that ensures effective financial controls for the administration of acquisition cards within government departments, the Treasury Board Directive on Acquisition Cards indicates in section 6.1 that the Chief Financial Officer is responsible for establishing risk-based management practices and controls to ensure economical, efficient and secure use of acquisition cards by providing documentation to and training for cardholders.

Observations
Low 6.6.1 Training and Support to Employees


There is no national approach to providing training on acquisition or fleet credit cards to cardholders, Responsibility Center Managers or Card Coordinators. Some regions have developed their own material and service provider documentation is available for fleet cards.   

Support, guidance and communication among all stakeholders in the credit card programs are ad hoc.

The Treasury Board Directive on Acquisition Cards states in section 6.1, that the Chief Financial Officer has the responsibility to provide documentation and training to cardholders. The audit found that there is no national training material for cardholders, Responsibility Center Managers or Regional Card Coordinators. The principal means of training consisted of on-the-job training and mentoring from co-workers. Interviews conducted with Program Management indicated they believe that training is unnecessary given the simplicity of the program and the level of expertise currently in the organization.

The “Finance and Administration 101” website did contain information on acquisition cards; however it was outdated, contained misleading information and was removed in the Summer of 2012. The website did not have any information on fleet cards. The audit did find that some regions had developed their own training material for cardholders. A handbook from the fleet card provider is given to fleet cardholders.

Communication from national headquarters to regions is limited. Communications have been limited to national conference calls and periodic “In The Loop” messages.  In some regions, Card Coordinators communicate with cardholders via email. Once the policies have been updated, training and guidance will need to be developed and communicated to stakeholders. 

The lack of training, support and guidance creates a risk that cardholders may misinterpret or be misinformed as to acceptable practices. This would lead to Department employees performing actions that may not meet the Department’s or Treasury Board Secretariat’s policy and directive requirements. As part of detailed transaction testing, policy violations were noted.

 
Recommendation Management Action Plan

R-9. As the Department restructures its operations to achieve the changes in procurement and accounting operations that were announced as part of the Department's commitments in the Government of Canada's 2012, Economic Action Plan (Budget 2012), the Chief Financial Officer should take measures to ensure that employees responsible for the use and management of the  acquisition cards and fleet credit cards  are provided with the necessary training (including reference material) needed to support the discharge of their responsibilities. Measures should also be taken to strengthen communication and guidance from the Materiel and Procurement branch in support of the management of Acquisition and Fleet Card Programs to ensure that expectations are clearly stated and understood amongst all stakeholders.

With the finalization of the Acquisition Card Policy by March 31, 2013 the Department will update the related training material and offer national information sessions to existing Acquisition Card stakeholders. Training and reference material will be posted on the Chief Financial Officer’s website and regular communication will be published nationally via In The Loop.
Office of Primary Interest: Chief Financial Office Sector
Due Date: June 2013

7.0  AUDIT OPINION

Based on the audit findings, our opinion is that, overall, the Acquisition and Fleet Card Programs of the Department have adequate and effective internal controls in place to ensure process effectiveness, compliance with policies, efficiency and accuracy of financial information. There are, however, improvements that should be made as the Department restructures its operations to achieve the changes in procurement and accounting operations that were identified in the Government of Canada’s 2012, Economic Action Plan (Budget 2012). Keeping in mind that as changes are made to the Department’s acquisition and fleet card processes, these processes will need to continue to adhere to the relevant Treasury Board and Departmental policies. Furthermore, the changes will need to be communicated to stakeholders within and participating in the Acquisition and Fleet Card Programs. The improvements that should be made as the Department restructures are as follows:

  • Update the Department’s policies and directives that govern the Acquisition and Fleet Card Programs to reflect all relevant Treasury Board policies, directives and related documents and to align with the new organization structure.
  • Ensure that card management is strengthened to ensure that card applications, signed by the Responsibility Center Manager with the delegated Section 34 authority, are maintained in the cardholder’s file.
  • Improve evidence of control of commitments (Section 32) for credit card transactions.
  • Reiterate the requirement for Responsibility Centre Managers to apply due diligence when executing Section 34 responsibilities, including the verification of the accuracy of financial coding,   
  • Implement a national monitoring system, reinforce the use of existing monitoring tools, and ensure the roles and responsibilities of credit card coordinators are being executed as intended.
  • Clarify and communicate to acquisition card stakeholders the departmental guidelines for custodial asset tracking and reinforce its application.
  • Ensure that employees responsible for the use and management of the acquisition cards and fleet credit cards are provided with the necessary training (including reference material) needed to support the discharge of their responsibilities.
  • Strengthen communication and guidance from the Materiel and Procurement branch in support of the management of Acquisition and Fleet Card Programs to ensure that expectations are clearly stated and understood amongst all stakeholders.

8.0  STATEMENT OF CONFORMANCE

In my professional judgment as Chief Audit Executive, sufficient and appropriate audit procedures have been conducted and evidence gathered to support the accuracy of the opinion provided and contained in this report. The extent of the examination was planned to provide a reasonable level of assurance with respect to the audit criteria. The opinion is based on a comparison of the conditions, as they existed at the time, against pre-established audit criteria that were agreed on with Management. The opinion is applicable only to the entity examined and within the scope described herein. The evidence was gathered in compliance with the Treasury Board Policy and Directive on Internal Audit. The audit conforms with the Internal Auditing Standards for the Government of Canada, as supported by the results of the Quality Assurance and Improvement Program (QAIP). The procedures used meet the professional standards of the Institute of Internal Auditors. The evidence gathered was sufficient to provide Senior Management with proof of the opinion derived from the internal audit.

APPENDIX A - AUDIT CRITERIA

Based on a combination of the evidence gathered through documentation examination, analysis and interviews, each of the audit criteria listed below was assessed and a conclusion for the audit criteria was determined using the following definitions:

 Conclusion on Audit Criteria Definition of Opinion
1 Criteria Met - Well Controlled Well managed or no material weaknesses noted, controls are effective.
2 Criteria Met with Exceptions - Controlled Requires minor improvements.
3 Criteria Met with Exceptions - Moderate Issues Requires improvements in the areas of material financial adjustments, some risk exposure.
4 Criteria Not Met - High Impact -Significant Improvements Requires significant improvements in the area of material financial adjustments, serious risk exposure.

The following are the audit criteria and examples of key evidence and/or observations noted which were analyzed and against which conclusions were drawn. In cases where significant improvements and/or moderate issues were observed, these were reported in the audit report.

Audit Criteria Conclusion on Audit Criteria Examples of Key Evidence/ Observation
Line of Enquiry 1
To provide assurance that the department has an effective policy development process that results in sound and relevant policy direction that provides the discipline, standards and structure within which operational activities must take place.
Criterion 1.1: Financial management policies are established and communicated. They are reviewed regularly and revised as required to ensure compliance with central agencies' financial management policies. 2 6.1
Line of Enquiry 2
To provide assurance that the department’s stewardship of the Acquisition Card Program including fleet credit cards are enabled through controls. Control activities are established throughout all functions and prescribe how activities should be performed and prohibit inappropriate action.
Criterion 2.1: Card issuance, limit change and cancellation approvals are compliant with central agency and departmental policy and directive requirements. 2 6.2
Criterion 2.2: Purchases are compliant with central agency and departmental policies and directives and an effective monitoring system is in place and functioning as intended. 3 6.3 and 6.4
Criterion 2.3: GAC and Fleet card purchases are accurately reflected in DFO financial systems including the identification of assets. 3 6.5
Line of Enquiry 3
To provide assurance that employees have the knowledge necessary to support the achievement of their organizational objectives.
Criterion 2.1: The organization provides employees with the necessary training, tools, resources and information to support the discharge of their responsibilities. 2 6.6