Executive Summary

The Community Futures Program Audit was identified in Western Economic Diversification Canada's (WD) approved 2009-12 Risk Based Audit Plan. WD has funded Community Futures organizations (CFs) since 1995 to provide three core services: local strategic economic planning services, business counselling, and loans to small and medium business in rural communities. The Community Futures (CF) Program:

• supports local rural communities and small and medium-sized enterprises (SMEs) in meeting their economic needs;
• helps rural communities to develop and implement long-term community strategic plans leading to the sustainable development of their local economies; and
• provides resources to local Community Futures organizations (CFs) to build community capacity to adapt to and manage change.

The objective of the audit was to provide assurance that:

• program authorities were adhered to;
• program funds were spent for the purposes intended;
• an effective process was in place to manage the distribution of pooled investment funds for CFs across Western Canada; and
• effective management control processes and practices were in place at WD and at the CFs.

The audit covered the period from April 1, 2006 to December 31, 2008. The audit methodology integrated review and analysis of relevant program and policy documents, interviews with key personnel at WD and at the CFs, and testing of transactions. Documents were reviewed as part of the audit process including, but not limited to: CF Program authority, Contribution Agreements, Treasury Board Policy on Transfer Payments, Financial Administration Act, Result Based Management Accountability Framework, CF Program Audit (2003), CF Program Evaluation (2008) and WD CF Program Risk-Based Audit Framework.

Findings and Conclusions

WD has made significant improvements in its management practices in implementing the recommendations made in the 2003 Audit of Community Futures Program. WD has developed standard templates to be used throughout the regions, standardized monitoring and review tools, a project risk assessment document, and a dashboard template to assess CF performance at a glance. However, the regions have not fully implemented these tools and processes. This report contains recommendations that address the most significant areas for improvement.

For the most part, the CFs adhered to the contribution agreements. WD has established a management control framework to further compliance to the program authorities and to monitor the CF operations and performance. However, WD's monitoring practices were inconsistent across regions and tended to rely heavily on externally audited financial statements of the CFs rather than a balance of active monitoring. All ten CFs visited had established sound internal controls and procedures to manage the CF investment funds. Two of the ten CF's visited had some weaknesses in their controls over their operating funds.

WD recently developed a few new investment policies to provide additional guidance to CFs on issues that have emerged over time. In addition, WD should consider whether some of the inactive investment funds could be better utilized to achieve overall program objectives.

Although WD has standard risk assessment templates to guide the annual risk assessment process, the overall risk assessment process should be enhanced. Three main findings support this conclusion: there were cases where the risk was assessed at low despite evidence that a higher risk ranking would have been more appropriate; the auditors could not find documented evidence to support that WD intervention was commensurate with the level of risk; and, there was no current mechanism to roll up significant regional risk issues to track trends or issues at a departmental level.

From time to time, WD has contracted special review work to deal with significant issues at selected CFs. In a couple of isolated cases in one region, the contractors found that the audits/reviews indicated that certain expenditures were ineligible. WD is aware of the situation and has initiated action to ensure compliance going forward. In addition, WD needs to initiate steps to either recover or write-off those ineligible funds.

Statement of Assurance

In my professional judgement as Chief Audit Executive, sufficient and appropriate audit procedures have been conducted and evidence gathered to support the accuracy of the conclusions provided and contained in this report on the effectiveness of management controls for the efficient delivery of Community Futures Program.

The assurance is based on a comparison of the conditions, as they existed at the time, against pre-established audit criteria that were agreed upon with management. The assurance is applicable to the policies and processes examined. The evidence was gathered in compliance with Treasury Board policy, directives, and standards on internal audit for the Government of Canada. The evidence has been gathered to be sufficient to provide senior management with the proof of the conclusions derived from the audit.