Introduction

Background

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. In 2006, WD signed new four-year agreements to enable the CFs to continue operations. There are 90 non-profit CFs in Western Canada (27 in Alberta, 34 in British Columbia, 16 in Manitoba, and 13 in Saskatchewan). There are also four CF Associations, one in each western province, that provide support and coordination for CFs in their region. The approved four-year funding for the CFs and CF Associations was $110.5 million and summarized below:

Millions of Dollars

Region	2006-07	2007-08	2008-09	2009-10	Total
AB	$8.2	$8.4	$8.5	$8.7	$33.8
BC	$9.9	$10.1	$10.3	$10.5	$40.8
SK	$3.9	$4.0	$4.1	$4.1	$16.1
MB	$4.8	$4.9	$5.0	$5.1	$19.9
Total	$26.8	$27.4	$27.9	$28.4	$110.5

WD key responsibilities under the Community Futures program authorities are:

• to maintain adequate program and financial controls, systems, procedures and resources to ensure strict adherence to government policies and regulations, due diligence in approving transfer payments, verifying entitlement, eligibility and results achieved, and for management and administration and follow-up of the program;
• to develop and implement policies and procedures for adequate monitoring of results achieved for program activities governed by contribution agreements and for obtaining suitable information from CFs on their Operating and Investment Fund policies and procedures to ensure adequate departmental accountability; and
• to be responsible for determining whether recipients have complied with the contribution agreement terms and conditions. This responsibility includes audit of CFs and their client files when deemed necessary.

In support of a request for funding, each CF prepares an annual plan, or a multi-year plan with annual updates. In this plan, the CF reports on all planned activities for the upcoming year, including Investment Fund activities. The plan includes a statement of the measurable objectives and targeted results of the program activities for the upcoming year, the strategy the CF intends to employ to achieve those results, and a budget plan for the upcoming year.

Audit Objectives

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.

Audit Criteria

The audit criteria have been drawn from the program authorities, contribution agreements, program audit and evaluation frameworks, Treasury Board Policy on Transfer Payments, and Treasury Board standards for internal audit. Detailed audit criteria are included in the Findings and Recommendations section of this report.

Key Risks

The audit program was designed to test the existence and effectiveness of WD’s controls to mitigate the following key risks:

• management capacity at CFs may be insufficient to ensure compliance and achievement of program results;
• ineligible costs may be claimed and paid;
• inadequate due diligence exercised by CFs to manage the Investment Funds;
• Operating and Loan Investment Funds may not be used for intended purposes;
• program objectives and intended results may not be achieved; and
• non-compliance with Treasury Board requirements and terms and conditions of contribution agreements.

Scope and Methodology

The audit covered the period from April 1, 2006 to December 31, 2008. The audit methodology included review and analysis of the program and management practices and control processes, and interviews with key personnel at WD and at the CFs. A judgemental sample of five CF project files including 15 advance payments was examined in each region. The total number and dollar value of samples were 60 and $4.5M, these represent 5% and 6% of the population respectively. Ten of 90 CFs (11%) across western Canada were visited to obtain information on management controls and practices, and to review sample files.

In this audit, the auditors followed up on the findings and recommendations in the 2003 audit of the Community Futures Program.

Acknowledgements

The auditors would like to thank WD and CF staff for the timely cooperation and assistance provided to the audit team throughout this engagement.