Introduction

Background

A number of Western Economic Diversification Canada (WD) programs are delivered through arrangements with third parties. One advantage of third party delivery is that third parties have a closer proximity to the clients and are better able to understand client needs. In addition, provision of programs through a third party provides the potential to leverage additional resources and to build upon pre-existing working relationships.

There are a number of disadvantages to partnering with third parties to deliver programs and projects. By having a third parties delivering programs, WD is distanced from the client and therefore, WD's direct interaction with the client is limited. As well, WD is one step removed from the program delivery and is reliant on the third party to achieve results for which WD is accountable. WD must ensure that adequate controls are in place to limit this risk.

The audit focused on programs and projects in which third parties received operating, investment, loan, or project funding, and delivered services and funding to clients. The programs and projects reviewed were:

• Community Futures Program (CFP) - support community economic development; diversify the economy; support the creation and expansion of small and medium-sized businesses; maintain and create new employment; and maintain the Minister's capacity to deliver business services to rural communities in Western Canada. 
  
  
• Women's Enterprise Initiatives (WEI) - assist women entrepreneurs to start or expand their own businesses by promoting the concept to women, increasing availability of capital, and providing services to assist women in developing the experience, expertise, assets and credit histories, enabling them to increase the numbers and strength of women entrepreneurs. 
  
  
• Francophone Economic Development Organization (FEDO) - develop and provide a full range of services vital to business development such as information, training, mentoring, counseling, entrepreneurship promotion, and the development of special economic development initiatives to francophone entrepreneurs. 
  
  
• Entrepreneurs with Disabilities Program/Urban Entrepreneurs with Disabilities Program (EDP/UEDP) - provide specialized support, training/coaching, counseling, and small business loans to clients. 
  
  
• Community Futures - BC Community Futures-Rural Economic Diversification Initiatives (CF- REDI) and Alberta Community Futures-Diversification Initiatives (CF-RDI) - help communities achieve significant rural diversification outcomes by providing contributions to communities and helping CF organizations strengthen their capacity to identify, develop and deliver projects that diversify the rural economy. 
  
  
• The Primrose Lake Air Weapons Range Project - assist and promote economic development in the communities within the Primrose Lake Area affected by the establishment of the Primrose Lake Air Weapons Range in 1953 and to enhance the long-term economic viability and sustainability of those communities.

Most of these individual initiatives have been audited in the past. This audit focused on WD's general processes and controls around managing third party delivery arrangements and did not duplicate prior program-based audit work.

The approved funding and number of organizations funded are summarized in the table below.

Program/Project	Fiscal Year	Funding ($ Million)	# of Org Funded	Notes
Community Futures Program	2007-09	$55.3	94
Women's Enterprise Initiatives	2007-09	$7.8	4
Francophone Economic Development Organization	2007-09	$4.3	4
Entrepreneurs with Disabilities Program/Urban Entrepreneurs with Disabilities Program	2007-09	$3.1	11
Community Futures - Rural Diversification Initiatives (Alberta)	2007-09	$1.7	1	Note 1
Community Futures - Rural Economic Diversification Initiatives (British Columbia)	2008-09	$0.5	1	Note 2
The Primrose Lake Air Weapons Range Project	2007-09	$15.0	1	1
Total		$87.70	116	Note 3

Note 1 - CF Network of Alberta (CFNA) is the project proponent. CFNA provides funding to CFs in Alberta on a project basis.
Note 2 - Project start date - October 8, 2008. CF Development Association of (CFDA) British Columbia is the project proponent. CFDA of BC provides funding to CFs in British Columbia on a project basis.
Note 3 - Funding excludes loan funds.

Audit Objectives

The overall objective of the audit was to provide assurance that the governance, risk management framework and controls in place at WD for delivery of programs and projects by third parties were adequate to ensure the achievement of intended results.

The sub-objectives were:

• to determine the effectiveness of the governance framework in place for dealing with third parties;
• to ensure adequate stewardship over funds provided to third parties;
• to ensure a risk management process is in place whereby actions taken are based on assessed risk; and
• to ensure that WD is providing third parties with required resources to discharge their responsibilities.

Key Risks

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

• controls at WD are so tight that WD influence third parties to the extent that they become agents of WD;
• third parties mismanage funds provided;
• fraud at third party organization;
• poor accountability from third parties and therefore goals and objectives are not achieved;
• goals and objectives of third parties are not in alignment with WD goals and objectives;
• third parties’ performance is not adequately measured in such a way to verify success; and
• inaccurate or unsupported payments to third parties.  

Scope and Methodology

The audit covered the period from April 1, 2007 to March 31, 2009. The audit included review and analysis of relevant program and policy documents, interviews with key personnel at WD, and testing of transactions. The auditors reviewed a number of key documents including: Treasury Board Policy on Transfer Payments; The Treasury Board Directive on Transfer Payments; and The Report of the Independent Blue Ribbon Panel on Grants and Contributions Programs.

Acknowledgements

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