Findings and Recommendations

Oversight and Performance Measurement

Criteria: Effective oversight exists to ensure timely, accurate, and sufficient financial and operating information and reporting. Adequate monitoring is done to ensure compliance to terms and conditions of contribution agreements. Third parties have a clear understanding of priorities and performance targets. Appropriate performance measures linked to planned results were identified. Targets were established. Reports are periodically verified for accuracy and results are compared to expectations. Processes and procedures exist to support the reliability of data used for performance measurement. WD has clearly defined and communicated strategic directions, authority and responsibilities to third parties.

The auditors found that WD had an effective governance and oversight framework, and that controls were in place from program inception to project completion. WD had all the relevant Treasury Board program authorities in place. Adequate project development, assessment and approval processes were in place.

Contribution agreements are a critical tool in the management of third party arrangements. Through contribution agreements, WD spells out its requirements that third parties must follow as a condition of funding. In order to achieve the intended results, the terms and conditions of the agreements must be clear and understood by both parties and WD must monitor those terms and conditions on an ongoing basis.

Contribution agreements examined were found to be consistent with existing program authorities. The agreements set out the purpose of the project, project costs, funding, eligible and ineligible expenditures, deliverables, reporting performance targets and indicators, along with obligations and responsibilities of both parties.

During the audit, the auditors came across two significant errors related to the Women’s Enterprise Initiatives (WEI) loan funds that had occurred in the Saskatchewan and Manitoba regions. The WEI agreements included a clause defining the parameters when interest earned on WEI loan funds must be used to offset operating costs and reduce the amount of WD’s contribution.

In Saskatchewan’s case, the Project Officer assigned to the WEI monitored the contribution agreement but did not apply the relevant clause. As at March 31, 2009, the total accumulated interest not transferred to the Operating Fund was $1,118,892. Regional management first became aware of this omission in the fall of 2008 and then started action to resolve the issue in conjunction with headquarters. During the entire period in which WD did not apply this clause correctly, the WEI’s external auditors provided WD with annual assurance that the WEI was complying with the contribution agreement in all material aspects.

In Manitoba, the region had enforced this same clause since the agreement started, but the region made an error in calculating the amount to be transferred. The region realized that they had incorrectly calculated the amount in April 2009, following a conference call with headquarters to discuss the Saskatchewan omission. As at March 31, 2009, the total accumulated interest that should have been transferred to the Operating Fund was $525,796. The cumulated overpayment by WD for both regions was over $1.6 million.

Both Saskatchewan and Manitoba regions are strengthening their monitoring controls to ensure this situation does not recur. In addition, headquarters needs to establish guidelines and procedures for regions to follow both to prevent future recurrences and on how to deal with future significant issues if they arise.

One of WD’s controls to ensure that third parties’ (CF’s, WEI’s and FEDO’s) activities align with WD’s objectives and priorities is the requirement for third parties to develop annual operating plans and to submit them to WD for review. WD has developed operating plan templates to be used by third parties to assist their development of their annual operating plans. In Saskatchewan, the Program Manager did not sign off on 7 out of 12 operating plans sampled. The region will establish procedures to ensure that all future operating plan reviews are signed off.

A key control for WD to be able to accurately determine the performance of third parties is the establishment of performance measures and standards. Starting in 2008-09, WD established minimum performance standards for CFs, WEIs and FEDOs based on agreed upon performance indicators. Project Officers monitored these minimum performance standards in addition to other agreed upon performance targets of the recipients. Alberta was the only region that formally advised the individual CFs and WEI of their performance in 2008-09 against the standards.

To provide effective oversight, regional management needs to be advised of those third parties that did not meet the minimum performance standards. Alberta has initiated a formal management reporting process that includes a mid year performance report to the Director General and a report on performance of partners to the Assistant Deputy Minister. The other regions have various procedures in place around the tracking and reporting of performance standards.

The auditors found inconsistency across the regions in the completion of the Quality Assurance Reporting File Contents and Best Practices Checklist (QAR). Officers need to complete and sign off a QAR annually for each project to ensure responsible fund management and adequate reporting on performance.

The auditors did not find any recent management assessment as to whether delivering programs through third parties achieved program results in a more efficient and cost-effective manner than through direct program delivery.

Recommendation # 1: WD should strengthen regional practices for monitoring compliance to contribution agreements. In addition, WD headquarters should engage in risk-based active monitoring of regional practices.

Recommendation # 2: To enhance regional oversight, regions should establish a formal performance reporting process on the success of programs and projects delivered by third parties and on any significant issues identified. This process should include an annual report to regional senior management.

Stewardship and Accountability

Criteria: Payments made by WD to third parties are accurate, adequately supported and approved. Financial statements/reports are examined and analyzed to ensure funds were used for intended purposes. WD takes appropriate action to recover ineligible expenditures to third parties.

The claims review process is a critical control to ensure that WD only pays for eligible expenditures made by third parties. Unlike the other three regions, Saskatchewan does not have a separate and distinct Monitoring and Payments group. Project Officers manage projects from start to finish. Project development, assessment and administration functions were not segregated from the claim processing and financial statement review functions in Saskatchewan. Program managers did review and approve claims, so some supervisory controls partially compensate for the lack of segregation of duties. In the other three regions, where Monitoring and Payments Officers exist, adequate documentation, review, and sign off on claims was noted.

One of the key tools that WD used to assess third party compliance and performance was the review of financial statements. Although all regions performed review on the financial statements submitted by the recipients, review processes were not consistent across the regions. Alberta and Manitoba have developed financial statement review templates. BC has developed a review checklist. As a result of this audit, the BC region will initiate discussions with the other regions regarding the development and use of a common checklist and template.

Recommendation # 3: WD should standardize the financial statement review processes and should develop standard financial statement and loan fund review templates.

Risk Management

Criteria: Management has a documented approach with respect to risk management. Appropriate action is taken where the risk assessment indicates it is warranted.

WD was found to have a risk management framework and measures in place to manage and mitigate risks associated with third party delivery programs and projects. The framework includes:

• monitoring recipients compliance to agreements;
• reviewing project proposals, operating plans or work plans to ensure recipients set out their goals and objectives, planned activities, budgets, and performance targets;
• reviewing financial statements/reports to ensure recipients provide proper accountability of funds received and funds are used for intended purposes;
• reviewing quarterly performance and/or progress reports to monitor recipients’ performance in delivering WD programs/projects;
• conducting annual project risk assessment and monitoring activities based on risks;
• conducting risk review of projects during claim processing;
• reviewing claims to ensure they are accurate, supported and authorized; and  
• providing training and guidance, program information, performance reporting guidelines, and claim packages to recipients.

The regions conducted annual project risk assessments for recipients receiving core funding (e.g., CFs, WEIs, FEDOs). Monitoring activities are based on the risk assessed and include site visits, meetings with the recipient staff, or attendance at a board meetings where required. Officers were found to be actively involved in the annual project risk assessment process. Officers did not complete risk assessments in exceptional cases (e.g., living centres or credit unions), but WD is moving to doing risk assessments for all projects.

WD has been delivering programs for years through third parties and has very experienced staff in each region. WD relies on the professional judgment of staff to assess risk and intervene accordingly commensurate with the level of risk. WD should develop risk-based intervention guidelines to assist regional program officers with some guidance when some intervention steps are necessary to deal with issues emerging from third parties. These guidelines should have specific provisions to deal with suspected or alleged cases of fraud at third party organizations where WD funding is possibly impacted.

Recommendation # 4: WD should develop risk-based intervention guidelines and procedures to assist regional program officers in their dealings with third parties.

Training and Support

Criteria: WD ensures that third parties have the necessary training, tools, resources and information to support the discharge of their responsibilities.

The auditors found that WD has invested in training for third parties. In 2008, 102 business network partners (90 CFs, 4 CF Associations, 4 WEIs and 4 FEDOs) received $10,000 each for computer upgrades. The regions indicated that training on quarterly performance reporting had been provided to users (CFs, WEIs, and FEDOs) of The Exceptional Assistant software. In addition, regions provided recipients with the WD Financial Statement Guide, operating plan guidelines and templates, performance reporting guidelines and claim packages. The regions provided assistance to recipients in preparing operating plans and performance reports.