Executive Summary

The Audit of Third Party Delivery Arrangements was identified in Western Economic Diversification Canada’s (WD) approved 2009-12 Risk-Based Audit Plan. The area of third party delivery arrangements was one of the key risks identified in the most recent departmental corporate risk profile.

The objective of the audit was to provide assurance that the risk management framework, governance 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 audit focused on programs and projects where funding was provided to recipients through third party organizations. Operating, investment and loan funds were distributed to third parties by WD, to be used in providing services to clients and to distribute funds through granting loans or funding. The programs and projects selected for this review were: Community Futures Program (CFP), Women’s Enterprise Initiatives (WEI), Francophone Economic Development Organization (FEDO), Entrepreneurs with Disabilities Program (EDP), Urban Entrepreneurs with Disabilities Program (UEDP), BC Community Futures – Rural Economic Diversification Initiatives (CF-REDI), Alberta Community Futures-Rural Diversification Initiatives (CF-RDI) and the Primrose Lake Weapons Range Project.

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 audit covered the period from April 1, 2007 to March 31, 2009, and integrated 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.

Findings

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.

The regions had been actively monitoring contribution agreements. However, the auditors did find two significant exceptions involving the Women’s Enterprise Initiative (WEI) contribution agreements. As a result of the Saskatchewan region not enforcing a clause in the agreement and the Manitoba region enforcing the clause but making a calculation error, WD had overpaid over $1.6 million to those two recipients. Management had become aware of this situation prior to this audit and had commenced action to resolve this issue and to prevent it from happening in the future.

The auditors found evidence of project risk assessment processes, active monitoring of third party performance, and financial statement review in all regions. Some opportunities for improvement in these areas were identified in this report.

Headquarters needs to provide adequate oversight and actively monitor regional practices regarding third party delivery. Headquarters should set out standardized guidelines and procedures for regions to follow when significant issues occur in managing third party relationships. Headquarters should develop these guidelines in consultation with regional program staff.

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 conclusion that WD has an adequate risk management framework, governance and controls in place for delivery of programs and projects by third parties, subject to the implementation of the recommendations included in this report.

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 accordance 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.