Western Economic Diversification Canada
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Executive Summary

The audit of Year-End Procedures was identified in the approved 2011-2012 Risk-Based Audit Plan of Western Economic Diversification Canada.

The purpose of the audit was to assess the adequacy and effectiveness of internal controls relating to year-end procedures. Such procedures must be designed to ensure that the financial information used for managing budgets and reporting financial results is reliable and timely. This is challenging when many transactions have to be determined, communicated and processed over a relatively short timeframe at year-end, particularly in a decentralized environment as is the case in the department.

The audit focused on the processes that were operational at 2010-11 fiscal year-end and, where necessary, the preceding year-end.

Findings

Overall, the department has designed and implemented adequate year-end procedures and controls over payables, commitments and financial reporting. 

For effective monitoring of budgets at the corporate level, data in the department’s financial system must be supplemented by up to date information that regions determine in terms of new commitments, changes to existing commitments and strategies to minimize the lapse. There is a time lag between when such information is anticipated by regions to when it becomes certain to when it is approved by regional management, communicated to headquarters and recorded in the financial and project management systems. This situation is further complicated at year-end when there is large volumes of transactions to be processed over a period of two to three weeks.

Under these circumstances, and with regions diligently aiming to minimize lapse of their allotted funds and generally averse to declare surpluses earlier in case they may be needed for regional priorities, expected year-end budget status at the corporate level is not accurately determinable with sufficient certainty until late in the fiscal year. This gives rise to financial management and reporting risks.

The role of the Chief Financial Officer as key steward for department-wide financial management and support to the Deputy Head in his role as the "accounting officer" is critical in the department’s decentralized organization structure to ensure that financial risks are appropriately monitored and mitigated. The recent requirement for regions to identify surpluses that can be reallocated early is a good step to foster effective financial management practices. Equally important is to ensure that any corporate initiative or funding commitment requiring regions to make changes to their budget plans or strategies is communicated to them in a timely manner.

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 the department has established reasonable year-end procedures and controls over payables, commitments and financial reporting. Earlier identification and improved accuracy of PAYEs and timely internal communication of new funding initiatives would further strengthen financial management practices.

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, processes and controls examined. The evidence was gathered in accordance with Treasury Board policies, directives, and standards on internal audit for the Government of Canada. Sufficient evidence was gathered to provide senior management with the proof of the conclusions derived from this audit.

Donald MacDonald
Chief Audit Executive