Audit of the Process for CFO Attestation (AU1505)

TABLE OF CONTENTS

EXECUTIVE SUMMARY

INTRODUCTION

Ministers expect sound financial information supported by appropriate due diligence when making decisions on Cabinet submissions and their proposed use of resources. A new Treasury Board Secretariat (TBS) Guideline on Chief Financial Officer (CFO) Attestation for Cabinet Submissions took effect on January 1, 2014. The purpose of this guideline is to provide a formalized framework and practical guidance for departmental CFOs in their due diligence reviews and the attestation that they provide on the financial management aspects of Cabinet submissions. This review and attestation is performed to support informed decision-making by the Government of Canada.

It is expected that six fundamental assertions statements are to be used to convey a CFO’s attestation conclusions in support of financial decision-making for a Cabinet submission. These assertions statements relate to the disclosure of the nature, extent, and assumptions of the proposal which have a bearing on financial requirements; disclosure of significant financial risks, sensitivities, and risk-mitigation strategies; disclosure of financial resource requirements and cost-containment options; identification of sufficient funding for the proposal; the proposal’s compliance with relevant financial management legislation, policies, and authorities; and the key financial controls to support the implementation and ongoing operation of the proposal.

The Attestation Letter includes the CFO's overarching opinion on the sufficiency of the proposal's information for decision-making on financial resource implications. This opinion takes into account the six assertions statements and any observations made. The CFO should be prepared to justify the final conclusion based on the due diligence and professional judgment applied.^Footnote1

At Natural Resources Canada (NRCan), the preparation of Cabinet submissions, including Memoranda to Cabinet (MCs) and Treasury Board Submissions (TB Subs), is the responsibility of the program managers in each Sector. In this role, Sector program managers are responsible for developing the program cost estimates within TB Subs and MCs. The Science and Policy Integration (SPI) Sector leads the coordination and provides advice and guidance on MCs prepared by program managers. The Financial Renewal and Capacity Building group in the Finance and Procurement Branch (FPB) within the Corporate Management and Services Sector (CMSS) coordinates TB Subs and supports the CFO in the Attestation Letter process for Cabinet submissions. Both the Sector Financial Advisors (SFAs) and the Centre of Expertise (CoE) fall within the Financial Renewal and Capacity Building group.

NRCan has established a Department-wide review process on Cabinet submissions, which incorporates comments from each of the Department’s functional areas. The same process is followed for multi-departmental Cabinet submissions. The SFAs provide functional guidance by reviewing the direct program costs developed by the programs, and by inputting cost data into a standard costing model to calculate internal services costs. The CoE provides advice and guidance on TB Submission requirements; reviews the financial requirements of the draft Cabinet submission; and provides feedback on the documentation used to support the Cabinet submission, including the Self-Assessment Questionnaire (SAQ), a template designed by the CoE and completed by program management to capture explanations on how the proposed Cabinet submission meets the requirements of the six assertions statements.

The objective of the audit was to provide reasonable assurance that NRCan has an adequate process in place to effectively support the CFO attestation process for Cabinet submissions.

STRENGTHS

Overall, NRCan’s controls related to the CFO attestation process are properly designed and applied effectively. The roles and responsibilities of the CFO, CoE, and SFAs are defined, communicated, and understood by the Sectors. Documentation and analysis to support the CFO attestation process is adequate and sufficient, including the SAQ based on the six assertions statements as well as a Corporate Cost Model (CCM) used to assess internal services costs. In addition, work is appropriately organized to perform Cabinet submission attestation activities effectively, efficiently, and in a timely manner, by assigning CoE analysts to specific Cabinet documents and an SFA to each Sector.

AREAS FOR IMPROVEMENT

The audit identified opportunities for improvement with regards to clarifying the expectations of the SFAs with respect to challenging direct program costs and approvals for the CFO attestation process, and adding structure to the manner in which direct program cost estimates are developed.

INTERNAL AUDIT CONCLUSION AND OPINION

In my opinion, overall, NRCan has an adequate process in place to effectively support the CFO attestation process for Cabinet submissions. Opportunities exist to clarify the expectations of the SFAs and to add structure to the manner in which direct program cost estimates are developed.

STATEMENT OF CONFORMANCE

In my professional judgement as Chief Audit Executive, the audit conforms with the Internal Auditing Standards for the Government of Canada, as supported by the results of the internal Quality Assurance and Improvement Program.

Christian Asselin, CPA, CA, CMA, CFE
Chief Audit Executive

ACKNOWLEDGEMENTS

The audit team would like to thank those individuals who contributed to this project and, particularly employees who provided insights and comments as part of this audit.

INTRODUCTION

Ministers expect sound financial information supported by appropriate due diligence when making decisions on Cabinet submissions and their proposed use of resources. A new Treasury Board Secretariat (TBS) Guideline on Chief Financial Officer (CFO) Attestation for Cabinet Submissions took effect on January 1, 2014. The purpose of this guideline is to provide a formalized framework and practical guidance for departmental CFOs in their due diligence reviews and the attestation that they provide on the financial management aspects of Cabinet submissions. This review and attestation is performed to support informed decision-making by the Government of Canada.

Given their broad responsibilities under the TBS Policy on Financial Management Governance, CFOs are well positioned to assess the financial information provided in key decision-making documents and to provide expert conclusions on their utility for decision-making. The CFO's challenge and attestation role is based on corporate financial stewardship and on being an objective strategic business adviser on matters such as risk management, the examination of financial options, and cost containment. Overall, the CFO is mandated to provide objective and independent advice to the Deputy Head (DH) as the Accounting Officer for the department.

It is expected that the following six fundamental assertions statements are to be used to convey a CFO’s attestation conclusions in support of financial decision-making related to a Cabinet submission:

1. The nature and extent of the proposal is reasonably described and material assumptions having a bearing on the associated financial requirements have been disclosed and are supported.
2. Significant risks having a bearing on the financial requirements, the sensitivity of the financial requirements to changes in key assumptions, and the related risk-mitigation strategies have been disclosed.
3. Financial resource requirements have been disclosed and are consistent with the assumptions stated in the proposal, and options to contain costs have been considered.
4. Funding has been identified and is sufficient to address the financial requirements for the expected duration of the proposal.
5. The proposal is compliant with relevant financial management legislation and policies, and the proper financial management authorities are in place or are being sought through the proposal.
6. Key financial controls are in place to support the implementation and ongoing operation of the proposal.

The Attestation Letter includes the CFO's overarching opinion on the sufficiency of the proposal's information for decision-making on financial resource implications. This opinion takes into account the six assertions statements and any observations made. The CFO should be prepared to justify the final conclusion based on the due diligence and professional judgment applied. ^Footnote2

At Natural Resources Canada (NRCan), the preparation of Cabinet submissions including Memoranda to Cabinet (MCs) and Treasury Board Submissions (TB Subs) is the responsibility of the program managers in each Sector. In this role, Sector program managers are responsible for developing the program cost estimates within TB Subs and MCs. The Science and Policy Integration (SPI) Sector leads the coordination and provides advice and guidance on MCs prepared by program managers. The Financial Renewal and Capacity Building group in the Finance and Procurement Branch (FPB) within the Corporate Management and Services Sector (CMSS) coordinates TB Subs and supports the CFO in the Attestation Letter process for Cabinet submissions. Both the Sector Financial Advisors (SFAs) and the Centre of Expertise (CoE) fall within the Financial Renewal and Capacity Building group.

NRCan has established a Department-wide review process on Cabinet submissions, which incorporates comments from each of the Department’s functional areas. The same process is followed for multi-departmental Cabinet submissions. The SFAs provide functional guidance by reviewing the direct program costs developed by the programs, and by inputting cost data into a standard costing model to calculate internal services costs. The CoE provides advice and guidance on TB Submission requirements; reviews the financial requirements of the draft Cabinet submission; and provides feedback on the documentation used to support the Cabinet submission, including the Self-Assessment Questionnaire (SAQ), a template designed by the CoE and completed by program management to capture explanations on how the proposed Cabinet submission meets the requirements of the six assertions statements.

AUDIT PURPOSE AND OBJECTIVES

The objective of the audit was to provide reasonable assurance that NRCan has an adequate process in place to effectively support the CFO attestation process for Cabinet submissions.

AUDIT CONSIDERATIONS

An internal audit of the Process for CFO Attestation was identified as part of the Deputy Minister- approved Risk-Based Audit Plan for 2014-15. A risk based approach was used in establishing the objectives, scope, approach, and criteria for this audit engagement. A summary of the key underlying risks that were taken into consideration are as follows:

• Roles and responsibilities may not be clearly defined, understood, or communicated to adequately support the CFO Attestation Process;
• There may be a lack of documented guidelines, tools, procedures, training, and templates to support compliance with the TBS Guideline on Chief Financial Officer Attestation for Cabinet submissions;
• Human resources allocated to the CFO attestation process may not be sufficient to effectively and efficiently support the CFO attestation process; and
• There may be inadequate and/or insufficient analysis and documentation to support the CFO attestation.

SCOPE

The scope of the audit included an examination of the governance, risk management, and control processes in place to support the CFO attestation process for Cabinet submissions. The audit examined a sample of Cabinet submissions that were submitted for approval between January 1, 2014 and January 31, 2015, to reflect the period the guideline became effective. Samples were selected with a focus on the last three months of the audit period to reflect the most recent process.

The engagement scope was limited to policies, processes, and procedures related to the CFO attestation process and did not include an assessment of the entire Cabinet submission process. In the case of submissions involving more than one department, the scope was limited to the participation and perspective of NRCan only. The scope of the audit also did not include an examination of the internal services costing model.

APPROACH AND METHODOLOGY

The approach and methodology followed the Internal Auditing Standards for the Government of Canada, which incorporates the Institute of Internal Auditors’ International Standards for the Professional Practice of Internal Auditing. These standards require that the audit be planned and performed in such a way as to obtain reasonable assurance that audit objectives are achieved.

The audit included various tests, as considered necessary, to provide such assurance. Internal auditors performed the audit with independence and objectivity as defined by the Internal Auditing Standards for the Government of Canada.

The audit methodology was based on internal auditing guidelines and included:

• Interviews with key personnel involved in the CFO attestation process;
• Reviews of key documents and relevant background documents; and
• Tests of Cabinet submissions which included a requirement to provide a CFO attestation.

CRITERIA

Please refer to Appendix A for the detailed audit criteria which guided the audit fieldwork and formed the basis for the overall audit conclusion.

FINDINGS AND RECOMMENDATIONS

ROLES, RESPONSIBILITIES, AND RESOURCES

Summary Finding

Overall, roles and responsibilities related to the CFO attestation process for Cabinet submissions are clearly defined, understood and communicated. The audit found, however, that additional clarification of the expectations of the SFAs could be provided regarding their challenge function of direct program costs and their approval of CFO attestation process documents.

Supporting Observations

The audit noted that work is appropriately organized to perform Cabinet submission attestation activities effectively, efficiently, and in a timely manner. A SFA is assigned to each Sector to support financial management processes such as the CFO attestation. In addition, financial analysts within the CoE are assigned to specific Cabinet documents (MCs and TB Submissions).

In addition, NRCan has implemented various guidelines related to the CFO attestation process for Cabinet submissions. To that end, the Financial Renewal and Capacity Building group has, through the NRCan Intranet site and other communication channels (e.g. email), provided guidance on roles and responsibilities related to Cabinet submissions and the CFO attestation process. Furthermore, roles and responsibilities relating to the CFO attestation process, including requirements, are further defined at the launch meeting when the Cabinet submission process is initiated. Specifically, the timing of the CFO organization’s involvement in the Cabinet submission process is communicated to the responsible program manager.

As discussed above, the CoE has created a Self-Assessment Questionnaire (SAQ) based on the six assertions statements that are identified in the TBS Guideline on Chief Financial Officer Attestation for Cabinet Submissions. The SAQ is completed by the program and signed by the program Director General and the program Assistant Deputy Minister (ADM). The explanations provided within the SAQ illustrate how the proposed Cabinet submission meets the requirements of the six assertions statements. The assigned SFA assists the program in preparing the SAQ and signs it as proof of their review. The audit found that the SAQ was an appropriate and useful tool to support the CoE’s preparation of the CFO Attestation Letter and the CFO’s review; however, although the tool is adequate, the audit found that the expectations of the SFAs could be further clarified regarding their sign-off responsibilities for the SAQ.

It was also observed that the CoE expected that the SFAs and the program Director General jointly recommend the Financial Costing Information Summary Sheet which includes the output of the Corporate Costing Model costs and the direct program costs for the approval of the program ADM. The audit found that the expectations of the SFAs could be further clarified regarding their role in the development of the direct program costs.

RISK AND IMPACT

Without sufficient review and challenge of the direct program costs and assumptions, there is a risk of inaccurate information for decision-making. In addition, errors in cost estimates for Cabinet submissions could lead to insufficient program funding which could add to the fiscal pressures of the Department.

RECOMMENDATIONS

1. It is recommended that the Assistant Deputy Minister (ADM), Corporate Management and Services Sector (CMSS) should further clarify the expectations of the SFAs, including their review/challenge function of direct program costs and their sign-off on CFO attestation process documents [Self-Assessment Questionnaire (SAQ) and Financial Costing Information Summary Sheet].

MANAGEMENT RESPONSE AND ACTION PLAN

Management agrees.

In response to recommendation 1, expectations of the Sector Financial Advisors (SFAs) in regards to the development of direct program costs and their responsibilities relating to the sign-off of documents such as the SAQ and the Financial Costing Information Summary Sheet will be further clarified.

Position responsible: Director General, Finance and Procurement Branch

Timing: September 30, 2015

SUPPORTING TOOLS AND DOCUMENTATION

Summary Finding

The audit observed that the programs did not use a standard approach or methodology for estimating the direct costs for Cabinet submissions. The lack of structured tools and templates makes it more difficult for SFAs or the CoE to analyze and challenge the direct costs put forward by the programs.

Supporting Observations

The audit found that documentation and analysis used to support the CFO attestation for Cabinet submissions is adequate and sufficient (e.g. TB submission checklist is maintained on file to ensure completeness of the file). A sample of Cabinet submissions were selected and reviewed and it was noted that documentation and analysis used to support the CFO attestation was adequate and sufficient.

Through interviews with a sample of programs staff, it was determined that they generally rely on experience to calculate direct program costs and do not use formal costing approaches (e.g. activity-based costing techniques, Treasury Board Guide to Costing). It was found that the Corporate Costing Model (CCM) tool is used to calculate internal services costs and is being updated to reflect current internal cost structures. There was, however, a lack of structured tools and templates making it more difficult for SFAs or the CoE to analyze and challenge the direct program costs put forward by the program areas.

RISK AND IMPACT

A lack of structure to establish direct program costs increases the likelihood that errors or omissions go undetected which could add to the fiscal pressures of the Department.

RECOMMENDATIONS

2. It is recommended that the Assistant Deputy Minister (ADM), Corporate Management and Services Sector (CMSS) should adopt templates and tools (e.g. checklists) for the development of direct program costs to add structure to the manner in which direct program cost estimates are developed.

MANAGEMENT RESPONSE AND ACTION PLAN

Management agrees.

In response to recommendation 2, by September 30, 2015, templates and tools will be developed and be made available. It should be noted that salary templates are already available and in use. 

Position responsible: Director General, Finance and Procurement Branch

Timing: September 30, 2015

APPENDIX A – AUDIT CRITERIA

The audit criteria have been developed from the key controls set out in the Treasury Board of Canada’s Core Management Controls, Management Accountability Framework and relevant associated policies, procedures and directives. 

The objective of the audit was to provide reasonable assurance that NRCan has an adequate process in place to effectively support the CFO attestation process for Cabinet submissions.

The following audit criteria were used to conduct the audit:

Audit Sub-Objective	Audit Criteria
Objective 1: NRCan has an adequate process in place to effectively support the CFO attestation on Cabinet submissions [Memoranda to Cabinet (MC) / Treasury Board Submissions (TB Sub)].	1.1 Roles and responsibilities related to the CFO attestation process for Cabinet submissions are clearly defined, understood and communicated.
	1.2 Adequate resources are allocated to ensure effective and efficient delivery of the CFO attestation process.
	1.3 Documented guidelines, tools, procedures, training and templates exist to support NRCan’s compliance to the TB Guideline on Chief Financial Officer Attestation for Cabinet Submissions.
	1.4 Documentation and analysis used to support the CFO attestation for Cabinet submissions is adequate and sufficient.