Core control audit of the Transportation Safety Board of Canada January 2013

Office of the Comptroller General

Why this is important

Canadians expect the federal government to be well managed and to be accountable for the prudent stewardship of public funds; the safeguarding of public assets; and the effective, efficient, and economical use of public resources. They also expect reliable and transparent reporting on how the government spends public funds to achieve results for Canadians.

The Financial Administration Act designates deputy heads as accounting officers for their department or agency. As accounting officers, deputy heads are accountable for ensuring that resources are organized to deliver departmental objectives in compliance with government policy and procedures; ensuring that there are effective systems of internal control; signing departmental accounts; and performing other specific duties assigned by law or regulation to the administration of their department or agency.

Core Control Audits are important as they provide deputy heads with assurance on the effectiveness of core controls over financial management in their respective organizations. By doing so, Core Control Audits inform deputy heads of their organization’s level of compliance with key requirements contained in selected financial legislation, policies, and directives.

About the Transportation Safety Board of Canada

The Transportation Safety Board of Canada (TSB) is an independent agency created in 1990 by the Canadian Transportation Accident Investigation and Safety Board Act. It operates at arm's length from other government departments and agencies to ensure that there are no real or perceived conflicts of interest. The TSB's objective is to advance transportation safety. This mandate is fulfilled by conducting independent investigations into selected transportation occurrences. The purpose of these investigations is to identify the causes and contributing factors and the safety deficiencies evidenced by an occurrence. The TSB then makes recommendations to improve safety and to reduce or eliminate risks to people, property, and the environment.

The TSB’s jurisdiction includes all aviation, marine, rail and pipeline transportation occurrences in or over Canada, that fall under federal jurisdiction. The TSB may also represent Canadian interests in foreign investigations of transportation accidents involving Canadian registered, licensed, or manufactured aircraft, ships, or railway rolling stock. In addition, the TSB carries out some of Canada's obligations related to transportation safety at the International Civil Aviation Organization (ICAO) and the International Maritime Organization (IMO).

In fiscal year 2010-11, the TSB had planned spending of approximately $30 million and planned human resources of 235 full-time equivalents (FTEs).

Core control audit objective and scope

The objective of this audit was to determine whether core controls over financial management within TSB result in compliance with key requirements contained in the selected financial legislation, policies, and directives.^{Footnote 1}

The scope of this audit included financial transactions, records, and processes conducted by the TSB. Transactions were selected from fiscal year 2010-11. The audit examined a sample of transactions for each of the selected policies and directives. Appendix A provides a complete list of policies and directives included in the scope of the audit and the overall compliance in the areas tested.

The Directive on Leave and Special Working Arrangements was excluded from the scope of this audit, as this area was previously examined by the Office of the Auditor General of Canada for the same period.

Conformance with professional standards

This audit was conducted in accordance with the Internal Auditing Standards for the Government of Canada. A practice inspection has not been conducted.

Audit findings and conclusion

Core controls over financial management for the TSB transactions tested resulted in compliance^{Footnote 2} with the key requirements contained in five of 11 policies and directives, and in partial compliance with the key requirements in two of 11 policies, directives, and corresponding legislation tested. The TSB was not in compliance with four polices and directives tested.

Delegation instruments of the TSB were appropriate, current, and approved in accordance with the Directive on Delegation of Financial Authorities for Disbursements, and the selected employees received appropriate training in accordance with the requirements pertaining to financial management, contracting, and human resources. The performance pay transactions examined were properly administered and approved by individuals with the appropriate delegated authority. For all transactions examined, acquisition cards were used for authorized government business-related purchases. For some cardholder accounts reviewed, there was no cardholder agreement on file and in some instances, the credit limit was raised with no evidence of justification or authorization.

Accountable advances reviewed were set up for the appropriate reasons and were used for the purpose for which they were issued in all purchases reviewed. While an individual other than the custodian performed account verification when the fund needed to be replenished, there was no evidence of periodic verification of the fund, such as a physical count, and there was no evidence of formal monthly reconciliation performed.

Government business travel expenses examined were generally managed to achieve fair, reasonable, and modern travel practices; and all selected travel expenses for designated senior-level Government of Canada employees were proactively disclosed. Instances were found where a justification for the post-authorization of travel was not documented on file.

In the area of contracting, documentation was on file to support justification for non-competitive contracting and the appropriate contracting vehicle was chosen and used within its terms and conditions, for the selected transactions. However, bid evaluation criteria were at times not included in the Request for Proposal documents used to select contractors. There were also instances where evaluation reports were not signed by all the evaluators. Finally, the justifications for contract amendments were not always on file and some contract amendments were issued after the contract expiry date.

In the area of hospitality, events were planned and conducted in an economical and appropriate way to facilitate government business consistently with the events’ circumstances. Selected hospitality expenses for designated senior-level employees were properly recorded and proactively disclosed. However, some hospitality expenses examined were certified by an individual without the appropriate delegated authority and some approvals were provided after an event had taken place. There were also instances where account verification was performed by an individual who had attended the hospitality event, and no counter-signature was found on file.

For selected casual employees transactions, the security assessments and reliability level were not defined or determined as conditions of employment. In the area of pay administration, there was no approval on file for the overtime transactions reviewed and no evidence of payment and settlement verification performed for selected pay transactions. Furthermore, departure procedures were at times not followed.

In the area of expenditure and commitment control, for several transactions selected, there was no evidence of approval by an individual with the appropriate delegated authority. Finally, there was no evidence of account verification for the pay transactions reviewed.

Recommendations

The Chair of the TSB should:

1. Ensure that a signed acknowledgement of acquisition card responsibilities, including acquisition card restrictions and modifications to credit limits, are retained on file.
2. Ensure that accountable advances are reconciled monthly and that evidence of reconciliation is retained on file.
3. Develop business processes and retain documentation on file to ensure that:
   • Bid selection method and evaluation criteria are clearly outlined in the bid solicitation document for competitive contracts before the Request for Proposal is issued;
   • The evaluation of proposals and contractor selection are conducted in accordance with the pre-established criteria as stated in the Request for Proposal, to demonstrate that the evaluation was conducted in an open, fair, and transparent manner;
   • The bid evaluation is documented on file, along with an evaluation report;
   • Contract evaluations are signed by a minimum of two clearly identified evaluators; and
   • Contract amendments are justified and signed before the original contracts expire.
4. Ensure that a justification for the post-authorization of travel is documented on file.
5. Ensure that account verification of hospitality events is performed by an individual with the appropriate delegated authority who did not attend the event.
6. Ensure that the security assessments and reliability level are defined and determined as conditions of employment for casual employees.
7. Ensure that proper departure procedures are followed and are documented.
8. Ensure that proper documentation is retained on file to demonstrate that payment and settlement is accomplished before the payment is released, and verifies the correctness of the payment requested.
9. Ensure that expenditure initiation is performed by an individual with delegated authority to do so before expenses are incurred and that documentation is retained on file, particularly in the area of payroll administration.

Management response

The TSB has reviewed the findings and the recommendations of the audit. Management generally agrees with the audit findings and has developed an action plan to address the recommendations. It is expected that the management action plan will be fully implemented by March 2013.

The results of the audit and the Management Action Plan have been discussed with the Chair of the TSB and the Small Departments Audit Committee. The Office of the Comptroller General will follow up on the Management Action Plan until all findings are resolved.

Appendix A: Policies and directives tested

Compliance thresholds for the transactions tested

Met: Greater than or equal to 99 % compliance.
Met with Exception: Greater than or equal to 90 % and less than 99 % compliance.
Partially Met: Greater than or equal to 80 % and less than 90 % compliance.
Not Met: Less than 80 % compliance.