2015–16 Annual Report of the Audit and Evaluation Committee
Office of the Public Sector Integrity Commissioner of Canada
June 2016 – Eighth Annual Report
For the fiscal year ending March 31, 2016
The creation of independent departmental audit committees that include a majority of members from outside the federal public service is an essential component of the Treasury Board (TB) Policy on Internal Audit. The fundamental role of these committees is to ensure that the deputy head has independent, objective advice, guidance and assurance on the adequacy of the department’s control and accountability processes.
The importance of audit committees was further underlined in legislation when the Federal Accountability Act amended the Financial Administration Act to include the following requirements:
16.1 The deputy head or chief executive officer of a department is responsible for ensuring an internal audit capacity appropriate to the needs of the department.
2006, c. 9, s. 259.
16.2 Subject to and except as otherwise provided in any directives issued by the Treasury Board under paragraph 7(1)(e.2), the deputy head or chief executive officer of a department shall establish an audit committee for the department.
2006, c. 9, s. 259.
16.21 (1) A person who does not occupy a position in the federal public administration but who meets the qualifications established by directive of the Treasury Board may be appointed to an audit committee by the Treasury Board on the recommendation of the President of the Treasury Board.
Audit Committees and Parliamentary Agencies
The Treasury Board (TB) Policy on Internal Audit makes specific reference to offices of agents of Parliament, including the Office of the Public Sector Integrity Commissioner. Deputy heads of these organizations may, subject to compliance with sections 16.1 and 16.2 of the Financial Administration Act, authorize such departures from the specific policy requirements contained in the Policy as they may deem appropriate in light of the governance arrangements, statutory mandate and risk profile of the organization of which they are deputy heads.
Audit and Evaluation
Although audit and evaluation are the subjects of separate Treasury Board policies, they are closely linked. This reality is reflected in the organization of most federal organizations, where audit and evaluation staff may be managed within the same group. In the interest of good management and efficiency, the Office of the Public Sector Integrity Commissioner of Canada (PSIC) audit committee is also responsible for evaluation as set out in the TB Policy on Evaluation and consequently, is named the Audit and Evaluation Committee.
Role of the Audit and Evaluation Committee
The role of the AEC, as set out in its Charter, is:
- To provide objective and independent advice to the Commissioner regarding the sufficiency, quality and results of assurance on the adequacy and functioning of PSIC’s risk management, control and governance frameworks and processes (including accountability and auditing systems);
- To review, using a risk-based approach, all core areas of PSIC management, control and accountability processes, including reporting;
- To provide such advice as may be requested by the Commissioner on matters for which the Commissioner, as accounting officer, is responsible to report before Parliamentary Committees;
- To provide strategic advice as requested by the Commissioner on specific emerging priorities, issues and accountability reporting, including the Commissioner’s Annual Report to Parliament.
The role of the AEC is advisory and its sole accountability is to the Commissioner. In the event that significant, irreconcilable differences arise between the external members and the Commissioner, the external members may describe this disagreement in their annual report. In extraordinary circumstances, external members may seek to, or may be requested to, provide testimony regarding their differences to a Standing Committee of either House of Parliament.
Annual Plan and Annual Report
The AEC carries out its operations according to an Annual Plan that is prepared by the Chair and approved by the Committee. The document sets out the number of meetings planned for the coming year as well as topics to be covered at the meetings. The Chair of the AEC and the Chief Audit Executive (CAE) refer to the Plan when preparing the proposed agenda for each meeting. At the end of each fiscal year, the Chair of the Committee prepares a report (this document) to the Commissioner that describes the activities carried out by the AEC during that year and provides an assessment of systems, controls and other management tools that are in place at PSIC.
The Chair and members are selected by the Commissioner. The FY 2015–16 Committee consisted of:
Michael Nelson, External
Joe Friday, Commissioner
Josée De La Durantaye, External
Regular Non-Member Attendees:
France Duquette, Deputy Commissioner and Chief Audit Executive
Patricia Fraser, Manager, Financial Services and Chief Financial Officer
During FY 2015–16, the Committee met on:
- June 22, 2015
- January 26, 2016
In-camera sessions with the Commissioner, with the CAE, with the Chief Financial Officer (CFO), and with the Office of the Auditor General (OAG) representative (when present) as well as between external members only, were held at each regular meeting.
Support to the Committee
The Committee received information and support from management to enable it to carry out its duties and responsibilities effectively. The Commissioner also made available to the Committee its Operational Plans and minutes of the PSIC Executive Committee. As well, the Committee was offered access to International Monitoring Reports that are compiled by PSIC staff.
Summary of FY 2015–16 AEC Meeting Topics
Items considered by the AEC in FY 2015–16 included the following:
Office of the Auditor General (OAG) Audit of Financial Statements
- PSIC Financial Statements are audited each year by the OAG.
- Marise Bédard of the OAG presented the results of the audit of the FY 2014–15 fiscal year to the Committee on June 22, 2015. She advised that the results of the audit resulted in an unmodified opinion on the financial statements. No business risks that had significant audit implications were identified.
- Ms. Bédard confirmed that the audit had gone well and thanked officials of PSIC and CHRC (the financial services provider to PSIC) for their full cooperation.
- On the recommendation of the AEC, the Commissioner signed the audited financial statements.
PSIC 2015 Departmental Performance Report (DPR) and 2016 Report on Plans and Priorities (RPP)
- The TB Policy on Internal Audit requires that members receive a copy of the DPR and the RPP rather than review the documents. However, in the interest of transparency, the Commissioner decided that he would continue to provide Committee members with the opportunity to review and to provide comments on PSIC’s DPR and RPP prior to their submission to Parliament. During the reporting period, comments on both of these documents were provided to the CFO by both external members.
- At each meeting the Committee was provided with the opportunity to review and comment on operational statistics.
- Details were provided on management of disclosure files, including number of active files and active investigations.
- The Commissioner provided updates on PSIC cases that were before the courts and on cases that had been referred by the Commissioner to the Public Servants Disclosure Protection Tribunal.
Budget and Human Resources
- The AEC reviewed all quarterly financial reports prepared by PSIC and provided comments to the CFO. At each meeting, members were presented with a report and analysis by the CFO on expenditures and forecasts.
- Each AEC meeting included a discussion of human resources issues, including hiring, staff turnover, training and planning. When appropriate, these discussions were held in-camera.
Risk-Based Audit and Evaluation Plan (RBAEP)
- In 2014, a comprehensive risk assessment was carried out at PSIC. Staff and management were consulted and ten risk statements were developed. A report on the assessment was presented to the AEC and the Committee directed that the next step should be development of a formal Risk-Based Audit and Evaluation Plan.
- The RBAEP was developed early in 2015 by the Otus Group, who had carried out the 2014 risk assessment. The plan, including an Audit Universe Risk Assessment document, was brought to the AEC on June 22, 2015.
- The audit and evaluation coverage proposed in the plan was designed to achieve a balance between mitigating risks and the capacity of PSIC as a very small organization, to carry out audit and evaluation projects. The plan allowed for a maximum of one or two projects per year.
- The Committee recommended that the Commissioner adopt the plan.
Evaluation of Awareness and Building Trust
- The RBAEP that had been presented to the AEC in June 2016 included the first-ever evaluation of a PSIC program. Over the years since its creation in 2007, various approaches to PSIC outreach activities had been adopted. Given the importance of creating awareness of the federal disclosure and reprisal protection regime and of building trust in that regime, it was clear that evaluation of initiatives taken to date by PSIC was a priority.
- At the January 2016 meeting of the AEC, members were briefed on an innovative approach to carrying out this evaluation n partnership with Carleton University. Professor Rob Shepherd provided an outline of the process and methodology. Members expressed great interest in both the evaluation and the approach and asked to be kept informed as the evaluation proceeded.
Quality Assurance Review
- PSIC is keenly aware that the trust of potential disclosers in the integrity of its processes is key to its success as an organization. At the January 2016 AEC meeting, Heidi Bartman. Senior Policy and Research Advisor, presented a report on the results of a Quality Assurance Review carried out in November 2015. The review examined the key milestones completed in the PSIC Case Management System as compared to the relevant paper files.
PSIC Organizational Development
- At the January 2016 AEC meeting, PSIC Director of Operations Raynald Lampron presented a summary of a comprehensive organizational development initiative, the Lean Project. The purpose of the project, which was delivered by the Lean Agility company, was to better use the resources available to PSIC. At that stage in the project, both operational and legal staff had mapped current processes and timelines and had developed potential changes to improve both the timeliness and the value of PSIC activities. Since the project was expected to continue through FY 2016–17, members asked to be kept informed of progress.
Change in AEC Membership
- In March 2015, AEC member Guylaine Leclerc was named Auditor General for the Province of Quebec. The Chair congratulated her on behalf of the AEC. In recognition of her new responsibilities, Madame Leclerc submitted her resignation from the AEC.
- A search for a new external member was initiated by the CAE. Although PSIC is an independent organization, the value of considering candidates who were included on a list of potential audit committee members that is maintained by the Office of the Comptroller General (OCG) of Canada was recognized. The resumes of eighteen potential members were provided by the OCG and were reviewed by the AEC Chair and the CAE. A short list was presented to the Commissioner and interviews were held. Josée De La Durantaye was offered a position on the Committee and accepted.
Reports on PSIC by Others
- Like most other government entities, PSIC is subject to laws, including its own governing legislation, which result in reports on PSIC by other Agents of Parliament.
- At each meeting, the AEC was presented with the results of any reports on PSIC activities that had been conducted, including reports by the Office of the Privacy Commissioner, the Office of the Access to Information Commission, the Office of the Commissioner of Official Languages and other independent agencies.
- The AEC was satisfied that any issues or recommendations for improvement either had been implemented or would be added to the AEC Action Items Report.
Orientation and Learning Activities
In 2015–16, AEC members participated in the following orientation and learning opportunities:
Orientation to PSIC
On July 16, 2015, a session was held at PSIC to assist new AEC member Josée De La Durantaye with assuming her new duties. Topics covered at the session included:
- Origins and history of the Office of the Public Sector Integrity Commissioner
- Structure and function of the Office
- Operational processes for disclosures and reprisals
- Outreach strategies
- Role and activities of the AEC
Office of the Comptroller General (OCG) Departmental Audit Committee (DAC) Symposium
- On November 2 and 3, 2015, the OCG held two learning and development events for members of departmental audit committees.
- On November 3, 2014, Michael Nelson attended a pre-symposium meeting of DAC chairs. The meeting was attended by the Comptroller General and by Chairs of DACs from small, medium and large departments. Each Chair was asked to briefly describe a major challenge or observation that their DAC was facing. Every DAC chair had a chance to speak during the two-hour session.
- On November 5, 2013, Michael Nelson and Josée De La Durantaye attended the DAC Symposium. The theme of the Symposium was Capacity of people, policies and the audit profession. Topics discussed at the symposium included the Comptrollership 2.0 Vision, DAC Capacity Assessment, leveraging departmental capacity though interdepartmental audit engagements, the increased focus on IT threats in National Security, IT Security and its impact on departmental capacity, and a DM’s perspective on expectations and value of the DAC in times of significant growth and change.
Observations of the Committee and Forward Agenda
External members of the AEC understand that we are not a management committee. However, our charter provides that we may provide advice to the Commissioner on a range of issues, including management of risks. The comments in this section of our report are made from that perspective.
Commissioner Joe Friday served as Interim Commissioner during most of FY 2015–16 and was appointed to his current position on March 27, 2016. During the year he took action to restructure his Management Team and has staffed key positions in the Office.
Of particular interest to the AEC was the appointment of France Duquette, the CAE, as Deputy Commissioner. The AEC looks forward to continuing our excellent relationship with her.
In February 2016, PSIC CFO Patricia Fraser left PSIC to pursue other career opportunities. The Committee expressed their thanks to her for her excellent work. A process was initiated by PSIC to select a new CFO. Candidates were solicited from the OCG. DAC members participated in a review of the qualifications and experience of candidates and final interviews were conducted by the Commissioner and Deputy Commissioner. Éric Trottier was selected as CFO. The AEC looks forward to working with him.
The Committee has appreciated attendance by PSIC staff at AEC meetings and looks forward to hearing more presentations directly from staff in 2015–16.
PSIC spent within its budget in 2015–16. Spending throughout the year was monitored by the AEC through review of Quarterly Financial Reports. The modest lapse was forecast well in advance of the end of the fiscal year. The Committee is satisfied that sufficient resources are allocated to the audit function. With the expected adoption of a Risk-Based Audit and Evaluation Plan that is based on the Risk Assessment described earlier in this report, more resources may be required for both audits and evaluations in coming years.
Certain AEC activities take place each year, including the following:
- Providing advice and recommendations to the Commissioner on issues related to delivery of services, including performance measurement and communication with stakeholders
- Reviewing audit and evaluation reports
- Follow up of Management Action Plans, including recommendations made in reports from other Agents of Parliament
- Cooperation with the OAG and the OCG where appropriate with the PSIC’s status as an Agent of Parliament
- As a Committee, developing a better understanding of both the administration and the business of the PSIC through briefings on PSIC operations made by appropriate PSIC staff
- Review of Quarterly Financial Statements and provision of comments where appropriate on the Report on Plans and Priorities, the Departmental Performance Report and the Commissioner’s Annual Report to Parliament
- Participating where appropriate in audit community learning events in order to exchange views with audit committee members in other departments and agencies
In addition to these regular activities, the external members of the AEC will determine, with the Commissioner, any areas of particular focus for 2016–17.
Assessment of PSIC’s System of Internal Controls, Risk Management and Governance Processes
The AEC meets as a committee with PSIC staff only three times a year (and in 2015–16 met only twice), thus the role of the AEC with respect to providing conclusive advice to the Commissioner regarding the functioning of internal controls, risk management and governance processes is challenging.
In order to increase the reliability of the advice provided by the AEC to the Commissioner during the reporting period and in this report, the following steps were taken:
- At Each AEC meeting, the two external members held in-camera sessions with the CFO, the CAE and the Commissioner. The CAE and the CFO were asked at each session whether there were any irregularities they wished to discuss with the external members. There was none.
- During the reporting period, the Chair was in regular contact with the CAE and the CFO.
- PSIC’s Quarterly Financial Statements were reviewed carefully by external members.
- External members met in-camera on June 22, 2015, with Marise Bédard, the OAG Principal responsible for the audit of PSIC’s 2014–15 financial statements. This audit did not examine internal controls, risk management or governance processes in detail. However, Ms. Bédard did not identify through her audit any material misstatements or concerns that needed to be brought to the attention of the AEC, the CFO, the CAE or the Commissioner and was prepared to issue an unmodified opinion on the financial statements.
Having taken these steps, the view of the external members of the AEC is that PSIC’s system of internal controls, risk management and governance processes are from our perspective and to the best of our knowledge, sound.
Assessment of the Capacity and Performance of the Internal Audit and Evaluation Function
The Committee noted that:
- The AEC meets regularly, including in-camera, has an external Chair, and membership is reviewed annually and renewed when required.
- OAG audits take place each year and OAG staff have commended the cooperation of PSIC officials with whom they worked in carrying out these audits.
- A risk-based audit and evaluation plan has been prepared and reviewed by the Committee and approved by the Commissioner.
- PSIC uses external consultants to provide expert services in the areas of Risk Assessment and audit and evaluation planning. Results have been excellent.
- Sufficient funds are available to carry out the approved RBAEP.
The Committee will continue to review the capacity and performance of the internal audit and evaluation functions at PSIC.
Michael Nelson, Chair
On behalf of the PSIC Audit and Evaluation Committee