Annual Report of the PSIC Audit and Evaluation Committee 2014-15
For the fiscal year ending March 31, 2015
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 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 AEC members. 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.
The Chair and members are selected by the Commissioner. The 2014-15 Committee consisted of:
Michael Nelson, External
Mario Dion, Commissioner
Guylaine Leclerc, External (Ms. Leclerc resigned from the Committee in March, 2015 upon her appointment as Auditor General for the Province of Quebec.)
Regular non-member attendees:
Joe Friday, Deputy Commissioner
France Duquette, Chief Audit Executive
Patricia Fraser, Manager, Financial Services and Chief Financial Officer
During 2014-15 the Committee met on:
June 26, 2014
December 15, 2014
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 the 2014-15 AEC Meeting Topics
Items considered by the AEC in 2014-15 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 2013-2014 fiscal year to the Committee on June 26, 2014. 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 2014 Departmental Performance Report (DPR) and 2015 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. Based on their individual interests and availability, each member decided whether they would provide comments. During the reporting period, comments on both of these documents were provided to the CFO.
- 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, active investigations, and ageing statistics on files.
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.
- At the April 8, 2014 meeting, the AEC requested that PSIC conduct an environmental scan and a formal Risk Assessment, since it had been several years since the previous assessment had been carried out. The Otus group was contracted by PSIC to carry out this work.
- The environmental scan, consisted of a documentation review and a series of interviews with PSIC management and the Chair of the AEC. This was used as a basis of discussion in a workshop with staff that represented all areas of the organization. During the staff workshop, participants were asked to comment on risk drivers and confirm that a series of risk statements were relevant to PSIC operations. There were also discussions on the consequences should these risks occur, and the controls in place currently that mitigate these risks. Based on this view of each risk, participants were asked to assess the overall level of risk based on likelihood (probability of occurring) and impact (the severity should it occur).
- Ten risk statements were developed. The five highest-risk statements were as follows:
- There is a risk that PSIC’s strategies and processes may not be sufficiently formalized and tested to maximize consistency and efficiency
- There is a risk that a significant proportion of public sector employees may continue to be unaware of PSIC services
- There is a risk that public sector employees may continue to be reluctant or afraid to take advantage of PSIC services.
- There is a risk that PSIC’s current information systems may be inadequate to support ongoing operations or to prevent inappropriate access.
- There is a risk that PSIC may not be able to attract and retain the right people with the appropriate mix of skills
- The AEC agreed with the results of the Otus report and asked that PSIC next proceed with development of a Risk-Based Audit and Evaluation Plan
PSIC Strategic Planning
- At the December 2014 AEC meeting, PSIC staff member Pamela Matthews presented a summary of the plans and priorities that were developed by staff after an interactive strategic planning session, a process that commenced with the information prepared and presented by Otus Group. The plans and priorities established will be used to develop a three year Strategic Plan, for reporting in the Report on Plans and Priorities, and for developing operational plans by division. The AEC asked to be kept informed of progress on strategic planning
Change of Commissioner and AEC Membership
- In December 2014, Commissioner Mario Dion resigned his position in order to pursue other goals. He was subsequently named Commissioner of the Immigration and Refugee Board of Canada. At the December 15, 2014 AEC meeting. Commissioner Dion thanked the Committee for their work during his tenure and recognized the AEC as a key instrument in contributing to a strong governance framework and good management. The AEC Chair thank the Commissioner for his support and participation as a member of the AEC and wished him well in his future endeavours.
- In January 2015, Deputy Commissioner Joe Friday was named Interim Public Sector Commissioner. He was immediately in contact with the Chair of the AEC to express his support for the work of the Committee.
- 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. The conduct and results of that search will be reported on in the 2015-2016 AEC Annual Report.
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. At the Decmber 15, 2014 AEC meeting,the Chief Audit Executive (CAE), France Duquette, highlighted that two complaints had been received from the Office of the Commissioner of Languages, and as a result, a review of the Office’s procedures regarding written communications was being conducted to ensure the requirements under the Official Languages Act are respected. One investigation by the Office of the Privacy Commissioner was still underway. A planned staffing audit by the Public Service Commission was delayed. The Chief Financial Officer (CFO) presented the TBS annual report prepared on the Office’s performance in respecting deadlines. Only one delay was noted and it was the first instance over the past three years.
- The AEC was satisfied that any issues or recommendations for improvement in all of the above-mentioned reports either had been implemented or would be added to the AEC Action Items Report.
Orientation and Learning Activities
In 2014-2015, AEC members participated in the following orientation and learning opportunities:
Overview of the PSIC Investigation Process
- Substantial improvements in the PSIC investigation process have been made in the past few years. AEC members had requested a briefing on the current process and this was presented by the Director of Operations at the June 26, 2014 AEC meeting.
- The Deputy Commissioner introduced the subject area, providing context in regard to the Public Servants Disclosure Protection Act and the legal framework of an administrative investigation, including the distinction between administrative and criminal investigations, and the relationship between established employment law principles and those set out in our legislation.
- The Director of Operations provided a detailed overview of the investigation process, highlighting the following points:
- All Disclosures and Complaints of Reprisal received are processed through a rigorous analysis process.
- The decision to investigate is made by the Commissioner, his decision provides the investigation mandate to Ops, and any changes in the mandate must be approved by the Commissioner following a documented process. This approach ensures that the investigations do not fall prey to “Scope Creep”.
- The controls provided by having an investigation plan allows for managing the scope, resource allocations of specialists and budget requirements.
- The Investigation review process includes a review by the Director of Operations, a Legal Professional as well as the Deputy Commissioner before the report (and supporting documentation) is presented to the Commissioner for his review and decision.
- Members were very appreciative of the presentation. It helped them better understand the skill sets that are required of investigators, the time required for an investigation, and the diligence with which cases are handled.
Institute of Internal Auditors (IIA) Conference
- On October 5 and 6, 2014, Michael Nelson attended the 2014 National Conference of the IIA in Ottawa.
- Michael made a presentation on behalf of the PSIC AEC at a panel on “Reputation Management and Internal Audit” at the conference, to speak about the events at PSIC that led to the 2010 AG report and the steps that Commissioner Dion took subsequently to restore trust in the organization. Other panelists included a VP from Loblaws who discussed the Bangladesh factory collapse, and the DM of Emergency Preparedness and Public Safety Canada.
- There were about 100 participants in the audience. They were a mix of private and public sector auditors, Chief Audit Executives from the public sector, and Chairs and members of Departmental Audit Committees.
- Michael also attended a presentation by Jim Mitchell and a colleague on the Value Proposition for Internal Audit, as well as a session by Guy Giorno (former Chief of Staff for PM Harper) where among other topics, Giorno touched on the importance of allowing anonymous disclosures of wrongdoing.
Office of the Comptroller General (OCG) Departmental Audit Committee (DAC) Symposium
- On November 3 and 4, 2014 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 2-hour session. Michael reported that after some difficult years, PSIC had become a relatively stable organization because of the efforts of the Commissioner and his staff.
- On November 4, 2015, Michael Nelson, attended the DAC Symposium. Topics discussed at the symposium included reflections on Innovation and Excellence from Bill Baker, a former deputy head and chair of two DAC committees; a DAC best practices panel; an update on Federal Financial Management transformation; a perspective on leveraging DACs to promote innovation from Deputy Minister Ian Shugart; and, a panel on Blueprint 2020.
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.
The Commissioner has staffed all of the key positions in his of the organization. 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 2014-15. The increase in legal costs to deal with challenges of the Commissioner’s decisions will be monitored through review of Quarterly Financial Reports and Updates by members of the AEC. The lapse was forecast well in advance of the end of the fiscal year. The AEC will continue to support the role of the Chief Financial Officer in her efforts to ensure good forecasting and budgeting practices. 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.
As of the writing of this report, the forward agenda of the AEC for 2015-16 has not be finalized, in order to ensure that the view of the new external member and the new Commissioner are taken into consideration. However, certain 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
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 2014-2015 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 CAO and the CFO were asked at each session whether there were any irregularities they wished to discuss with the external members. There were 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.
- PSIC provided the AEC Chair with minutes of PSIC Executive Committee meetings as well as PSIC Operational Plans during the reporting period.
- The AEC requested that a formal Risk Assessment process be undertaken with the assistance of an external expert and following review of the that assessment, the AEC requested that a Risk-Based Audit and Evaluation Plan be prepared and brought to the AEC.
- 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 CAO 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. Over the past two fiscal years, planned audits took place and were brought to the AEC for review and recommendation to the Commissioner for approval.
- Twice in 2014-15, PSIC used an external consultant to provide expert services in the areas of Risk Assessment and audit and evaluation planning. Results were excellent.
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