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Audit of the PTIF-CWWF – Phase 1 – Approval Process

December 2016

Table of Contents

Executive Summary

The audit objective was to provide timely assurance to Infrastructure Canada (INFC) senior management on the effectiveness of core controls which will allow management to strengthen implementation of the Public transit infrastructure Fund and Clean Water and Wastewater Fund (PTIF/CWWF).

This audit will be conducted in three phases over the 3-year duration of the program. This phase focuses on the Approval Process (Phase I) while Governance (Phase II) and Payments and Reporting (Phase III) will be examined in future audits.

The approach and methodology used for this audit conforms to the Internal Auditing Standards for the Government of Canada, the Treasury Board Policy on Internal Audit and the Institute of Internal Auditors International Standards for the Professional Practice of Internal Auditing.

Two observations were noted. The first was that there were delays obtaining a copy of the agreement signed by the province or territory (P/T). Given that agreements come into force as of the date of last signature, this creates a risk in terms of compliance. The second was that the turnaround time for agreements was very short and as such, there is a risk that pressure to quickly formalize agreements could have an impact on the quality of the approval process.

In addition, there were two findings. The first was that the date wasn't always provided when the Minister signed letters to P/T Ministers. Without the date, there is no way to later trace back when the document was prepared and sent. This doesn't provide a sufficient audit trail. The second was that although Webcims was used to track the progress of approval documents, it didn't include all documents and what documents were in Webcims weren't easy to find. In terms of corporate memory, it's important to have a full record of the agreement approval process and applicable final versions of supporting documents.

Audit and Evaluation Branch (AEB) concluded that the core controls on the agreements' approval process, including project approval, are generally effective.

Two opportunities for improvement in the agreement approval process were identified: First, INFC should ensure that the Minister's letters to P/Ts are dated once signed; and second, a central repository should be used for all documents related to the agreement approval process.

Management accepted the recommendations and put in place action plans to address them.

Background

The Government of Canada announced in Budget 2016 an investment of $120 billion in infrastructure over 10 years, including $60 billion in new funding for public transit, green infrastructure, and social infrastructure, to better meet the needs of Canadians and better position Canada's economy for the future.

The Government of Canada proposes to provide $11.9 billion from this plan, of which $3.4 billion will be used to upgrade and improve public transit systems and $2.0 billion will be used for investments in water and wastewater projects.

Audit Objective and Scope

The audit objective was to provide timely assurance to Infrastructure Canada (INFC) senior management on the effectiveness of core controls, which will allow management to strengthen implementation of the Public Transit Infrastructure Fund (PTIF)/Clean Water and Wastewater Fund (CWWF). 

This audit will be conducted in three phases over the 3-year duration of the program, and will assess the Approval Process (Phase I), Governance (Phase II) and, Payments and Reporting (Phase III).

The approach and methodology used for this audit conforms to the Internal Auditing Standards for the Government of Canada, the Treasury Board Policy on Internal Audit and the Institute of Internal Auditors International Standards for the Professional Practice of Internal Auditing.

Audit criteria were sourced from the Terms and Conditions of the Treasury Board Submission and the Management Control Framework.

The scope of Phase I includes only agreements signed and projects approved during the period of June 1 to July 15, 2016 which are:

  • Canada–British Columbia (PTIF)
  • Canada–Newfoundland and Labrador (PTIF and CWWF)
  • Canada–Quebec (PTIF and CWWF)
  • Canada–Yukon (PTIF and CWWF)

For all agreements in the scope of this phase, the following documents were examined:

  1. The routing slip from Director General, Program Operations Branch (POB) to the Deputy Minister (DM) for the agreement;
  2. The briefing note to the Minister on the agreement, signed by the DM and the Minister;
  3. The agreement, signed by the Minister;
  4. The list of deviations to clauses (if applicable);
  5. The letter from the Minister to the Province/Territory (PT) Minister on the agreement;
  6. The memo to Project Review Panel (PRP) on the summary reports, signed by PRP members;
  7. The briefing note to the Minister on the summary reports, signed by the DM and the Minister;
  8. The PRP checklist;
  9. The approved list of projects; and
  10. The letter from the Minister to the P/T Minister on the summary table.

Audit Approach

The audit engagement was conducted in accordance with the Treasury Board Policy on Internal Audit and the Institute of Internal Auditors' International Standards for the Professional Practice of Internal Auditing.

The audit engagement will be conducted in three phases with the first phase examining the agreement approval process. As the PTIF and CWWF are implemented over the 3-year duration the second and third phases of the continuous auditing process will examine governance and subsequently payments and reports executed under these programs. Additional phases may be implemented to provide assurance as required based on audit findings. It should also be noted that the timing of all phases may need to be adjusted as the programs are advancing.

The audit engagement included various tests, as considered necessary, to provide reasonable assurance on the management of the programs. These tests included, but were not limited to, interviews, observations, file walkthroughs, review of supporting documentation, attendance at key meetings (i.e. Oversight Committee, Project Review Committee, etc.), and analytical reviews.

Phase I: Approval Process

Phase I assessed the projects and agreements approval process with respect to:

  • Compliance to the Terms and Conditions of the Treasury Board (TB) Submission, including the role of the Project Review Panel (PRP);
  • Compliance with the Management Control Framework, including the Project Review Panel (PRP); and
  • Program risk management processe

Audit Findings

Compliance with the terms and conditions of the Treasury Board Submission

Audit Criterion

It was expected that agreements negotiated under the PTIF/CWWF programs complied with the terms and conditions (i.e. Investments, Recipients and costs are eligible) of the Treasury Board Submission.

Finding 1:

  1. Project Review Panel (PRP) had examined the project lists to ensure the required information listed in the terms and conditions of TBS was included. The PRP checklist (section C) showed that the project lists met the terms and conditions as per the agreement.
  2. The Memo to PRP on the summary reports, signed by PRP members, indicated that, based on summary report, the PRP secretariat confirmed that the projects:
    • Conformed to government policy on the parameters of the program;
    • Conformed to TB policy; and
    • Conformed with the terms and conditions of the program.
  3. The PRP checklist (section D) showed that all recipients were eligible under the program terms and conditions.
  4. The PRP checklist (section A & B) showed that all costs are eligible;
  5. The PRP checklist (section A) showed that the amount allocated to administration is less than the maximum of 1%.
  6. The PRP checklist (section C) showed that all projects were classified under one of the following categories:
    • Capital projects;
    • Design and planning;
    • Asset Management; and
    • System expansion

There was clear evidence that the terms and conditions had been met through checklists completed by the analysts with signatures up to the Director General.

Key internal controls related to conclusion of agreements and project submission and approval

Audit Criterion

It was expected that key internal controls are in place for the conclusion of agreements and project submission and approval and are working as intended in the Management Control Framework.

The controls are:

  • Program Operations Branch regions receive and review Province/Territories project lists and attestations of project eligibility and incrementality.
  • PRP examines and recommends approval of eligible project lists to the Minister (up to and including $50 million) or that the Minister seek TB approval (for projects over $50 million)
  • Minister/TB approves project lists

Observation 1:

There was a delay obtaining a copy of the agreement with the province or territory (P/T) signature. Three weeks after our Minister's signature and announcement, INFC did not yet have copies of agreements signed by Quebec and Newfoundland (50% of sample). Given that agreements come into force as of the date of last signature, this creates a risk in terms of compliance. However, the real risk pertaining to the monitoring, payments and reputation is not yet known.

We noted that this same process was followed by other programs and that effective mitigating controls, (e.g., processing payments only after a signed agreement is received) were in place.

Phases 2 (Governance) and 3 (Payments and Reporting) of the audit will assess if mitigating controls minimize risks to an acceptable level.

Observation 2:

The turnaround time for agreements was very short. Between 1 and 6 days elapsed from the date that the PRP checklist was completed to the date of the letter from the Minister to the P/T. There is a risk that pressure to formalize quickly agreements could have an impact on the quality of the approval process.

However, we recognize that the detailed analysis by Program Operations Branch (POB) takes place prior to this six-day window. Furthermore, to mitigate this risk POB ensures that they do not put forward projects that are unclear and would require more time to review.

Subject to a risk assessment, this may be further examined as part of other phases of the audit.

Finding 1: Minister's letters missing sign-off dates

The date wasn't always provided when the Minister signs letters to P/T Ministers (BC, QC and NFLD for letters on agreements, and BC, YK and QC for the letters on summary tables). Without the date, there is no way to later trace back when the document was prepared and sent. This doesn't provide a sufficient audit trail.

Recommendation 1:

The department should ensure that the Minister's letters to P/Ts are dated once signed.

Finding 2: Absence of central repository

Webcims is used to track the progress of approval documents but it doesn't include all documents. In addition, in Webcims the documents were classified by tracking number which makes them hard to find. POB was able to provide the required documents, but in terms of corporate memory, it's important to have a full record of the agreement approval process and applicable final versions of supporting documents. 

Recommendation 2:

POB should use a central repository for all documents related to the agreement approval process.

Program risk management processes/tools

Audit Criterion

It was expected that programs' risk management processes/tools are documented and support the management and mitigation of key risks.

Finding 1:

The Risk Management methodology was obtained in order to assess the project risk. The PRP checklist (section D) showed that risk assessments were completed for all project lists. The PTIF-CWWF SQUAD also tracked each issue discussed and any related decision reached by the Program Implementation Committee, including the date of approval by senior management, through a Word document.

Conclusion and Recommendations

Audit and Evaluation Branch (AEB) concludes that the core controls on the agreements approval process, including project approval, are generally effective.

The entire agreement approval process is well documented as follows:

  • AEB was able to trace the core controls from the Director General's office, through PRP review and recommendation to the final package to the provinces or territories with the Minister's letter, agreement and project lists.
  • There was clear evidence that the terms and conditions had been met through checklists completed by the analysts with signatures up to the Director General.

However, there were opportunities for improvement in the agreement approval process as follows:

  1. The department should ensure that the Minister's letters to P/Ts are dated once signed.
  2. POB should use a central repository for all documents related to the agreement approval process.

Management Response

Management accepts the recommendations and action plans have been put in place to address the two areas for improvement identified as indicated in Annex A.

Statement of Conformance

The audit conforms to the International Standards for the Professional Practice of Internal Auditing and the Internal Auditing Standards for the Government of Canada as supported by the results of the quality assurance and improvement program.

Annex A - Management Response and Action Plan

# Recommendation Management Response and Action Plan OPI and Due Date
1 The department should make sure that the Minister's letters to P/Ts are dated once signed. Agreed, with the Minister's Office, Management will undertake the following actions:

INFC will institute an appropriate process to ensure Minister's letters are dated prior to being mailed to recipients. The process will be implemented over the remaining agreement negotiations under Phase 1. 		DMC

Targeted completion date:
October 31st, 2016
2 POB should use a central repository for all documents related to the agreement approval process. Agreed, Management will undertake the following actions:

POB will ensure that documents can be tracked throughout the agreement approval process from within existing Drives and Folders and that original (signed) versions of legal documents are available in a central repository. (For the longer term, POB is working with IMIT to develop new platform that will improve the department's capabilities with respect to sharing and storing of project and program information). 		ADM Program Operations Branch

Targeted completion date:
October 31st, 2016
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