Report of the Audit Committee to the Auditor General of Canada for the 2009–10 Fiscal Year
The Audit Committee provides the Auditor General (AG) with independent advice on matters relating to management controls in the Office of the Auditor General (OAG) and to reporting on its plans and performance.
Due to the mandate of the OAG, the quality of its audits and other examinations are of paramount importance. Accordingly, the internal audit function is broadened to include monitoring the effectiveness of the quality management system for audits and is called the Practice Review and Internal Audit (PRIA).
The Committee has existed for many years, during which time the Committee chair met at least annually with the AG to review activities for the past year and discuss plans for the coming one; this practice continues. In keeping with provisions in its charter, the Committee has prepared this report for the fiscal year ended 31 March 2010.
Two of the Committee’s three voting members are independent of the Office. They are Robert Little and Peter Boomgaardt (Chair); they are joined on the Committee by John Wiersema, Deputy Auditor General and ex officio; and non-voting members Bruce Sloan, Principal, and Lyn Sachs, Assistant Auditor General—Corporate Services and Chief Financial Officer (who replaced Jean Landry, Comptroller, during the year). Julie Charron, Chief Audit Executive, head of PRIA, and selected audit staff attended as observers and to respond to questions from members.
The Committee met six times during the year (April, June, July, October, December, and February) with full attendance at all meetings. The Committee regularly had “in camera” sessions involving only the external members and met separately with the external auditor, Chief Audit Executive, and Chief Financial Officer.
The Committee reviews and approves its Terms of Reference annually, as it continues to develop operating routines that effectively serve the AG. The Committee was periodically briefed on news from the Office of the Comptroller General concerning its continuing development of internal audit practices in the federal government. Effective 1 July 2009, the Treasury Board Policy on Internal Audit provides that the principles enunciated in its policy apply to agents of Parliament (including the OAG) but that departures are permitted to guard the independence of the OAG. The OAG has analyzed the requirements and submitted suggestions for the Committee and the AG to consider. Following decisions by the AG, the Internal Audit and Practice Review’s charter and the Audit Committee’s Terms of Reference will be modified as needed.
Building on its knowledge from prior years, the Committee was informed of the key management issues and how procedures have been adopted to mitigate concerns and produce desired results. In particular, the Committee received a presentation on the revised OAG risk management approach that identifies key objectives, clarifies risks, and enhances management oversight. As well, the Committee was briefed on how the OAG manages and disseminates its values and ethics to all staff and encourages compliance. Information was also provided on a number of other topics, including
- the Office’s preparation for the new financial International Financial Reporting Standards (IFRS) and Canadian Auditing Standards (CAS) in 2011;
- policies and procedures in effect to manage Access to Information;
- disclosure reporting relative to the Public Servant Disclosure Protection Act;
- OAG current and future information technology plans; and
- the monthly management reporting package provided to members of the Executive Committee.
The Committee met with the external auditor to be briefed on plans and results of the audit of the 31 March 2009 financial statements of the OAG. During the February meeting, the external auditor reported on the plan for the 31 March 2010 OAG financial statement audit.
The Committee reviewed drafts of the Departmental Performance Report for 2008–09, including the related audited financial statements, as well as the Report on Planning and Priorities for 2010–11.
The Committee was regularly updated on the preparations for the peer review carried out by a multinational team of auditors, under the leadership of the Australian National Audit Office. The Committee met with key members of the Peer Review team at the start of the field work, which has now been completed. The Committee was advised in its February meeting that Peer Review findings and recommendations were being discussed with management and that the Committee would be briefed during its next scheduled meeting in April.
The Committee reviewed the draft practice review and internal audit plan for 2009–10, provided some suggestions, and recommended the plan for approval.
The hallmark of the OAG is the reliability and integrity of the reports produced by its various audits and other examinations. Accordingly, a great deal of emphasis and attention is directed to ensuring that the quality management system (QMS) for each audit product line is operative. This is done by periodically assessing the design of the quality management systems and by annually conducting systematic and rigorous practice reviews that cover all practitioners over a four-year cycle; to comply with evolving professional standards and practices, this will be done over a three-year cycle in future years. These high standards are further enhanced by occasionally having peer reviews conducted to obtain external validation of the thoroughness of applied quality management standards.
The Committee is encouraged that all the scheduled practice reviews were completed on a timely basis. As already noted, an external peer review is also in the process of being completed and will cover all OAG products.
Much of the Committee’s attention was directed to the findings and recommendations arising from the assessment of the quality management system and from the practice reviews; special emphasis was placed on the related management action plan. The reports identified instances where QMS policies should be improved, as well as where the QMS was not consistently and rigorously applied. Management has acknowledged that significant work is required for the OAG to fully meet the professional standards and policies to which it aspires. The reviews (together with follow-up work in one case) confirmed that the opinions and conclusions rendered by the OAG were satisfactorily supported.
The AG has mandated a thorough update of methodology to address both the identified deficiencies and to implement changes brought about by the new International Financial Reporting Standards (IFRS) and Canadian Auditing Standards (CAS). The Committee will continue to monitor the execution of plans now being developed by management to address the recommendations of the peer review and those of PRIA.
The Committee also received a briefing on PRIA’s resources. At each meeting, the Committee was updated on the status of audits and plans. The Committee recommended for approval the internal audit report, which covers newly implemented GX financial systems.
The Committee was briefed on the Internal Audit Capability Model, recently developed by the Institute of Internal Auditors. This model encourages setting target levels on a five-point scale and then developing plans to fully achieve those targets. A preliminary self-assessment will be conducted to determine where PRIA stands relative to the model; the OAG will then determine what target levels are appropriate and formulate plans to reach them. The Committee endorsed the approach and looks forward to reviewing both the targets and plans that PRIA will develop.
The Committee considers that the internal audit function
- sensibly includes the practice review activities;
- is staffed by professionally qualified people;
- plans its work using a risk-based methodology;
- applies a professional approach to planning, executing, supervising, and reporting on its work;
- follows up systematically on the progress of management’s actions in response to findings and recommendations; and
- respects the general principles of the Treasury Board Policy on Internal Audit.
- The Committee is satisfied that PRIA continues to evolve in line with relevant guidance, has a reasonable capacity to address its mandate, and is performing its role in a satisfactory manner.
The briefings and reports presented to the Committee during the 2009–10 fiscal year, together with the experience of prior years, have provided members with a good understanding of the key issues facing the Office. The management and staff were candid and clear on the challenges and receptive to members’ comments.
Members note that the OAG sets very high standards for the quality of audit products. The findings of the internal practice reviews were disappointing to both management and the Committee. The Committee fully endorses the major initiative undertaken to update the audit methodologies and work instruments both to remedy deficiencies in current practices and to prepare for the changes in the new International Financial Reporting Standards (IFRS) and the new Canadian Auditing Standards (CAS). The AG and the Committee will monitor progress on the action plans that are now being developed.
The Committee considers that the Office has a rational and systematic approach to addressing its mandate, monitoring results, and reporting to Parliament and the public.