Report of the Audit Committee to the Interim Auditor General of Canada for the 2018–19 Fiscal Year

Report of the Audit Committee to the Interim Auditor General of Canada for the 2018–19 Fiscal Year

Introduction

It is with profound sadness that we write this report, because of the recent passing of Michael Ferguson, the Auditor General of Canada. Over the last 7 years, Mike led the Office of the Auditor General of Canada with compassion for everyone, and he was convinced of the great value of the Office’s work. His impact on us all, and his service to Canadians, will be felt for many years to come.

The Audit Committee serves in an oversight capacity with respect to significant operational areas within the Office of the Auditor General of Canada. These include the oversight of financial statements, accountability reporting, internal control, practice reviews and internal audits, external audits, compliance with legislative and professional requirements, and reporting responsibilities. As necessary, the Committee provides advice and recommendations to the Auditor General of Canada, and it reviews reporting documents and processes. Through this advisory role, the Committee forms an essential component of the Office’s governance framework.

In keeping with provision 19a of the Office of the Auditor General of CanadaOAG Audit Committee Charter, the Committee has prepared this report summarizing the Committee’s activities, issues, and related recommendations for the fiscal year ended 31 March 2019.

Membership and meetings

The OAG Audit Committee Charter, which was revised and approved by the Audit Committee during the 2018–19 fiscal year, requires that the Committee be composed of 3 voting members, all of whom must be external members who are financially literate and independent of the Office of the Auditor General of Canada. Bruce Joyce, Chair; Brian Aiken; and Suzanne Morris were continuing members from the previous year. Michael Ferguson, the Auditor General of Canada; Sylvain Ricard, Assistant Auditor General—Corporate Services and Chief Financial Officer; and Andrew Hayes, Senior General Counsel, continued as ex officio, non-voting members. Both Sylvain Ricard and Andrew Hayes also assumed the responsibilities of Deputy Auditors General commencing in fall 2018. Subsequently, on 29 March 2019, Sylvain Ricard was appointed Interim Auditor General of Canada.

Louise Bertrand, Chief Audit Executive, and Lucie Cardinal, Comptroller, attended the Committee’s meetings as observers to respond to questions from members. The Committee held 4 regular meetings during the fiscal year (April 13, July 12, October 9, and January 22). An additional meeting was held on October 5 to meet with members of the international peer review team, who are carrying out an external review of the Office and have planned to report on their findings in 2019. The Office periodically requests quality assurance reviews from external organizations (the last international peer review of the Office was reported in 2010). In addition to holding an in camera session of the voting members before each regular meeting, the Committee allocated time for the voting members to have individual in camera sessions with the Chief Audit Executive, Chief Financial Officer, Auditor General, and Deputy Auditors General. During the meetings that the external parties attended, the Committee had in camera sessions with the external auditor (Collins Barrow Ottawa Limited Liability PartnershipLLP), the external validator (JB Lamothe Consulting IncorporatedInc.) who performed an independent validation of the self-assessment of the internal audit function at the request of the Chief Audit Executive, and the lead members of the international peer review team. Furthermore, the Chair had regular email exchanges, meetings, and phone conversations with the Chief Audit Executive, Comptroller, and both the outgoing and incoming external auditors. The Chair encouraged external members to work with Office staff members to support them in meeting their objectives.

Committee charter

On a regular basis, the Audit Committee reviews its terms of reference as it continues to develop operating routines to serve the Auditor General of Canada effectively. Annually, the Audit Committee updates its charter to ensure that it aligns with the Treasury Board’s policies, standards, and directives on internal auditing; the Auditor General Act; and the Financial Administration Act. In the 2018–19 fiscal year, the charter was updated to further enhance safeguards against potential threats to independence and objectivity with regard to the Chief Audit Executive’s responsibilities. The Committee recommended the charter for approval to the Auditor General at the 19 October 2018 meeting, and he subsequently approved it. An annual work plan, which was developed to cover each area of the Committee’s responsibilities as set out in the charter, was presented at each meeting to ensure that the Committee would meet its objectives.

The Committee considers that its charter and work plan align suitably with the Treasury Board’s guidance, and it has structured this report to demonstrate how it has addressed the Treasury Board’s key areas of responsibility for departmental audit committee members.

Eight key areas of responsibility

1. Values and ethics

At the July 2018 meeting, the Committee was provided with an annual update on any complaints the Office received regarding accounting, internal controls, and auditing matters, including employees’ confidential, anonymous submissions of concerns. Furthermore, the Committee was informed of the Office’s procedures for dealing with these types of complaints.

During its October 2018 meeting, the Committee was briefed on the process the Office uses to obtain an annual declaration on conflict of interest and independence from all active employees as well as the follow-up procedures the Office employs when a potential conflict is identified. Additionally, the Committee was briefed on the separate process the Office uses to confirm independence on each of its specific audit engagements.

In addition, the Senior General Counsel updated the Committee on compliance matters at each meeting.

2. Risk management

The Committee received and reviewed the draft 2018 Corporate Risk Profile, which resulted from the Office’s annual risk review.

At the January 2019 meeting, the Committee reviewed the Office of the Auditor General of Canada’s annual certification on the adequacy and application of the Fraud Risk Management Framework along with the Summary Report—Results of the 2018 Fraud Risk Assessment.

As part of its assessment of the Practice Review and Internal Audit—Risk-Based Plan for the 2018–19 to 2020–21 Fiscal Years, the Committee considered and reviewed how the Office addressed risk management issues from an audit perspective.

As part of its oversight and monitoring responsibilities, the Committee dedicated additional time during the fiscal year to consider the Office’s technological issues and environment. Activities included discussing the Office’s status in relation to the information technology self-assessment and increasing members’ overall knowledge through a presentation to the Committee on emerging issues and technology.

3. Management control framework

Each year, management updates the Committee on its key issues and on how it has adopted procedures to mitigate concerns and produce desired results. The Office addresses issues concerning the delivery of professional services and products separately from issues concerning administrative and financial activities.

By providing briefings on the results of the annual practice reviews, the Practice Review and Internal Audit (PRIA) team continues to inform the Committee of its progress and challenges in the area of management control.

The Committee stays informed of ongoing activities by reviewing copies of the most recent summary management reports and selected other reports at each meeting. In particular, the Committee examines quarterly reports that summarize the spending on travel, leave, and hospitality of the Auditor General and Deputy Auditors General. The Committee also reviews quarterly reports outlining major contracts, contracting concerns, and contracting exceptions.

In July 2018, the Committee received the summary findings of the Office’s review of its annual assessment of internal controls over financial reporting.

Before the July 2018 meeting, the Committee received the Monitoring Report on the System of Quality Control—2016–17 Fiscal Year, which the Office prepares in accordance with the requirements of the Canadian Standard on Quality Control 1. Subsequently, the Committee received an update on the strategy for the work for the 2017–18 fiscal year.

4. Practice Review and Internal Audit function

The Office’s hallmark is the reliability and integrity of its reports for its various audits and other examinations. Accordingly, the Office focuses on ensuring that its system of quality control for all product lines is operating and is effective. Each year, the Office conducts systematic and rigorous practice reviews that cover all senior practitioners over a multi-year cycle to assess the design of the quality management systems.

During the year, the Practice Review and Internal Audit Charter was updated to further enhance safeguards against potential threats to independence and objectivity with regard to the Chief Audit Executive’s responsibilities. The Committee recommended the revised charter for approval to the Auditor General at the October 2018 meeting, and he subsequently approved it.

In April 2018, the Committee received the Report on a Review of the Direct Engagement Audit Practice. The Committee recommended the report for approval to the Auditor General, who subsequently approved it.

In October 2018, the Committee received the Report on a Review of the Financial Audit Practice and the Internal Audit Report—Framework for Employee Learning, Training, and Development. The Committee recommended these reports for approval to the Auditor General, who subsequently approved them.

At each meeting, the Chief Audit Executive updates the Committee on audits in progress, staffing issues, and other matters affecting the PRIA function.

The Committee considers that the internal audit portion of the PRIA team

The Committee is satisfied that the PRIA team continues to operate in line with relevant guidance and performs its role in a satisfactory manner.

5. External assurance providers

The Committee is briefed on the findings of any examination conducted by external oversight bodies, and of any annual report on the status of management action plans. This fiscal year, the Committee received regular updates and held an additional meeting regarding the Office’s international peer review, which started in 2018–19. During this meeting, the Committee members had the chance to meet the international peer review team to understand and contribute to the team’s plans and to provide information regarding the governance structure of the Office.

The departing external auditor (Collins Barrow Ottawa LLP) met with the Committee in April 2018 and in July 2018 to provide a briefing on the plans for and results of the audit of the Office’s 31 March 2018 financial statements. At the January 2019 meeting, the Committee held an introductory meeting to welcome the new external auditor (Raymond Chabot Grant Thornton LLP) nominated by the Treasury Board, and to discuss preliminary audit plans and the firm’s transition to its first year as external auditor.

The external validator (JB Lamothe Consulting Inc.) was engaged to conduct an independent validation of the self-assessment of the internal audit function prepared by the Office’s PRIA team. The external validator met with the Committee at the April 2018 meeting to discuss the satisfactory results.

6. Follow-up on management action plans

The Committee prioritizes assessing the responsiveness and timeliness of management action plans and monitors their implementation. Accordingly, the Committee uses a systematic and thorough approach to ensure that it receives progress reports until each action item is resolved. Management provides the Committee with regular updates on plans to address findings from internal audits, until all items are cleared.

7. Financial statements and Public Accounts of Canada reporting

Management briefed the Committee on the preparation of the financial statements, including the preparation of estimates, disclosure requirements, and the choices of accounting policies. The Committee recommended the approval of the audited financial statements for the fiscal year ended 31 March 2018 to the Auditor General, who subsequently approved them.

8. Accountability reporting

In July 2018, the Committee was briefed on the Office of the Auditor General of Canada’s 2017–18 Departmental Results Report, including the related audited financial statements. The Committee recommended the final report for approval to the Auditor General, who subsequently approved it.

At the April 2018, October 2018, and January 2019 meetings, the Committee received the most recent versions of the quarterly financial statements. These reports are prepared on an expenditure basis of accounting, rather than on the accrual basis of accounting that is used for year-end reporting.

In addition, at the January 2019 Committee meeting, Committee members reviewed the draft Office of the Auditor General of Canada 2019–20 Departmental Plan and provided comments. The Committee recommended the final report for approval to the Auditor General at this meeting.

Management provided the Committee with quarterly briefings on the Office’s project to review compliance with internal policies, directives, and non-audit standards as well as the status of the compliance with external authorities (all applicable legislation, regulations, Treasury Board policies and directives, and Treasury Board of Canada Secretariat standards).

Future priorities

The Committee has assessed emerging issues that are relevant to its oversight of significant operational areas. On the basis of this assessment, the Committee has identified the following future priorities:

Conclusion

The briefings and reports presented to the Audit Committee during the 2018–19 fiscal year, together with the experience of previous years, have provided the Committee with a sound understanding of the key issues the Office of the Auditor General of Canada faces. The Committee found that management and staff were candid and clear on the challenges they face and were receptive to the Committee members’ comments and suggestions.

The Committee notes that the Office sets high standards for the quality of its audit products and that it has a satisfactory methodology to conduct reliable audits and studies. In addition, the Committee believes that the system of internal controls is satisfactory for the Office’s needs.

Overall, the Committee concludes that the Office has a rational and systematic approach to addressing its mandate, to monitoring results, and to reporting to Parliament and the public.

April 2019