Special Examination Report—Export Development Canada

At a Glance Special Examination Report—Export Development Canada

What we examined (see Focus of the audit)

Export Development Canada was established in 1969 to help Canadian companies benefit from international business opportunities. It reports to the Minister of International Trade. Its purposes and powers are established by the Export Development Act and the Export Development Canada Exercise of Certain Powers Regulations.

The Corporation takes on risk to help Canadian exporters, mainly by providing insurance and financing. The insurance protects exporters against losses incurred as a result of exporting (for example, if a foreign customer defaults on payment). Financing is provided through loans, loan guarantees, and investments, which are given to foreign buyers to help them buy Canadian products or to Canadian companies to help them develop their business abroad. The Corporation also offers information and advice to Canadian exporters.

Our objective for this audit was to determine whether the systems and practices we selected for examination at Export Development Canada were providing it with reasonable assurance that its assets were safeguarded and controlled, its resources were managed economically and efficiently, and its operations were carried out effectively as required by section 138 of the Financial Administration Act.

What we concluded

In our opinion, based on the criteria established, there were significant deficiencies in the Corporation’s Board appointment process and in its risk management processes, but there was reasonable assurance that there were no significant deficiencies in the other systems and practices that we examined. We concluded that, except for these significant deficiencies, the Corporation maintained its systems and practices during the period covered by the audit in a manner that provided the reasonable assurance required under section 138 of the Financial Administration Act.

Subsequent event

The corporate governance section of this report discusses the significant deficiency that we found in the board appointments for Export Development Canada’s Board of Directors. In November 2017, 9 of the 12 Board members’ terms had expired, and the Chairperson’s position was vacant.

On 28 November 2017, the Minister of International Trade announced the appointment of a new Chairperson to the Board of Directors. This new appointment will contribute to the Corporation’s oversight.

What we found about…

Corporate management practices

Overall, we found that Export Development Canada had a significant deficiency in corporate governance related to the appointment of Board directors. The appointment of directors is the responsibility of the Governor in Council and is thus outside the Corporation’s control. At the time of the audit, 1 position was vacant, and 8 of the 12 current Board members, while continuing to serve, had terms that had expired, putting the continuity of the Board’s oversight at risk.

We also found that the Board’s ability to oversee risk management could be hindered because the Board did not receive all the information it needed to fully understand some of the Corporation’s risks.

We found that the Corporation had some good corporate governance practices in place, and that it had good strategic planning and performance measurement and reporting processes.

These findings matter because vacancies on the Board, uncertainty about the appointments or terms of its directors, and insufficient risk information could hinder the effectiveness of the Board’s oversight of   the Corporation.

  • In corporate governance, there was a significant deficiency related to the appointment of Board directors and a weakness in Board oversight

    Recommendation. The Corporation should continue to engage with its responsible Minister to help ensure that appropriate appointments to its Board of Directors are made in a timely and staggered manner.

    Recommendation. The Corporation should continue to engage with its responsible Minister and the Privy Council Office to address the issue related to the President and Chief Executive Officer’s compensation.

    Recommendation. The Corporation should consider disclosing its compensation framework as well as total compensation for senior management—for example, in its annual report—in line with government and financial services industry practices.

Risk Management

Overall, we found weaknesses in how the Corporation managed risk and in how the Corporation managed credit risk. Combined, these weaknesses amounted to a significant deficiency. The Corporation did not keep up with evolving industry practices in risk management. At the time of our audit, it did not have operational and strategic risk management frameworks in place, and it was developing and implementing credit risk management policies that were aligned with its risk appetite statement.

Some of the weaknesses in risk management were not new—we reported on the Corporation’s operational risk management practices in our 2009 special examination. These weaknesses will persist until the Corporation addresses them in its risk management transformation project, which is expected to be completed in 2019.

This finding matters because the Corporation’s business was to assume the risk of others, and it operated in an environment of changing risk. Keeping risk management practices in line with evolving industry practices would help manage these risks effectively. At the time of our audit, the Corporation had a risk management transformation project under way to update its practices.

  • A significant deficiency in the Corporation’s risk management practices was due to a number of weaknesses

    Recommendation. The Corporation should complete its risk management transformation project as planned, including the following activities:

    • developing and implementing policies to support its risk management framework in each of the three risk modules (strategic, operational, and financial);
    • completing its risk appetite statement by developing the remaining supporting policies, training, and risk limits; and
    • implementing risk identification and control assessment processes within all business units.

    Recommendation. The Corporation should ensure that risk reporting includes comprehensive information about operational risk management.

    Recommendation. The Corporation should develop an inventory and classification of key assets (including information and critical systems) and monitor and mitigate threats against these assets.

    Recommendation. The Corporation should complete its risk management transformation project as planned, with prompt consideration of the following items:

    • aligning credit risk policies and procedures with its risk appetite statement;
    • implementing the Model Risk Management Policy by completing guidelines and standards, and ensuring that models are subjected to validation according to plan, with higher-impact models being prioritized; and
    • developing risk limits that combine risk exposures across all business lines.

Organizational transformation

Overall, we found that Export Development Canada was doing well in managing its two major transformation initiatives—the transformation of its risk management framework and of its credit insurance systems. However, the Board and senior management did not have consolidated reporting of how the initiatives had an impact on the Corporation as a whole.

This finding matters because without consolidated reporting of the initiatives’ impacts, senior management and Board members may not understand the collective effects of these impacts and may not prioritize efforts and resources where needed.

Entity Responses to Recommendations

Export Development Canada agrees with our recommendations and has responded (see List of Recommendations).

Related Information

Report of the Auditor General of Canada
Type of product Special Examination
Completion date 8 January 2018
Tabling date 21 February 2018

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