Practice Review and Internal Audit Plan

Transcription

1 Office f the Auditr General f Canada Practice Review and Internal Audit Plan Lng-term audit plan, fiscal years t June 2009

2

3 Table f Cntents 1 Executive Summary 3 2 Intrductin 5 3 External and Internal Review Practice Review and Internal Audit team External and internal reviews f Office audit prducts and management systems, and external audit f financial statements 6 4 Develping the Practice Review and Internal Audit Plan Risk management and cntrl framewrk f the Office f the Auditr General Fcus f the Practice Review and Internal Audit Plan 9 5 Reprting 10 6 Resurcing 10 7 Perfrmance Audit Practice Backgrund and verview f key changes Practitiners plan 13 8 Annual Audit Practice Backgrund and verview f key changes Practitiners plan 15 9 Special Examinatin Practice Backgrund and verview f key changes Practitiners plan Assessments f Agency Perfrmance Reprts Backgrund and verview f key changes Practitiners plan Internal Audit Backgrund Internal audit, risk assessment, and alignment f risks with key systems and practices Where we spend ur dllars 20 Practice Review and Internal Audit i

4 Appendix 1 Appendix Office s strategic challenges Types f audit we will perfrm plan 20 Office f the Auditr General Practice Review and Internal Audit Charter 22 Integrated Risk Framewrk Identificatin and Risk Assessment Wrksheet 26 Appendix 3 Overview f OAG Key Systems and Practices 27 Appendix 4 Alignment f the Office s Risk Prfile With OAG Systems and Practices 28 Appendix 5 Systems and Practices Nt Scheduled fr Audit 30 Appendix 6 Overview f the Office s Legislative Auditing Practice 31 Appendix 7 Cverage f Quality Framewrk Elements 33 Appendix 8 Expenses f the Office f the Auditr General 34 Practice Review and Internal Audit ii

5 1 Executive Summary The Practice Review and Internal Audit team cnducts practice reviews f audit prducts and internal audits f management and administratin within the Office f the Auditr General (OAG). The bjective f the activity is t prvide the Auditr General with timely infrmatin, advice, and assurance abut whether Office management systems, bth fr audit and administrative activities, are suitably designed and effectively perated. Practice reviews and internal audits are part f an external and internal review regime f Office prducts and management systems. The regime cnsists f peer reviews f audit prducts, reviews by prvincial institutes, practice reviews, internal audits, management reviews, and external audits. This dcument fcuses n the Practice Review and Internal Audit Plan fr the fiscal year and recmmends internal audits fr the and fiscal years. The Auditr General, with the advice f the Audit Cmmittee, apprves the scpe, cverage, and resurcing f this practice review and internal audit plan. In the cntext f a rapidly changing envirnment that is characterized by new standards, methdlgies, and audit tls, the Practice Review and Internal Audit Plan takes int cnsideratin the fllwing factrs: Our risk assessment indicates that the Office has gd cntrls in place and has n high-risk areas that practice review and internal audit must address. Because we fllw Canadian Institute f Chartered Accuntants (CICA) quality cntrl standards, we must cnduct a certain number f practice reviews every year. As well, ur audit prducts represent areas f higher risk when cmpared with ur management and administrative practices. As a result, we devte mst f ur resurces t practice reviews f audit prducts, and nrmally cnduct ne r tw internal audits a year. The wrk f OAG principals is ne f the key elements f audit quality. The review cverage f ur legislative auditing practice is based n systematic mnitring f the wrk f all principals n a cyclical basis. We will cntinue t generally review at least ne prduct f every principal wh cmpletes a legislative audit prduct every fur years. Reginal ffices are included in ur plan. Each practice review fcuses n higher-risk areas. Internal audits are selected based n an annual risk assessment. We will cnduct practice reviews that invlve eight perfrmance audit principals, seven financial audit principals, and three special examinatins. We will nt d any reviews f the assessments f agency perfrmance reprts. We will als fllw up n previus years bservatins and recmmendatins fr imprvement fr all prduct lines and internal audits. Our cverage may be reduced if the peer review wrk includes the cnduct f a review f an audit prduct file as part f their scpe f wrk. Practice Review and Internal Audit 3

6 We will be mnitring the activities cnducted by the Office leading t the adptin f Canadian Auditing Standards beginning in 2010 and Internatinal Financial Reprting Standards beginning in We therefre are keeping abreast f the appraching changes in accunting and auditing prfessinal standards. We will be adjusting ur review prgrams accrdingly. We will cnduct a practice-wide review f the rle f the Infrmatin Technlgy team in assisting annual audit teams in carrying ut their wrk. We will als cnduct a practice review f the extent f invlvement f senir management in cnducting audits in all prduct lines, and will fllw up n previus internal audits. A detailed fllw-up f the hspitality and staffing internal audits will be perfrmed. We have implemented mst f the requirements f the Treasury Bard f Canada Plicy n Internal audit which fllws the Institute f Internal Auditrs Standards fr Prfessinal Practice f Internal Auditing. We will cntinue prgressing tward full implementatin f these standards. We perate with a cre cmplement f five full-time equivalents. We currently have a full cmplement a principal, tw directrs, and tw audit prject leaders. T deliver the plan, we require additinal resurces n a temprary basis. As in the past, we cunt n senir management t prvide resurces at the principal and directr levels s that we can carry ut practice reviews. All practice reviews will be carried ut internally. External resurces are retained t assist us in areas f special expertise (such as infrmatin technlgy) and fr internal audits. Estimated resurce requirements fr practice review and internal audits fr the fiscal year are abut $50,000. This plan will be disclsed n the Office s website and summarized in the Office s Reprt n Plans and Pririties. A summary f ur results will be presented in the Office s Perfrmance Reprt. Practice Review and Internal Audit 4

7 2 Intrductin The Office f the Auditr General f Canada (OAG) cnducts independent audits and prvides bjective infrmatin, advice, and assurance t Parliament, territrial legislatures, gvernment, and Canadians. The Office has several prduct lines, including perfrmance audits, financial audits, and special examinatins. Its audit wrk is guided by a rigrus methdlgy and a quality management framewrk. This dcument utlines the external and internal review regime f OAG audit prducts and management systems. It presents the Office s Practice Review and Internal Audit Plan fr the fiscal year. The Auditr General, with the advice f the Audit Cmmittee, apprves the scpe, cverage, and resurcing f the Practice Review and Internal Audit Plan. Several sectins f this plan including thse n external and internal review, develping the audit plan, reprting, and resurces prvide backgrund infrmatin n OAG prducts and practices, and utline ur appraches t planning and cnducting practice reviews and internal audits. The remainder f the dcument describes ur plans fr perfrmance audit practice, audits f summary financial statements and Crwn crpratins, special examinatin practice, assessments f agency perfrmance reprts, and internal audit. 3 External and Internal Review External and internal reviews based n ur Quality Framewrk prvide independent assurance that ur audits are cnducted accrding t established standards f prfessinal practice. cntrl systems guide the Office s management and administratin. The Office s external and internal review regime cnsists f practice reviews, internal audits, peer reviews, reviews by prvincial institutes, and external audit f financial statements. 3.1 Practice Review and Internal Audit team The Practice Review and Internal Audit team is respnsible fr cnducting practice reviews f the Office s audit prducts, as well as internal audits f the Office s management and administrative practices. The team s gal is t prvide the Auditr General with timely infrmatin and advice, and t ffer assurance that imprtant OAG management systems fr audit prducts and administrative activities are suitably designed and effectively perated, as described in the OAG Practice Review and Internal Audit Charter (Appendix 1). The team als prvides administrative supprt t the Office s Audit Cmmittee and assists with the peer review prcess when required. Practice Review and Internal Audit 5

8 Internal practice reviews f audit prducts. The Practice Review and Internal Audit team cnducts practice reviews f selected perfrmance audits, financial audits, special examinatins, and assessments f agency perfrmance reprts. These reviews are cnducted accrding t the mnitring sectin f The Canadian Institute f Chartered Accuntants (CICA) General Standards f Quality Cntrl fr Firms Perfrming Assurance Engagements (CICA Handbk Sectin GSF-QC, December 2005). They are used t mnitr cmpliance with quality cntrl plicies and prcedures in a view t prvide an evaluatin f: whether prfessinal standards and regulatry and legal requirements have been adhered t; whether the quality cntrl system has been apprpriately designed and effectively implemented; and whether the Office quality cntrl plicies and prcedures have been apprpriately applied, s that reprts that are issued are apprpriate in the circumstances. Internal audits f management and administratin. The Practice Review and Internal Audit team audits management and administratin within the Office. This wrk is cnducted accrding t the Office s Practice Review and Internal Audit Charter, which is based n the standards f the Institute f Internal Auditrs and the Treasury Bard Plicy n Internal Audit, and which takes int accunt the Office s mandate and ability t maintain its independent status. The internal audits are cnducted mainly by cnsultants, where apprpriate. They als prvide managers with recmmendatins. 3.2 External and internal reviews f Office audit prducts and management systems, and external audit f financial statements External review f audit prducts. In 1999 the Office hired an audit firm t assess the Quality System fr annual financial audits. In 2003, an internatinal team f legislative auditrs carried ut a peer review f the Office s Quality Framewrk fr perfrmance auditing. The reviews fund that the system and framewrk were suitably designed and perating effectively. The reviews als highlighted sme gd practices and made suggestins fr imprvement. The actin plans t address these recmmendatins is psted n the OAG website. The Office is nw in the planning stage fr the next external peer review f the Office s Quality Framewrk fr all audit practices and related services. The review is expected t begin in summer 2009, with a reprt t be submitted in In additin, abut every fur years, the prvincial institutes f chartered accuntants visit OAG headquarters and reginal ffices t determine whether the Office is cmpliant with prfessinal standards and whether the training f chartered accunting students meets the institutes requirements. The mst recent reviews cncluded that the Office was fllwing prfessinal standards and met the prvincial institutes requirements. Practice Review and Internal Audit 6

9 External audit f financial statements. Each year, an external auditr appinted by the Treasury Bard audits the Office s financial statements. The mst recent auditr s pinin stated that the financial statements were presented fairly, in all material respects, the financial psitin f the Office as at 31 March 2008 and the results f its peratins and its cash flws fr the year then ended in accrdance with Canadian generally accepted accunting principles. The auditr als stated that the Office was in cmpliance with its authrities. The financial audit fr the fiscal year is currently under way and will be reprted t the Audit Cmmittee at its July 2009 meeting. Results f the audit will be reprted in the OAG Departmental Perfrmance Reprt. Participatin in peer reviews f internatinal audit ffices. The Office als cnducts peer reviews f internatinal legislative audit ffices, and uses these reviews as an pprtunity t learn and imprve OAG practices and prcedures. 4 Develping the Practice Review and Internal Audit Plan In preparing the plan fr the fiscal year, Practice Review and Internal Audit cnsulted with the audit prduct leaders, crprate service leaders, and selected individuals, including thse with respnsibility fr audit methdlgy and strategic planning. We requested their input t better understand their activities and identify whether they had any particular areas f cncern that shuld be included in ur reviews and audits. Our plan builds n the experiences and lessns learned frm previus years. It als builds n the key changes in each prduct lines. Fr mre infrmatin abut the key changes in the varius audit practices, see sectins 7 t Risk management and cntrl framewrk f the Office f the Auditr General Risk management. This plan was develped taking int cnsideratin the Office s Integrated Risk Framewrk. The majr elements f the framewrk are utlined in Appendix 2. In cmpliance with the spirit f the Treasury Bard Plicy n Internal Audit, the OAG s Practice Review and Internal Audit Charter requires us t prepare an internal audit plan that is based n a systematic identificatin f business risks. This plan identifies relevant key systems and practices (Appendix 3). Auditable cmpnents are identified in Appendix 4, alng with a risk and cntrl assessment. Appendix 5 identifies lw-risk activities and activities nt scheduled fr audit, as well as the reasns they are nt included fr audit. This frms the basis fr selecting internal audits annually. Practice Review and Internal Audit 7

10 Our Practice Review and Internal Audit Plan als takes int cnsideratin the fllwing factrs: Our risk assessment and review f cntrls indicates that the Office has gd cntrls in place, and has n high-risk areas that Practice Review and Internal Audit shuld address. Because we fllw Canadian Institute f Chartered Accuntants quality cntrl standards, we must cnduct a certain number f practice reviews every year. As well, ur audit prducts represent areas f higher risk cmpared with ur management and administrative practices. As a result, we devte mst f ur resurces t practice review f audit prducts, and nrmally cnduct ne r tw internal audits a year. The wrk dne by the principal (the senir audit prfessinal f an audit team) is ne f the key elements f audit quality. The practice review cverage f the legislative auditing practice is based n systematic mnitring f the wrk f all principals n a cyclical basis. Our selectin als cnsiders higher-risk audit prducts, as well as principals wh are newly appinted. Currently the Office emplys 57 principals, 48 f whm prduce ne audit prduct r mre each year (Appendix 6). We plan t d abut 12 practice reviews each year s that we can cver all principals in a fur-year cycle. All reginal ffices will t be cvered ver the same fur-year cycle fr practice review and internal audit wrk. We will integrate the fcus f practice review and internal audit wrk where pssible. Integratin helps t ensure effective cverage, n a cyclical basis, f all Quality Framewrk elements (Appendix 7). We als cnsider new prfessinal standards, Office practice advisries, and new methdlgy when we annually update ur review methdlgy fr all prduct lines. cntrls. The Office has a strng internal cntrl system. Fr example, leadership is prvided frm the tp by the Auditr General. The Executive Cmmittee sets plicy and prvides verall prfessinal and administrative directin fr the Office. An Audit Cmmittee has been established; the majrity f its vting members are external. The Auditr General and the Cmmissiner f the Envirnment and Sustainable Develpment receive advice frm a number f cmmittees with external members n the bjectives, apprach, and reprts f many audit prducts. The Office has a clearly defined visin, fcus areas, and values that align with its mandate. It als has peratinal plans in place that align with its bjectives. The Office mnitrs external and internal envirnments thrugh surveys f parliamentarians, audited rganizatins, and emplyees. The Office has a Cde f Values, Ethics, and Prfessinal Cnduct that sets ut in detail the values and the ethical, prfessinal, and ther standards that guide staff, n a daily basis, in their wrk fr the Office. Emplyees frmally acknwledge cmpliance with the Cde annually. The Office als has a dcumented apprach t risk management that includes bth a risk management plicy and prfile, and an Integrated Risk Framewrk. Cntrls ver audit prducts. An Assistant Auditr General is appinted prduct leader fr each prduct line. The Office establishes plicies and prcedures t guide its wrk in accrdance with the standards f The Canadian Institute f Chartered Accuntants. This includes a manual and a Quality Framewrk fr each prduct line, t build quality Practice Review and Internal Audit 8

11 int the examinatin prcess. The framewrk guides auditrs thrugh a set f required steps t ensure that audits are cnducted accrding t prfessinal standards and Office plicies. The manual and the framewrk are cmplemented by templates and checklists fr each prduct line. Prcess cntrls, such as a quality reviewer and cmmittees that review key dcuments and decisins, help t build quality int the prcess. 4.2 Fcus f the Practice Review and Internal Audit Plan Activities planned fr the fiscal year include the fllwing: We will cntinue t review at least ne prduct f every principal wh cmpletes a legislative audit prduct every fur years. We will review perfrmance audits, annual audits, special examinatins, and assessments f agency perfrmance reprts. We plan t cnduct a ttal f 18 practice reviews in Our cverage may be reduced if the peer review wrk includes the cnduct f a review f an audit prduct file as part f their scpe f wrk. Fr details n the plan fr each prduct line, see sectins 7 t 10. Fr each practice review, we will strive t cnduct a review that fcuses n key elements f the Quality Framewrk. We will d mre in-depth wrk nly when circumstances warrant. We will als strive t identify ptential pprtunities t imprve efficiencies in the audits that are being carried ut. A practice wide review f the extent f invlvement f senir management in audit prducts will be carried ut acrss all prduct lines. Anther review f the rle f the Infrmatin Technlgy team in assisting annual audit teams will als be perfrmed. Internal audits are selected based n an annual risk assessment. Based n ur risk assessment, we will nt carry ut any internal audit f an administrative prcess in In , we plan t cnduct a review f the implementatin f the new Electrnic Dcument System implemented in , fllwed by a review f cntracting in Fr details n the internal audit plan, see Sectin 11. We will cntinue t fllw up n the implementatin f previus years recmmendatins. We will be mnitring the activities cnducted by the Office leading t the adptin f Canadian Auditing Standards beginning in 2010 and Internatinal Financial Reprting Standards beginning in We will be adjusting ur review prgrams accrdingly. During the past year, Internal Audit and an external cnsulting firm perfrmed a jint assessment f the design f the Office s quality management system fr all prduct lines based n the General Standards f Quality Cntrl fr Firms Perfrming Assurance Engagements CICA Handbk Sectin GSF-QC and the CICA handbk sectin 5030 Quality Cntrl Prcedures fr Assurance Engagements. The reprt made several recmmendatins. has cmmitted t bring abut imprvements in all areas mentined in the reprt and has develped an actin plan. We will mnitr the implementatin f recmmendatins cming ut f this assessment. Practice Review and Internal Audit 9

12 Practice reviews are nt cnducted n activities f the Frensic Audit Team (ther than perfrmance audits), discussin papers, the Auditr General s Reprt n Matters f Special Imprtance, and the Reprt n the Cmmissiner s Perspective. Other reprts frm the Cmmissiner are subject t practice reviews and are part f the perfrmance audit prduct line. 5 Reprting Our Practice Review and Internal Audit Plan will be publicly disclsed n the Office s website and summarized in the Office s Reprt n Plans and Pririties. Summaries f ur results will be presented in the Office s Perfrmance Reprt. The Auditr General is the client fr the reprts f the Practice Review and Internal Audit team. Practice reviews. Fr individual practice reviews, cmments are shared with the Auditr General and the apprpriate Assistant Auditr General and principal. Fr the practice review f each prduct line, a summary reprt is prepared that fcuses n the matters we believe are significant frm a practice-wide perspective. The summary reprt is reviewed and respnded t by the apprpriate prduct leader and Assistant Auditr General respnsible fr audit methdlgy. The reprt, including management respnses, then ges t the Audit Cmmittee fr review, t the Auditr General fr her apprval, and t the Executive Cmmittee. Finally the summary reprt is psted n the Office s website and intranet. Thrughut cmpletin f the practice review and as required by prfessinal standards, audit teams are expected t prmptly take apprpriate remedial actin t address the bservatins f the reviewers in a view t bring the audit file cmpliant with the quality management system and prfessinal standards. Practice review will fllw-up rapidly n crrective actins taken by audit teams in a view t subsequently reprt t the auditr general that files are nw cmpliant with ffice plicies and prcedures and prfessinal standards and that the audit reprt is apprpriate in the circumstances. Internal audits. The results f internal audits are shared with the respnsible Assistant Auditr General and principal. The apprpriate principal and Assistant Auditr General prepare the management respnse and an actin plan. The reprt then ges t the Audit Cmmittee fr review, t the Auditr General fr her apprval, and t the Executive Cmmittee. 6 Resurcing Any audit institutin cmmitted t excellence and prfessinalism cnfrnts a key questin: What resurces shuld be devted t the practice review and internal audit functin? In July 2005 the Office did a benchmarking study that cmpared OAG crprate services with public-sectr audit ffices and the Canadian public sectr. It fund that the OAG spends less than its cunterparts n internal audit but spends mre time n practice reviews than its cunterparts. Practice Review and Internal Audit 10

13 We perate with a cre cmplement f five full-time equivalents. We currently have a full cmplement f five a principal, tw directrs, and tw audit prduct leaders. T deliver the plan, we require mre resurces n a temprary basis. As in the past, we cunt n senir management t prvide supprt at the principal and directr levels s that we can carry ut practice reviews. All practice reviews will be carried ut internally. External resurces are retained t assist us in areas f special expertise (such as infrmatin technlgy). T further enhance ur independence, internal audits are perfrmed with the assistance f cntractrs wh are supervised by the principal f the Practice Review and Internal Audit team. The current budget fr resurce requirements fr internal audits and practice reviews during the fiscal year is $50,000. The fllwing table indicates hw we intend t budget ur time. Practice reviews and internal audits Time requirements, Activity Hurs Practice reviews Cnduct f practice reviews and related reprts 5,000 Fllw-up f previus recmmendatins Practice-wide evaluatin f the rle f the Infrmatin Technlgy team in financial audits Practice review n senir management s invlvement in cnducting audits Ttal hurs planned fr practice reviews 7,000 Internal audits Fllw-up f previus years internal audits Fllw-up n the assessment f the Quality Framewrk reprt 150 Ttal hurs planned n internal audits 850, external relatins, and thers 3 1,000 Ttal hurs planned 8,850 Ntes: 1 Includes the fllw-up f assessments f agency perfrmance reprts carried frward frm the fiscal year. 2 Includes a detailed fllw-up f the hspitality and staffing internal reprts carried ut in 2007 and Includes time t adjust ur wrk prgram fr the intrductin f Canadian Auditing Standards and Internatinal Financial Reprting Standards. Practice Review and Internal Audit 11

14 Practice review and Internal Audit has 6,500 hurs available. Additinal resurces fr the equivalent f 2,350 hurs will have t be prvided frm ther internal grups t allw us t cmplete ur planned activities fr the year. Each audit grup is expected t prvide an average f 2 individuals at the principal and directr level fr abut 150 hurs each ver the July t December 2009 perid. Individual practice reviews are expected t be cmpleted by the end f December Perfrmance Audit Practice 7.1 Backgrund and verview f key changes Perfrmance audits examine, against established criteria, whether gvernment prgrams are being managed with due regard fr ecnmy, efficiency, and envirnmental impact, and whether measures are in place t determine their effectiveness. This audit practice is well established and has a methdlgy in place that guides auditrs and ensures the quality f the practice. Guidance includes the Quality Framewrk fr perfrmance audits, the Perfrmance Audit Manual and practice advisries, and numerus templates and guidelines. As well, fr each perfrmance audit, the Perfrmance Audit Cmmittee and quality reviewer perfrm key prcess cntrls. Territrial perfrmance audits are reprted t the legislative assemblies f the territrial gvernments. They fllw the Quality Framewrk fr perfrmance audits and are cnsidered part f the perfrmance audit practice. There has been n majr change in the perfrmance audit practice ver the past year. In Nvember 2007 the Office intrduced the use f an audit lgic matrix fr perfrmance audits. The matrix is a tl that enables the Office t better plan audits and resurce requirements. We will cntinue t mnitr hw teams are using this tl in the develpment and cnduct f audits. In Nvember 2008 a practice advisry was issued t prvide further guidance n the wrk t be cnducted n auditing results measurement and reprting. When carrying ut ur reviews, we will give particular attentin t the way teams implement this practice advisry. 7.2 Practitiners There are 34 principals wh are respnsible fr perfrmance audits. Twenty-five perfrmance audits will be tabled during the fiscal year (Appendix 6, Sectin 2). Principals will table federal and territrial perfrmance audit reprts, lng-frm reprts fr internatinal rganizatins, envirnmental petitins, r reprts n sustainable develpment mnitring f activities. Practice Review and Internal Audit 12

15 plan In the fiscal year, ur review will assess cmpliance against selected key elements f the Quality Framewrk fr perfrmance audits, including wrk f the quality reviewer. We will cnduct fcused practice reviews f perfrmance audits reprted in We intend t d practice reviews f perfrmance audits cnducted by eight principals. In the previus fiscal year we cnducted fur practice reviews as planned. The summary practice review reprt identified pprtunities fr imprvement in sme areas. One such area was dcumentatin, including wrking papers and substantiatin. Anther area was cnsultatin with internal/external advisers and the quality reviewer, including n the nature f their wrk. The reprt s findings further supprt the findings frm the assessment f the Quality Framewrk cnducted earlier in the year. They will prvide the fcus fr ur wrk in We will als pay particular attentin t cmpliance with practice advisries, the rle f the quality reviewer, adequacy f dcumentatin, the rle f specialists in prviding cmments t the audit team and the way their cmments are addressed, and senir management invlvement in the audit. At the request f the auditr general, we will undertake a practice-wide review f the extent f management s invlvement in the cnduct f audits. Results f the practice reviews cnducted in fiscal year indicated a need fr imprvement in the extent f management s invlvement in the planning, examinatin and reprting phases f the all prduct lines. The audit will lk mre clsely at key cntrls as identified by the quality management framewrk f each prduct line. 8 Annual Audit Practice 8.1 Backgrund and verview f key changes Annual audits f financial statements cmply with Canadian generally accepted auditing standards and prvide an pinin n whether financial statements are presented fairly in accrdance with Canadian generally accepted accunting principles, and the transactins examined cnfrm t laws and regulatins. Practice Review and Internal Audit 13

16 This practice is well established and has a rbust methdlgy that guides auditrs and ensures the quality f the practice. The guidance includes the Quality System fr annual financial audits, the Annual Audit Manual, practice advisries, pre-established audit prgrams, and numerus templates and guidelines. The Annual Audit Practice and Infrmatin Technlgy financial teams, alng with the prduct leader respnsible fr annual audits, guide auditrs n the applicatin f the Canadian Institute f Chartered Accuntants (CICA) standards and reprting requirements. A quality reviewer cnducts key prcess cntrls fr annual audits that are cnsidered high-risk. As nted in the Intrductin, the Office s annual audit practice underges peridic external reviews by prvincial institutes f chartered accuntants. Institutes in British Clumbia, Alberta, Ontari, Quebec, and Nva Sctia perfrm reviews f ur annual audit files. The reviews ccur abut every fur years, depending n the requirements f each prvincial institute. The mst recent reviews were cmpleted in The review reprts indicated cmpliance with practice requirements. We stay abreast f the annual audit practice generally by reviewing the Annual Audit Manual, the Quality System, practice advisries, Office plicies, CICA standards, and ther dcumentatin relevant t annual audits. In particular, the Office has issued several practice advisries in the past year relating t the Internatinal Financial Reprting Standards. The fiscal year will be spent mnitring and preparing fr audit entity transitin t the standards, which will cme int effect in January We will ensure that ur practice review prgram reflects the requirements utlined in the practice advisry. Audit teams have been asked t include a checklist t mnitr entities prgress at tw pints during the audit: the planning and reprting phases. Our prgram will be updated t include these steps. We will als ensure that the wrk has been adequately dcumented, as required by Office plicy. One f the practice advisries issued in the past year deals with auditing cnsideratins in the current ecnmic situatin. Where higher risks are identified as a result f the actual ecnmic envirnment, auditrs shuld pay particular attentin t any significant transactins r year-end adjustments and assess their ptential impact n the audit entities cmpliance with the relevant authrities. The practice review prgram will include steps t cnsider hw audit teams tk accunt f the situatin, including fair value accunting and accunting estimates if applicable. Practice Review and Internal Audit 14

17 8.2 Practitiners There are 21 principals respnsible fr annual audits f Crwn crpratins as well as territrial, internatinal, and ther entities. Twenty-tw principals are respnsible fr the annual audits f the large entities that are included in the Audit f the Summary Financial Statements f the Gvernment f Canada, perfrmed under sectin 6 f the Auditr General Act. Twenty-ne f these principals are respnsible fr mre than ne prduct. Fr mre infrmatin, see Appendix plan In the fiscal year, we plan t carry ut practice reviews f seven annual audit engagements. In the fiscal year, we perfrmed 12 practice reviews f annual audits. The summary practice review reprt identified several pprtunities fr imprvement in accrdance with the assessment f the Quality Framewrk and prfessinal standards. These included the use f a cntrls-reliant apprach, dcumentatin, the rle f the quality reviewer, and senir management s invlvement in the audit. Practice in these areas will cntinue t be reviewed in Our reviews will fcus n the rle f the quality reviewer, the use f internal specialists in the areas f infrmatin technlgy and financial instruments, new practice advisries and new CICA cmpliance standards, and senir management invlvement in the audit. We are als planning a practice-wide review f the rle f the Infrmatin Technlgy team in assisting audit teams t carry ut their wrk and as indicated earlier, the extent f invlvement f senir management in cnducting audits will be reviewed acrss all prduct lines. We will be mnitring the activities cnducted by the Office leading t the adptin f Canadian Auditing Standards beginning in 2010 and Internatinal Financial Reprting Standards beginning in We therefre are keeping abreast f the appraching changes in accunting and auditing prfessinal standards, and f the Office s level f preparedness t meet the new standards. We will be adjusting ur review prgrams accrdingly. Practice Review and Internal Audit 15

18 9 Special Examinatin Practice 9.1 Backgrund and verview f key changes The Financial Administratin Act requires each parent Crwn crpratin (with certain exceptins) t have a special examinatin f its rganizatin cnducted by the Office r anther examiner. Until recently, Crwn crpratins were required t underg special examinatins at least nce every five years. In March 2009 the Act was amended t change the five-year reprting cycle t 10 years. Special examinatins culd be carried ut mre frequently if required by the Gvernr in Cuncil, the apprpriate minister, the bard f directrs f the crpratin, r the Auditr General. The Act requires the Office t prvide an pinin n whether the financial and management cntrl and infrmatin systems and management practices f the rganizatin are maintained in a manner that prvides reasnable assurance that the assets f the rganizatin are safeguarded and cntrlled; and the financial, human, and physical resurces f the rganizatin are managed ecnmically and efficiently, and the peratins f the rganizatin are carried ut effectively. The Office has a lengthy histry f special examinatin experience that dates back t the mid-1980s. We are currently in the fifth rund f special examinatins. The Office expects t cnduct abut 47 special examinatins during this rund. A number f events have ccurred ver the past year, bth internally and externally, that will have a significant impact n the special examinatin practice: The Executive Cmmittee has apprved a revised special examinatin schedule t reflect the new reprting cycle. The schedule reduces the number f special examinatins t be cmpleted in any ne year. Starting in the fiscal year, the number f practice reviews will decrease t reflect this change. The March 2009 amendments t the Financial Administratin Act als included new gvernance rules fr Crwn crpratins. Within 30 days f receiving a special examinatin reprt, the crpratin s bard f directrs is nw required t submit the reprt t the apprpriate minister and the President f the Treasury Bard. Als, within 60 days f receiving a special examinatin reprt, the bard f directrs is required t make the reprt available t the public. Previusly Crwn crpratins psted special examinatin reprts n their websites, making them public dcuments. The Office is assciated with the infrmatin presented in the reprts, and prfessinal standards require that we carry ut additinal prcedures befre the reprts are made public. As part f the individual practice reviews, we will mnitr special examinatins t ensure that audit teams carry ut these prcedures. Practice Review and Internal Audit 16

19 A special examinatin practice team has been in place since early September The team is respnsible fr delivering n the Special Examinatin Imprvement Plan, apprved by the Executive Cmmittee in June The plan includes 12 initiatives intended t enhance methdlgy, ensure cmpliance with quality cntrl standards f the Canadian Institute f Chartered Accuntants, cntinue quality versight, and prvide training. At the time this reprt was prepared, the initiatives were being wrked n and were at varius stages f implementatin. We will mnitr develpments in these areas and update ur practice review prgram t reflect new requirements fr audit teams. The summary practice review reprt fr the fiscal year identified pprtunities fr imprvement in sme areas. One such area was dcumentatin, including wrking papers and substantiatin. Anther area was cnsultatin with internal/external advisers and the quality reviewer, including n the nature f their wrk. The reprt s findings further supprt the findings frm the assessment f the Quality Framewrk cnducted earlier in the year. They will prvide the fcus fr ur wrk in the fiscal year. 9.2 Practitiners There are 21 principals respnsible fr special examinatins; 13 will be cmpleting reprts in the fiscal year (Appendix 6) plan As we d with practice reviews fr all prduct lines, in the fiscal year we plan t check cmpliance with selected elements f the Office s Quality System fr special examinatins. In the previus fiscal year we perfrmed three practice reviews f individual special examinatins, as planned. The summary practice review reprt identified several pprtunities fr imprvement. We will cntinue t include the areas where pprtunities fr imprvement have been nted. We intend t perfrm three practice reviews f special examinatins reprted in We will pay particular attentin t cmpliance with the Canadian Institute f Chartered Accuntants (CICA) standards and with practice advisries, prgress made n recmmendatins in ur previus reprts, the rle f internal specialists and the special examinatin practice team, the develpment f the risk assessment analysis and related apprach, and senir management invlvement in planning and cnducting the audits. Finally, the extent f invlvement f senir management in cnducting special examinatins will als be examined as part f ur prduct-wide review. Practice Review and Internal Audit 17

20 10 Assessments f Agency Perfrmance Reprts 10.1 Backgrund and verview f key changes Assessments f agency perfrmance reprts are a relatively new activity fr the Office. Since 2006 they have been part f the perfrmance audit practice. The Office is required by law t cnduct an assessment f three perfrmance reprts f three agencies: Parks Canada, the Canadian Fd Inspectin Agency, and the Canada Revenue Agency. An assessment enables the Office t determine whether each f these agencies presents its perfrmance infrmatin (published in its statutry reprts) in a fair and reliable way. Only tw f the agencies are required t have annual assessments; the third is subject t peridic assessments. All three assessments f agency perfrmance reprts were subject t a practice review in the fiscal year. The practice review reprt made several bservatins and identified pprtunities fr imprvement. We will fllw up n the prgress made t date Practitiners There are currently three principals respnsible fr the three assessments f agency perfrmance reprts subject t review-level assurance by the Office plan Fr the fiscal year, a fllw-up was planned n implementatin f management s actin plan stemming frm the practice review. Hwever, the fllw-up has been carried ver t N practice reviews f assessments f agency perfrmance reprts will be cnducted in We will cncentrate ur effrts n fllwing up n the prgress made t address previus recmmendatins and t adjust methdlgy fr agency perfrmance reprts. Assessments f agency perfrmance reprts d nt represent a significant prtin f the Office activities. 11 Internal Audit 11.1 Backgrund Over the last several years, internal audit has had gd cverage f lw- and medium-risk areas, including prfessinal service cntracts; security at headquarters and in the regins; travel, cmpensatin, and classificatin; hspitality expenses; Practice Review and Internal Audit 18

21 human resurces management; prfessinal develpment; and staffing. The assessment f crprate services practices and prcesses identified n high-risk areas Internal audit, risk assessment, and alignment f risks with key systems and practices In cmpliance with the spirit f Treasury Bard Plicy n Internal Audit and Internatinal Internal Auditing Standards, the Practice Review and Internal Audit team prepared an Internal Audit Plan that addresses areas f high risk: First, we defined the key systems and practices. Secnd, we identified, classified, and analyzed business risks. Third, we aligned the risks with key business systems. The OAG Integrated Risk Framewrk Identificatin and Risk Assessment Wrksheet (Appendix 2) is used t assess risks and cntrls. All f the risks described in the framewrk were deemed t be significant. Als identified in the framewrk are the risks mst amenable t internal audit r practice review. As a general rule, we cnsider that the highest ptential impact f the risks relevant t practice review is higher than the highest ptential impact f risks relevant t internal audit. Therefre, we fcus mst f ur effrts n practice review. The Overview f OAG Key Systems and Practices (Appendix 3) identifies key systems and practices in the Office. It is bradly based n the OAG Financial Capability Mdel, and it prvides an verview f Office activities as they relate t OAG systems and practices. While this is a high-level verview, it highlights the majr systems and can be linked t the Office s rganizatinal structure. The table in Appendix 4 shws the alignment f risks relevant t internal audit with the cntrl and risk assessment and with the relevant internal Office systems and practices (identified in Appendix 3). The ptential impact, the likelihd f ccurrence f the risk event, and risk management effectiveness are listed accrding t the risk categry and statement There are tw categries f relevant systems and practices listed: lw- and medium-risk. In ur current analysis f risk, we fund that there are n high-risk areas. Fr the Auditr General s infrmatin, we have charted the lw- and medium-risk areas ver a cycle, taking int accunt ur internal audit resurces. We estimate that it wuld take abut nine years t cver all f the lw- and medium-risk areas. This means that within the ten-year mandate f an Auditr General, we culd perfrm an internal audit f mst lw- and medium-risk activities if we chse t d s. The cverage is suitable t the Auditr General. Our intentin is t d an annual risk assessment and t cnduct internal audits n areas f higher risk. Hwever, we will keep the charted cycle in mind, t prvide the Auditr General with the assurance she needs. Practice Review and Internal Audit 19

22 The table in Appendix 5 identifies systems and practices that were deemed t be lw-risk and are nt scheduled fr internal audit. Als identified are areas that are reviewed by anther audit r review rganizatin. Fr example, the audit f ur financial statements is cvered by external audit. Risk management is reviewed by the Audit Cmmittee nce a year and the Practice Review and Internal Audit team als reviews risk management every year when it prepares this plan. The practice review functin is audited as part f the external peer review Where we spend ur dllars Appendix 8 summarizes Office expenses by majr classificatin. Of particular interest are the expenditures, which include salaries, emplyee benefits, prfessinal services, accmmdatin, infrmatics, Office accmmdatins and thers. Fr the purpse f planning internal audits, we included prfessinal services, travel, cmmunicatins, infrmatin technlgy, ffice equipment, materials and supplies, and printing and publicatins services Office s strategic challenges In planning ur internal audits, we are mindful f the Office s strategic challenges: integrating changes t prfessinal standards int ur plicies, methdlgy, training, and practices; sustaining ur capacity as an ffice; and imprving resurce allcatin and prject management Types f audit we will perfrm Mst f ur internal audits will be a mix f cmpliance and perfrmance audits. Internal audit generally des nt review best practices in ther jurisdictins. We rely n thers t d this benchmarking wrk plan During the fiscal year, the Practice Review and Internal Audit team cnducted an audit f the internal cntrls ver transactins f the new financial system (GX Financial). There will be n internal audit f administrative prcesses in We will rather fcus ur effrts n reviews related t audit prducts. The fllwing areas have been retained and are recmmended fr internal audit ver the next three fiscal years. They will be reassessed n a yearly basis and are based n ur risk assessment, discussins with management, and resurces available. Fr : Nne fcus is n audit prducts. Practice Review and Internal Audit 20

23 Fr : Implementatin f the Electrnic Recrds and Dcument System (Prxi). In 2008 the Office implemented a crprate Dcument and Recrds applicatin. The audit wuld lk at the use f this system thrughut the Office. Fr : Cntracting. Cntracting f services is subject t specific plicies and prcedures. We wuld lk at the cmpliance with cntracting plicies. In the fiscal year, we als cnducted a self-assessment f the Practice Review and Internal Audit unit against the Treasury Bard Plicy n Internal Audit and the Institute f Internal Auditrs Standards fr Prfessinal Practice f Internal Auditing. We nted that the cre elements f the Treasury Bard Plicy n Internal Audit are in place. This prcess highlighted pprtunities fr imprvements. We will cntinue wrking tward implementing these requirements ver the next few years and will keep mnitring upcming develpments in the internal audit cmmunity. We will ntably clsely mnitr and assess the impact f the intrductin f a maturity mdel fr internal audit grups by the Institute f Internal Auditrs n the Practice Review and Internal Audit grup planned fr We will als fllw up n previus internal audits f the 2002 hspitality audit and the 2007 staffing audit; request that the respnsible principals prvide an update n prgress made in addressing the bservatins and recmmendatins in these internal audit reprts; review the respnses t determine whether they are adequate and whether mre in-depth internal audit wrk is needed; and plan any necessary fllw-up n the internal audit, including timelines and recmmendatins n the type and depth f fllw-up wrk. Practice Review and Internal Audit 21

24 Appendix 1 Office f the Auditr General Practice Review and Internal Audit Charter Missin and scpe f wrk The purpse f the Practice Review and Internal Audit (PR&IA) functin is t prvide independent and bjective infrmatin, advice, cnsulting, and assurance services t the Auditr General t add value and imprve the Office s peratins. This includes determining whether imprtant OAG management systems fr audit practices, administrative services, and management prcesses are apprpriately designed and effectively perated t cmply with legislative requirements, prfessinal standards, the OAG s plicies, guiding principles, and Cde f Values, Ethics and Prfessinal Cnduct and Quality System. PR&IA helps the Office accmplish its bjectives by bringing a systematic, disciplined apprach t evaluating and imprving the effectiveness f the risk management, cntrl, and gvernance prcesses. The spirit f the Treasury Bard Plicy n Internal Audit (April 1; 2006) is fllwed taking int cnsideratin the special circumstances f the OAG mandate and the need t maintain the Office s independent status. PR&IA fllws The Canadian Institute f Chartered Accuntants (CICA) General Standards f Quality Cntrl fr Firms Perfrming Assurance Engagements and ther related CICA standards Accuntability The Auditr General is the client fr practice review and internal audit reprts. The Auditr General apprves the scpe and cverage f the practice review and internal audit plans, taking int accunt the advice f the Audit Cmmittee. The plan fcuses primarily n the prvisin f assurance services fr the cnduct f internal audits and practice reviews. Other services are prvided by Practice Review and Internal Audit nly as an exceptin Independence and prfessinal qualificatins The Principal, Practice Review and Internal Audit, is respnsible fr the practice review and internal audit functin and acts as the Chief Audit Executive (CAE) fr the Office. The CAE is appinted by the Executive Cmmittee. This psitin is independent frm the Office s management and peratins. The CAE reprts t the Deputy Auditr General and functinally t the Audit Cmmittee, and has direct access t the Auditr General. The CAE is required t hld an accunting designatin (CA/CMA/CGA) r t be a Certified Internal Auditr. The CAE has unfettered access t the Audit Cmmittee. PR&IA will ensure that individuals invlved in internal audits and practice reviews are sufficiently qualified and independent f the activities under examinatin. Practice Review and Internal Audit 22

25 Generally the Office s practices will meet the intent and spirit f the Treasury Bard s Internal Audit Plicy. Hwever, the Office will nt prvide the Cmptrller General with access t internal audit staff and wrking papers as required by the Plicy. By ding s, this access wuld put the Cmptrller General in a management rle in the implementatin f the Plicy and wuld cmprmise the independence f the Office if it were fllwed. The Office will nt nrmally participate in gvernment-wide audits initiated by the Cmptrller General. PR&IA will be made available t the public. PR&IA plans and results will be shared, n request, with the Advisry Panel n the Funding f Officers f Parliament and with the apprpriate standing cmmittees f the Huse f Cmmns Respnsibilities and perating principles Specifically, the Principal, Practice Review and Internal Audit, is respnsible fr: develping and peridically reviewing PR&IA s charter, and btaining Audit Cmmittee apprval; develping a practice review and internal audit plan that is cnsistent with the Office s bjectives, based n a risk assessment, dne at least annually, and that cnsiders the input f senir Office management and the Audit Cmmittee; develping the guidance and tls t be used in carrying ut reviews and audits; cnducting practice reviews and internal audits; crdinating internal audit activities and plans with ther internal and external prviders f assurance and cnsulting services t ensure prper cverage and minimize duplicatin f effrt; meeting quarterly with the Auditr General; attending all meetings f the Audit Cmmittee; reprting the results f practice reviews and internal audits t the Auditr General after review by the Audit Cmmittee; and develping and maintaining a quality assurance and imprvement prcess/practices that cvers all aspects f PR&IA and that cntinuusly mnitrs its effectiveness. All audit and ther derived practices are subject t practice review including: perfrmance audits f departments and agencies; financial audits f the Gvernment f Canada, Crwn crpratins, territrial gvernments and crpratins and ther entities; special examinatins f Crwn crpratins; sustainable develpment mnitring activities, studies; and assessments f agency perfrmance reprts. Practice Review and Internal Audit 23