Audit Assurance

Based on internal audit standards and criteria selected, audit work has been completed and analyzed to support the conclusion that sound risk mitigation strategies and control frameworks have been designed to enable successful implementation of the CAF and RInC initiatives. WD should effectively meet program objectives once rigorous monitoring processes are designed and implemented.

In accordance with the Government of Canada internal auditing standards, the Chief Audit Executive is providing audit assurance that relevant and reliable management controls have been designed and are operating satisfactorily that should enable the successful delivery of the CAF and RInC initiatives in the four western Canadian provinces.

Introduction

The Community Adjustment Fund (CAF) and the Recreational Infrastructure Canada (RInC) initiatives are part of the Economic Action Plan (Budget 2009), the Government of Canada’s plan announced January 27, 2009 to ensure a quick recovery from the current economic downturn. The Budget provided Western Economic Diversification Canada an additional $360 Million in short-term funding over two years up to March 31, 2011. The government tasked WD with delivering CAF and RInC initiatives in the four western provinces: British Columbia, Alberta, Saskatchewan, and Manitoba. These investments were intended to stimulate the economy and create jobs in communities across Canada.

Community Adjustment Fund (CAF)

CAF is an initiative providing $1 billion nationally over two years to address the short-term economic needs of Canadian communities impacted by the global recession. The national fund will provide economic stimulus by supporting projects that create jobs and maintain employment in and around communities that have experienced significant job losses and lack alternative employment opportunities. By focusing on the creation of short-term employment to support communities and the sectors that contribute to their viability, CAF will play a distinctive role in relation to other economic stimulus measures included in Canada’s Economic Action Plan. WD will implement the fund in the four western provinces, investing $306 million to help communities reduce the short-term impacts of the economic downturn. The primary goal of CAF is immediate job creation.

Recreational Infrastructure Canada (RInC)

RInC is a program identified under the Economic Action Plan that will invest $500 million in recreational facilities across Canada over a two-year period. WD’s share of the program is $153 million. The program provides targeted and temporary stimulus to the Canadian economy by increasing the total amout of construction activity related to recreational infrastructure. Eligible projects under RInC are normally for the rehabilitation or repair of recreational facilities, including new construction to expand or replace existing infrastructure assets, and must be completed by March 31, 2011.

The federal government will fund up to 33 per cent of eligible costs and may, in exceptional circumstances, fund up to 50 per cent. Projects approved under RInC can receive up to $1 million in federal funding, which will normally represent one-third of project costs. Remaining project funding may be sourced from provincial or municipal governments, community organizations, or the private sector. WD will implement the fund in western Canada, investing almost $54 million of a $175 million federal contribution in the first tranche that has been allocated on a regional per capita basis and $99 million of the remaining national $325 million portion.

Audit Context

The economic stimulus funds of $459 million (including both RInC allocations) represent a 115% increase in WD’s annual reference level. The infusion of supplemental funds and the corresponding increase in effort to deliver in a short period of time meant a significant strain on existing resources. Success in the CAF and RInC context is getting money flowing quickly and lawfully between now and March 2011. This context impacted on the inherent risks associated with these initiatives. Therefore, WD needed to design sound controls to ensure that the funds were properly managed and disbursed in a timely and appropriate manner.

The Comptroller General of Canada and the Auditor General of Canada have both signalled the inherent risks and audit significance of the Economic Action Plan initiatives.

Audit Objective

The purpose of the audit was to provide audit assurance to the Deputy Minister on the new control frameworks designed for the CAF and RInC initiatives. The Budget 2009 objective was to get money flowing quickly and lawfully. This audit examined WD’s controls for CAF and RInC designed to achieve that objective.

Scope

The audit examined elements in the initial development and implementation stages of CAF and RInC. The audit examined the effectiveness of activities undertaken between the January 27, 2009 announcement date and June 30, 2009. The audit included examination of organization structures, program design, systems readiness, eligibility screening, due diligence, compliance, communications, monitoring, and reporting. Internal Audit was able to review the program design and the first intake process for both initiatives against these attributes. The auditors selected sample projects from amongst those that were approved and those that were not recommended for approval.

Key Risks

The audit focused on the controls that management had developed to mitigate the following risks:

1. Inadequate governance and risk management for CAF and RInC;
2. Delays in approvals that prevent funds from flowing quickly;
3. Insufficient and misunderstood application process;
4. Processes that do not comply with Treasury Board policy;
5. Lack of clarity around eligibility criteria;
6. Inadequate monitoring procedures to deliver on stringent “use it or lose it” conditions around the funds;
7. Lack of staff capacity and expertise;
8. Inability to report on results;
9. Systems that cannot support the new programs;
10. Incremental spending that does not achieve the intended results; and
11. Negative public perception around the delivery of the programs.

Acknowledgements

The auditors would like to thank WD management and staff for the cooperation and timely assistance provided to the audit team throughout this engagement.