Internal Audit of the Control Framework over Grants and Contributions

Audit Report
Internal Audit and Accountability Branch  
Citizenship and Immigration Canada
February 2014

Table of Contents

• Executive Summary
• Why this is Important
• Key Findings
• Conclusion
• Statement of Conformance
• Background
• Audit Objective and Scope
• Recommendations and Findings
  • Finding 1: Governance
  • Finding 2: Risk Management
  • Finding 3: Modernization
• Appendix A – Audit Criteria & Control Summary
• Definitions of Control Conclusions
• Appendix B – Management Action Plan
• Appendix C – Grant and Contribution Programs at Citizenship and Immigration Canada in 2012–13
• Appendix D – Audit Coverage of CIC’s Program Alignment Architecture
• Appendix E – Links to Applicable Legislation, Policies, and Directives

Executive Summary

The objective of the audit was to provide assurance that the management control framework over grant and contribution programs is being executed at Citizenship and Immigration Canada (CIC) in accordance with the objectives set out in Treasury Board’s Policy on Transfer Payments (Policy).

Why This Is Important

Grants and contributions are a cost-effective way for the Government of Canada to pursue its objectives through non-governmental resources, such as not-for-profit organizations. The Policy on Transfer Payments from the Treasury Board of the Government of Canada requires that grant and contribution programs are managed with integrity, transparency and accountability in a manner that is sensitive to risks; are citizen-focused; and are designed and delivered to address government priorities in achieving results for Canadians.

Key Findings

The terms and conditions of CIC’s grant and contribution programs are aligned with Policy and with Treasury Board submission requirements. Performance measurement strategies have been developed for the Settlement, Resettlement and Multiculturalism programs; further strengthening could be achieved by establishing performance targets. Funding decisions are decentralized according to a materiality-based delegated authority. There is no conflict of interest guidance specific to grant and contribution programs.

Risk assessments performed prior to funding decisions include consideration of grant and contribution program objectives. Approved recipients are being assessed according to risk in order to determine monitoring and reporting requirements. A Funding Risk Assessment Model has been developed to standardize risk assessments for the Settlement, Resettlement and Multiculturalism programs, addressing a recommendation identified in previous audits. CIC monitors financial activities (such as payments to recipients) within the Department, but there is no compliance monitoring of the non-financial requirements of the Policy. Program expenditures are reported to senior management on a quarterly basis; however, the updates do not include performance information.

Efficiencies are being gained from modernization efforts, which include national calls for proposals and the establishment of a flat rate for recipients’ administrative costs. The flexibility of CIC’s transfer payment service standards do not allow for clear and meaningful reporting. Standardized administrative tools have been developed. CIC conducts outreach activities to engage recipients, some with outcome objectives; however, as with performance measurement strategies, performance targets are not established.

Conclusion

Overall, progress is being made with the management control framework over grants and contributions to comply with the Policy on Transfer Payments. Governance over grant and contribution programs is being strengthened. Further documentation is required to support transparency over funding decisions. CIC is in the early stages of managing its grant and contribution programs on a risk-based basis. Progress against modernization efforts is being demonstrated.

Management has accepted the audit findings and developed an action plan to address the audit recommendations.^{Footnote 1}

Statement of Conformance

The conduct of this engagement conforms with the Internal Auditing Standards for the Government of Canada, as supported by the results of the quality assurance and improvement program. We examined sufficient, relevant evidence to support the conclusions reached.

Gibby Armstrong
Chief Audit Executive, CIA, CA
Citizenship and Immigration Canada

Background

In 2006, an independent blue ribbon panel identified a fundamental need for change in the way the federal government understands, designs, manages and accounts for grant and contribution programs. The report also highlighted the fact that the simplification of administrative requirements for recipients and program administration could strengthen accountability in the management of grant and contribution programs. Changes to the Policy on Transfer Payments in 2008 as part of the Government of Canada Action Plan to Reform the Administration of Grant and Contribution Programs reflected recommendations made by the Blue Ribbon Panel.

The new requirements of the 2008 Policy on Transfer Payments relating to risk management, the engagement of applicants and recipients, and the establishment of departmental service standards apply to all transfer payment programs approved after March 31, 2010, with earlier adoption encouraged.

The successful delivery of grant and contribution programs is a key priority for CIC. Through nine grant and contribution programs^{Footnote 2} managed by six branches that feed into two departmental strategic outcomes, CIC aims to assist newcomers and citizens to participate in fostering an integrated society and to manage migration that promotes Canadian interests and protects the health, safety and security of Canadians.

The administration of these programs is largely paper-based, which can present challenges for standardization. Internal controls can be implemented in such an environment; however, they are generally more effective with an automated system.

In 2012–13, CIC’s grant and contribution programs spent $933 million, versus $626 million in 2007–08. Two programs – Settlement and Resettlement – represent 68% of CIC’s transfer payments for all nine programs. This number rises to 98% of transfer payments when the Canada-Quebec Accord is excluded. A third program, Multiculturalism, represents 3.5% of all recipient agreements and 1% of transfer payments.

These three programs are the only programs, given the recent expiry of the Community Historical Recognition Program, that have numerous recipients.

Audit Objective and Scope

The objective of the audit was to provide assurance that the management control framework over grant and contribution programs is being executed at CIC in accordance with the objectives set out in Treasury Board’s Policy on Transfer Payments.

The audit assessed the centralized management control framework over the grant and contribution process, up to and including funding decisions. The framework is established by the Policy on Transfer Payments and requires the establishment of:

• clearly defined roles, responsibilities and accountabilities for the management of grant and contribution programs;
• a process to ensure grant and contribution programs are designed, delivered and managed in a manner that takes account of risk and clearly demonstrates value for money;
• cost-effective oversight and control systems; and
• grant and contribution programs that are accessible, understandable and useable by applicants and recipients.

The audit included calls for proposals, eligibility assessments, project assessments, risk assessments and funding decisions. Also included were the standardized designs of program administration, risk-based monitoring of recipients and reform, from fiscal year 2012–13 to present. All nine programs were included. The audit was conducted from February to September 2013.

This audit covered the control framework over grants and contributions and largely relied on activities performed by National Headquarters (NHQ). This audit did not assess activities in the regions; for activities shared by NHQ and the regions, only the NHQ activities were assessed. Subsequent audits will be performed in future years that will assess the administration of grants and contributions, including regional activities. Administration requirements are established by the Directive on Transfer Payments. As per the Directive, subsequent audits will address compliance with:

• terms and conditions of the agreements;
• the established process to determine funding levels;
• funding agreements with recipients;
• departmental cash management processes; and
• defined requirements for recipient reporting, monitoring and auditing.

These activities will include day-to-day operations, including the awarding of contribution agreements, the processing of recipient claims and recipient monitoring activities.

In 2010, audits of the Administration of Settlement Programs and the Resettlement Assistance Program were conducted. These audits largely focused on the administration of grants and contributions in the regions. At that time, governance was largely decentralized, which made standardization between regions and programs difficult. Since those audits were conducted, significant changes relating to modernization have been implemented, including the centralization of governance over the programs that support standardization, risk management and efficiency.

Findings and Recommendations

Finding 1: Governance

We assessed whether the terms and conditions of programs, including amendments, are aligned with the relevant Treasury Board submission and with government objectives. We also examined whether performance, data collection and reporting strategies have been developed for each program. We assessed the oversight and internal controls in place to support funding decisions. Finally, we examined guidance provided to employees for real or perceived conflicts of interest.

Grant and contribution programs are approved by Cabinet and by Treasury Board in order to further established objectives. If the terms and conditions of a program do not align with those established objectives, then Canadians cannot have assurance that the government is spending its funds effectively. Performance measurement strategies enable a department to monitor whether a program is achieving its objectives in a timely and cost-efficient fashion. Funding decisions allow the government to enter into a financial arrangement with recipients. Because funding decisions precede the release of funds, departments need to ensure that these decisions are justified and transparent. Conflict of interest guidance for program officers is important to assist them when they are presented with challenging ethical issues.

The terms and conditions of CIC’s grant and contribution programs are aligned with Policy and with Treasury Board submission requirements.

The objectives of all programs are clearly defined and align with at least one of CIC’s strategic outcomes, as well as with the government’s objectives.^{Footnote 3} The terms and conditions of the grant and contribution programs are aligned with their respective Treasury Board submissions and with the Policy on Transfer Payments. The Canada-Quebec Accord (Accord) was established in 1991 - before the Policy on Transfer Payments was implemented – and is thus exempt from Policy requirements.

The terms and conditions of the Accord do not expire and do not require the Province to report to the federal government on settlement and integration outcomes of the grant. This reporting requirement is in the Policy on Transfer Payments for programs renewed since 2008 and is therefore not applicable under the terms and conditions of the 1991 Accord.

Performance measurement strategies have been developed for most of CIC’s grant and contribution activities; most strategies do not have performance targets.

The Settlement, Resettlement and Multiculturalism programs together represent 99.3% of CIC’s transfer payments, not including the Canada-Quebec Accord. Performance measurement strategies have been developed for the Settlement, Resettlement and Multiculturalism programs to govern data collection and evaluations. At CIC, these strategies are developed in consultation with the Evaluation group; however, the accountability for the strategies lies with the policy and operational groups. While indicators, data sources and data collecting timelines have been established, most indicators for the strategies do not contain performance targets. This allows CIC to track program activities and to report on what took place, but it does not enable CIC to periodically measure and report on the progress of performance targets against outcomes.

Activity and output targets are identified in contribution agreements with the individual recipients, and high-level performance targets have been developed for the Department’s Performance Measurement Framework, which includes targets for the overall programs and not just the transfer payment components. There are no targets that link the 930^{Footnote 4} individual agreements with the departmental outcomes on an integrated basis. The 2010 Audit of the Administration of the Settlement Program and the 2010 Audit of the Administration of the Resettlement Assistance Program (2010 Settlement and Resettlement audits) noted that performance measurement strategies were in their early development. As they have now been implemented, the development of performance targets will further the maturity of performance reporting.

Data is collected using different systems in the regions and is collated by NHQ on a quarterly basis. A new online system, the Immigration Contribution Agreement Reporting Environment (iCARE), has been developed to collect standardized information for the Settlement and Resettlement programs. The information is inputted directly by the recipients and is stored centrally for analysis and reporting requirements. The system will be fully implemented in April 2014 and will enable CIC to institute a robust performance reporting regime for these two programs.

No formal performance measurement strategies exist for the other six programs, as the Department develops them on a risk-based basis.

Funding decisions are decentralized in accordance with a materiality-based delegated authority.

Funding decisions should be transparent and justified. They should be based on the applicant’s ability to meet program objectives through indicators such as demonstrable capability, risk and experience.

At CIC, projects are approved based on delegated authority levels. Projects of higher materiality are approved in bulk by the Associate Assistant Deputy Minister or Deputy Minister, based on delegated authority level. The signing authorities rely on due diligence performed in the regions to support the decisions, following a formal process for decision-making. Accompanying a request for Associate Assistant Deputy Minister or Deputy Minister approval is an Attestation that business processes have been respected. The Attestation notes that documentation can be provided by request.

The 2010 Settlement and Resettlement audits noted a need for greater documentation for decisions and clarity of the roles of decision-makers. Management has indicated that decision-making committees are used in the regions to support the funding decision process and that these are currently at an early stage of maturity. As modernization and centralization have fundamentally changed how grants and contributions are administered, CIC will need to ensure that new business processes support the changes that have been implemented. The adequacy of the business processes and funding assessments made in the regions will be included as part of future audits of the administration of grant and contribution programs.

There is no conflict of interest guidance specific to grant and contribution programs.

The Department has internal guidance on conflict of interest, which is available to all employees on the Department's intranet site. The guidance defines the different types of conflicts of interest and lists commonly asked questions and responses. This information, while helpful, does not address situations specific to administering grant and contribution programs. Program officers are in the unique position of providing client service and informing funding decisions, which has the potential to provide challenging ethical scenarios. Without guidance specific to grants and contributions, program officers may be limited in their ability to effectively navigate potential conflict of interest situations.

Recommendation 1 (Medium Risk):

CIC should develop performance targets for the transfer payment components of programs identified in its performance measurement strategies.

Recommendation 2 (Low Risk):

CIC should develop conflict of interest guidance specific to its grant and contribution programs.

Finding 2: Risk Management

We assessed whether the administrative requirements for recipients were proportionate to the risk level, including how risk determination is used to establish monitoring requirements. We assessed the design of standardized internal controls and risk-based oversight over the delivery of grants and contributions. Finally, we assessed how CIC is monitoring compliance with the requirements of the Policy on Transfer Payments.

In order to ensure that government resources are used strategically, risk is used to determine administrative requirements for recipients. For example, a high-risk recipient may require active monitoring to ensure adherence to the terms and conditions, while a low-risk recipient might require less active (or no) monitoring. The Policy on Transfer Payments establishes the requirement for all departments to monitor their compliance with the Policy and to address situations of non-compliance.

Risk assessments performed prior to funding decisions include consideration of grant and contribution program objectives.

After the eligibility of applicants is determined, all potential recipients follow a Tier 1 and Tier 2 assessment. The Tier 1 assessment examines applicant experience with CIC and program stream alignment. The 2010 Settlement and Resettlement audits noted that many recipients had had agreements with the Department for many years, which could demonstrate a risk that the same recipients are repeatedly approved because they have gained familiarity with the application process. Applicants passing a Tier 1 assessment are then further assessed against project relevance, potential for success and cost effectiveness in the Tier 2 process. Some of these considerations represent risk factors, such as matching the availability of the programs to potential clients.

The adequacy of the risk assessments done in the regions to support funding decisions and program objectives will be included as part of future audits of the administration of grant and contribution programs.

For the two major programs, approved recipients are being assessed according to risk to support monitoring.

For the Settlement and Resettlement programs, a Funding Risk Assessment Model (FRAM) was developed to assess risk levels of recipients. This helps to inform management of potential monitoring requirements and to adjust the contribution agreement with a recipient accordingly. The FRAM was implemented in June 2012 and addresses the need for risk assessments to streamline monitoring efforts highlighted in the 2010 Settlement and Resettlement audits. Its use with the Settlement and Resettlement programs covers 98% of transfer payment spending (excluding the Canada-Quebec Accord) and 97% of recipients. CIC intends to fully implement the FRAM in the Multiculturalism program in 2013–14 (outside the scope of this audit).

An external assessment of the FRAM was performed in 2013 (prior to the audit) and recommended that CIC use the FRAM more consistently across the regions. In addition, the assessment found that narrative descriptions of the risks are generally not included by the officers, nor was the supporting documentation for the risk assessments always kept on file. While management prepared responses to the assessment’s recommendations and some actions are in progress, no timelines were provided for implementation. Firm commitments made by management would allow CIC to implement corrective actions in this area.

Each of the remaining six programs uses its own risk assessment procedures to determine recipient monitoring requirements. The FRAM was implemented in the Settlement and Resettlement programs, and is currently being implemented in the Multiculturalism program, ahead of other programs, as they represent the majority of CIC’s grants and contributions. Given the recent expiry of the Community Historical Recognition Program and the lack of monitoring requirements over the Canada-Quebec Accord, this approach could be efficient and risk aware, given the small number of recipients ranging from one to three.

The FRAM enables CIC to be more risk-based in monitoring recipients, leading to greater efficiency. While this audit did not assess how the tool is used, a future audit of the administration of grant and contribution programs will examine the adequacy of the risk assessments and whether monitoring is commensurate with the risk level assigned.

CIC monitors financial activities, but there is no compliance monitoring of the non-financial requirements of the Policy.

The Internal Control over Financial Reporting Framework requires ongoing assessments of internal controls to support financial reporting within the Department. The results of these assessments are reported annually and are provided to senior management as well as to the Departmental Audit Committee.

There is no formal process to ensure that CIC complies with the non-financial elements articulated in section 6 of the Policy on Transfer Payments, such as the selection and intake process, transparency over funding decisions and the non-financial monitoring of recipients. In the January 2014 CIC Audit of the Framework for the Management of Compliance, it was found that the Finance Branch is considered the functional authority to ensure compliance with the Policy on Transfer Payments. While the Finance Branch has shared responsibility for the design of the FRAM, financial monitoring and payments made to recipients, operational responsibilities lie in six different branches. These responsibilities cover all other areas of the management of grant and contribution programs, including the intake of applications, project assessments, the development of contribution agreements, and ongoing communications with applicants and recipients. These divisions of accountability complicate the development of a standardized framework to monitor compliance with the Policy.

There is no regular performance reporting on grant and contribution programs.

The Settlement, Resettlement and Multiculturalism programs report to senior management on a quarterly basis. The information provided is activity- and resource-based (such as the numbers of recipients and funding committed), and does not contain information on performance against targets and outcomes, such as the achievement of short-term performance targets. Evaluations are performed on each program at least once every five years; however, there is no performance reporting in the interim. Activity-based information on all active contribution agreements is presented, providing information on spending versus forecasts and the numbers of monitoring activities under way. However, if a program is not achieving expected progress against outcomes, senior management may not be in a position to determine corrective actions until the results of the five-year cycle evaluation are presented.

As performance measurement strategies have been developed for these three programs and standardized data is now being collected, CIC is in a position to report on ongoing performance against short-term, medium-term and long-term target outcomes.

Recommendation 3 (Medium Risk):

CIC should develop and implement a monitoring framework to ensure its compliance with all elements of the Policy on Transfer Payments.

Recommendation 4 (Medium Risk):

CIC should determine the frequency needed to report on performance and/or outcomes against the indicators developed in the performance measurement strategies.

Finding 3: Modernization

We assessed whether CIC has undertaken modernization efforts over its grant and contribution programs to meet the requirements of the 2008 Policy on Transfer Payments. As per the Policy, we assessed whether efforts have been made to reduce the administrative burden to the Department and recipients, and to increase collaboration within the Department and across government. We also assessed whether service standards have been established and how processes and tools have been standardized in order to increase efficiency. In addition, we examined how CIC is engaging its potential recipients in order to increase awareness of the programs and improve service delivery.

Some of the key elements of the Policy on Transfer Payments require departments to undertake efforts to modernize their grant and contribution programs. Departments are encouraged to rely on new technologies in order to improve efficiency while establishing automated controls over the processes. Departments are also encouraged to collaborate with other departments, and to ensure administrative and governance processes are standardized and risk-based within the departments themselves. These requirements are to be put in place to help reduce the cost of program delivery and to simplify the process for potential recipients.

Efficiencies are being gained from modernization efforts.

The first national call for proposals to deliver Settlement and Resettlement activities was performed in 2012–13 in order to harmonize programs within the Department. This replaced a regional approach to calls for proposals, which required recipients to potentially apply to different regions at different times for funding and then required the Department to multiply its efforts nationwide. The departmental delegation chart was also amended in 2012 to allow regional authorities to approve contribution agreements and recipients’ claims under a specified dollar threshold in order to increase efficiency.

CIC could benefit from further harmonization by determining program outcome needs across all branches prior to issuing national calls for proposals. For example, specificity on the current research directions or communications requirements would contribute to achieving the Department’s mandate more cohesively and efficiently.

A 15% flat rate for a recipient’s administration costs and a streamlining of the cost categories have been established for the Settlement and Resettlement programs in order to eliminate the need to evaluate these costs in recipient claims. This amount was deemed reasonable by senior management, given past experience and consistency with other federal government programs.

In 2012, CIC and Human Resources and Skills Development Canada (HRSDC) began collaboration on a new horizontal pilot project under HRSDC’s Homelessness Partnering Strategy and CIC’s Settlement Program. With increased collaboration, administration costs will be reduced for the Government of Canada, and the administrative process will be clearer and more efficient for recipients.

Along with the first national call for proposals, in 2012 a new international call for proposals was launched for the Settlement and Resettlement programs. Due to the delays in the development of a strategy, none of the 22 proposals received were assessed.

CIC’s transfer payment service standards are not clear.

Three service standards have been developed for the selection and intake process of grant and contribution applications and have been implemented in the Settlement and Resettlement programs; service standards do not exist for the other seven programs. No service standards have been developed for the payments made to recipients or for responding to applicants’ inquiries.

Achievement against the three service standards for the 56 proposals was tested; this sample included 14 proposals through an international call for proposals, an initiative which was cancelled before completion. A 100% success rate was found for the Acknowledgment of Receipt of all Proposals, which was accomplished through an automated reply mechanism. A 73% success rate was accomplished for the Confirmation of Eligibility of the Applicant in the 40 calendar days after the closing of the call for proposal (this number rises to 98% when the international call for proposals is excluded).

The third service standard - A Funding Decision to the Applicant in the 125 calendar days after the closing of the call for proposal – allows for flexibility in how the results are reported. As part of the service standard, CIC’s processing time can exceed 125 calendar days as long as it gives “notice that the Department needs additional time to process the application.” There is no mandatory time frame associated with this additional processing time. In addition, the standard letter considered by CIC as the funding decision letter contains the text, “This letter should in no way be construed as confirmation of funding,” which further complicates the evaluation of whether the service standard has been met.

Depending on how the requirement is interpreted, achievement against the service standards can be reported to management as high as 99% or as low as 20%. Without clearly defined service targets, management will not be in a position to conclude on the efficiency or effectiveness of client services.

Standardized administrative tools have been developed for Settlement and Resettlement.

Standardized tools have been developed for the Settlement and Resettlement programs, including standard application forms, standard eligibility assessment, standard proposal assessment, standard risk assessments (through the FRAM) and a standard contribution agreement template. As the 2010 Settlement and Resettlement audits observed no standardized tools across programs and regions, progress is being demonstrated. With the exception of Settlement and Resettlement programs, program application forms and contribution agreement templates have not been standardized. This may be efficient for programs with few recipients or contribution agreements but reduces control and efficiency for programs with numerous agreements, such as Multiculturalism. CIC has stated that the Multiculturalism Program adopted many of the same standardized tools, which will be assessed in future audits.

Roles and responsibilities for all programs were defined in 2010 but have not been updated to reflect the significant organizational and modernization changes made since then. For example, the national calls for proposals have moved many responsibilities from the regions to NHQ, but this is not reflected in the 2010 definitions of roles and responsibilities.

If CIC were to build an automated system to support its grant and contribution programs, it could significantly accelerate standardization efforts. It could also include controls to ensure processes were followed in accordance with policy requirements.

CIC conducts outreach activities to engage recipients; however, there is no reporting on the effectiveness of the activities.

The Department uses a number of outreach and consultation vehicles to engage its recipients across the country. Three promotional vehicles are used by the Department: CIC’s website, correspondence with potential applicants who contact CIC to inquire into the various programs, and active promotion through conferences across the country.

Formally established Local Immigration Partnerships have been established to foster a systematic approach to the delivery of services, to support community-based knowledge and local strategic planning in order to inform policy and program decisions, and to improve coordination of effective services for the programs.

There are no outreach performance targets for any of the Department’s grant and contribution programs. This could be addressed through the development of performance targets for the overall programs, as noted in Recommendation 1. CIC does not report on the effectiveness of its outreach activities.

Recommendation 5 (Medium Risk):

CIC should establish service standards that support clear and objective reporting of results.

Recommendation 6 (Low Risk):

CIC should develop standardized tools for its grant and contribution programs when these are addressed to multiple applicants and recipients.

Appendix A – Audit Criteria & Control Summary

The objective of the audit was to provide assurance that the management control framework over grant and contribution programs is being executed at Citizenship and Immigration Canada (CIC) in accordance with the objectives set out in Treasury Board’s Policy on Transfer Payments.

Definitions of Control Conclusions

Well Controlled

• Well managed, no material weaknesses noted; and
• Effective.

Controlled

• Well managed, but minor improvements are needed; and
• Effective.

Moderate Issues

Has moderate issues requiring Management focus (at least one of the following two criteria need to be met):

• Control weaknesses, but exposure is limited because likelihood of risk occurring is not high; or
• Control weaknesses, but exposure is limited because impact of the risk is not high.

Significant Improvements Required

Requires significant improvements (at least one of the following three criteria need to be met):

• Financial adjustments material to line item or area or to the department; or
• Control deficiencies that could result in significant impact if not mitigated; or
• Control deficiencies that have a high likelihood of risk occurring.

Appendix B – Management Action Plan

Appendix C – Grant and Contribution Programs at Citizenship and Immigration Canada in 2012–13

Appendix D – Audit Coverage of CIC’s Program Alignment Architecture

Appendix E – Links to Applicable Legislation, Policies, and Directives

• Policy on Transfer Payments
• Directive on Transfer Payments
• Financial Administration Act
• Policy on Conflict of Interest and Post-Employment
• Official Languages Act
• Citizenship and Immigration Canada’s Audit of The Administration of Settlement Programs
• Citizenship and Immigration Canada’s Audit of The Administration of the Resettlement Assistance Program