Internal Audit of Travel Management

Final Report
March 2012

Acronyms and Abbreviations

Executive Summary

The audit of travel management was part of the 2011-14 Risk-Based Audit Plan. The audit objective was to provide reasonable assurance that an adequate and effective management control framework is in place for the management of travel at the Canadian International Development Agency (CIDA).

In January 2011, the Treasury Board of Canada (TB) issued the Directive on the Management of Expenditures on Travel, Hospitality and Conferences. The Travel Directive supports the Government's commitment to ensure that the costs of travel, hospitality and conferences are reasonable and tied to Government priorities. The Chief Financial Officer Branch (CFOB) is responsible for developing Agency-specific travel administration and management guidance.

The Agency developed travel-related policies, guidance and written procedures that were clearly communicated to employees. There is a formal process in place for approving travel, including the requirement that justification for travel be documented. However, there were cases where travel was approved without fully documented justification.

The Agency issued procedures for the verification and reconciliation of the cost for transportation, accommodation and car rental. There were adequately designed controls in place to ensure that travel expenses claimed by travellers adhere to the Treasury Board's Travel Directive.

Finally, the Agency used its financial system to record and monitor travel-related expenses. Each Branch developed timely and sufficiently detailed travel plans to assist management in the travel planning process. Travel monitoring was done at both the Agency and Branch levels. There may be areas for improvement in the overall management of travel by integrating the Agency's financial system with an automated travel management application.

The report provides detailed findings and recommendations. The list of recommendations and corresponding management action plan are included in Appendix B.

Audit Conclusion

Several of the key elements of an adequate control framework are in place at the Agency for the administration of travel. However, instances were found where controls were not consistently applied, or needed to be strengthened.

Statement of Assurance

In my professional judgment as Chief Audit Executive, sufficient and appropriate audit procedures have been conducted and evidence gathered to support the accuracy of the conclusion provided and contained in this report. The audit conclusion is based on a comparison of the conditions, as they existed at the time, against pre-established audit criteria that were agreed upon with management. The conclusion is applicable only to the entity examined. The evidence was gathered in compliance with Treasury Board policy, directives and standards on internal audit and conforms with the International Standards for Professional Practice of Internal Auditing of the Institute of Internal Auditors. The evidence gathered was sufficient to provide senior management with proof of the conclusion derived from the internal audit.

Chief Audit Executive

1.0 Background

The internal audit of travel management was part of the 2011-14 Risk-Based Audit Plan recommended by the Audit Committee and approved by the President on March 25, 2011. In 2009-10 and 2010-11, the Agency's travel expenditures were $10.12 million and $10.97 million respectively, which included transportation, accommodation and per diem allowance. Given the international nature of CIDA's activities, employees are frequently required to travel abroad. As a result, more than 95 percent of travel expenditures were related to international travel.

Travel expenditures are essential to the delivery of the Agency's mandate and to the achievement of its objectives. They support the Agency's operational commitments in project and program planning, implementation and monitoring; participating in international symposiums, board meeting and working groups; and participating in conferences, training and international events.

In January 2011, the Treasury Board of Canada issued the Directive on the Management of Expenditures on Travel, Hospitality and Conferences (TB Travel Directive). It sets out specific requirements that departments have effective oversight and control mechanisms in place to ensure that travel, hospitality, conferences and associated expenditures are managed in an effective, efficient and economical manner. CFOB is responsible for developing Agency-specific travel administration and management guidance to support Agency compliance with the TB Travel Directive. As such, CFOB is the Office of Primary Interest for the audit.

The Agency's travel management, from travel planning to travel monitoring and reporting, is decentralized at the branch level. All branches are responsible for travel management and the sound stewardship of related financial resources. Travel planning begins with annual and quarterly branch travel plans. Prior to travelling, CIDA employees are required to complete a Travel Authority and Advance (TAA) form. In accordance with Section 32 of the Financial Administration Act (FAA) and the TB Travel Directive the delegated manager reviews the request for travel before approving the TAA. Once approval is obtained, employees are provided with a Travel Authority Number (TAN), which is required for making travel reservations (airfare, accommodations and car rental) with Amex. In most cases, head office employees make travel reservations through the Amex on-site travel service provider, with the remaining transactions being done either via an on-line booking tool or Amex call centre, which are provided as part of the government-wide Shared Travel Services Initiative (STSI), managed by Public Works Government Services Canada (PWGSC).

Travellers are required to submit a travel expense claim form upon completion of travel. The delegated manager is responsible for certifying, pursuant to Section 34 of the FAA, that the travel expenses comply with government travel policies. In cases where a traveller is entitled to a reimbursement for travel expenses, the payment approval, pursuant to Section 33 of the FAA, is performed by authorized officers in CFOB.

2.0 Audit Objective, Scope, Approach and Audit Criteria

2.1 Objective

To provide reasonable assurance that an adequate and effective management control framework is in place for the management of travel at CIDA.

2.2 Scope

The focus of this audit was on CIDA's management framework governing travel management practices, including travel planning, authorization, expense verification, monitoring and reporting.  Because the TB Travel Directive was issued in January 2011, the travel files selected for review were for the period from January to April 2011. The files selected were related to travel by employees of the Geographic Programs Branch, Multilateral & Global Programs Branch and Strategic Policy and Performance Branch, because of the relatively significant travel expenditures (more than $1 million) by these branches.

The primary audit entity is CFOB, which is accountable for the overall management and stewardship of financial resources, including overseeing and monitoring the implementation of the TB Travel Directive.

The audit did not include travel-related overtime, management of travel cards, and travel by CIDA employees posted abroad. These areas may be dealt with separately by the Office of Chief Audit Executive (OCAE).

2.3 Approach and Methodology

The internal audit of travel management was conducted in accordance with TB policy, directives and standards on internal audit, and conforms to the International Standards for Professional Practice of Internal Auditing of the Institute of Internal Auditors. The evidence gathered was sufficient to provide senior management with proof of the conclusion derived from the internal audit.

The audit methodology included, but was not limited to:

• Consultations and validation through interviews;
• Documentation review and analysis;
• Extracting and analyzing data from Amex database; and
• Testing procedures on 90 travel files (randomly selected from three branches).

2.4 Audit Criteria

The audit criteria are the benchmarks used to assess the adequacy and effectiveness of the management control framework in place for the management of travel at CIDA. The criteria were developed after conducting a risk assessment as part of the audit planning process. The audit criteria were discussed with and agreed to by the auditees, and are presented in Appendix A.

3.0 Main Audit Findings and Recommendations

Authority and Acountability Framework

Travel Directives and Guidance

The TB Travel Directive provides government-wide requirements for the management of travel. The Agency has also developed directives, guidance and written procedures in travel-related areas including travel approval, payment, reconciliation procedures and financial coding. These instruments were developed to assist Agency employees in administering and managing travel in accordance with the TB Travel Directive. They were clearly communicated to, and readily accessible by, Agency employees including delegated managers.

Employees involved in travel management had a good understanding of the travel process as well as their related responsibilities. Employees also noted that information available to them regarding the TB Travel Directive and process was adequate and kept up to date.

Travel Approval

The Agency has implemented a process to ensure that travel is approved only if it is necessary to meet the Agency's objectives. The process for approving travel depends on whether it is within Canada or international. All travel by employees must be approved by the delegated manager via the TAA form. For international travel, the Agency requires that a memorandum be prepared providing information including the objectives of the trip, consideration of alternative means of achieving these objectives, duration, estimated costs, planned overtime and related costs. The purpose of the memorandum is to provide delegated managers with sufficient information to determine whether the travel meets business needs and objectives. Branch head approval must also be obtained either through the Quarterly Planned Travel Report or the memorandum.

Ninety travel files were selected for review, of which 76 related to international travel. In 17 of these files, Branch Head approval for travel was not obtained as required through either the Quarterly Planned Travel Report or a memorandum if the trip is not included in the Report.

In most cases, memorandums did not provide all the information required, such as justification for the trip as well as alternatives considered.

Travel Authority and Advance

The delegated manager approves travel on government business by signing the TAA.

Although all 90 files reviewed included a TAA form, in 16 of the 76 files reviewed related to international travel, the TAAs were approved without an attached memorandum.

Travel Authorization Numbers

A TAN allows employees to obtain prepaid transportation. An approved TAA form must be provided in order to obtain a TAN. The Agency had 19 employees who are responsible for issuing TANs.

Agency procedures for issuing TANs were not followed consistently from one branch to another. In 55 cases, TANs were issued to employees, and travel reservations were made, prior to the approval of the TAA. For example, in one branch, TAN numbers were issued based on the approval of travel in the Quarterly Planned Travel Report.

Although there were no cases found where travel was not related to official business, issuing a TAN prior to the approval of travel increases the risk that travel arrangements do not comply with travel-related policies and directives.

Recommendation 1

Delegated Managers, or Branch Heads when the travel is not in the Quarterly Planned Travel Report, should ensure that international travel is adequately justified and fully documented in a memorandum before approving travel, and that TANs are issued after the TAA has been approved.

Travel Costs Verification

CFOB has issued Designated Responsibility Centre Travel Card (DRCTC) Payment and Reconciliation Procedures for the verification and reconciliation of travel costs. The procedures were easily accessible by employees from the intranet.

There are three types of travel costs invoiced to CIDA: (1) cost for transportation; (2) travel booking and transaction fees, and (3) departmental surcharge by PWGSC. These costs are invoiced by Amex either through the DRCTC Monthly Statement or the Quarterly Central Invoice.

DRCTC Monthly Statement

Themonthly statement includes the cost for transportation. Branches are responsible to ensure the accuracy of the costs by verifying and reconciling the statements against their travel records.

Six monthly statements were examined to determine the efficiency of controls to verify costs of airfare. It was found that branches verified and reconciled their respective monthly statements.

Quarterly Central Invoice

The quarterly invoice covers operational costs, such as salaries, equipment and transaction fees, charged by Amex for on-site travel services. CFOB pays the invoice and recovers the amount from branches. Eight quarterly invoices covering 2010 and 2011 were examined and the payments accurately reflected the amounts invoiced.

Travel Planning, Monitoring and Reporting

Travel planning increases the effectiveness of business trips, minimizes travel cost, and ensures adherence to the TB Travel Directive. The Agency has implemented quarterly and annual procedures and processes to assist in the management of travel.

Annual and Quarterly Planning

Annual travel budget allocation uses a top-down approach where branch budgets are allocated from the Agency level budget based on previous years' expenditures. Within its annual budget ceiling and based on the Integrated Business Plan, each branch reviews its work plan that identifies operational needs for travel. Once established, branch travel budgets are regularly reviewed and monitored, and any reallocations need to be adequately justified. A Quarterly Planned Travel Report is prepared and provides a list of all planned trips for the branch, with detailed travel information such as traveller's name, travel dates, destination, purpose and cost estimates. In addition to being used as a planning tool, the quarterly travel report is used to obtain Branch Head pre-approval for international trips.

Six Quarterly Planned Travel Reports were reviewed and analyzed for the three sample branches. The reports were completed in a timely fashion and provided sufficient details to assist travel planning by management.

Monitoring and Reporting

The Agency uses its financial system (SAP) to record and track, at the general ledger account level, travel related expenses. However, the financial system did not have the capacity to provide detailed management reporting on trip-related information, such as the travel by destinations and all associated direct and indirect costs, booking dates compared to travel dates, volume per airline, and the number of employees travelling to the same destination during the same period.

The Agency had access to the Amex database that provides standard trip reports with detailed information. However, some travel expenses paid for directly by employees, such as accommodation and car rental, as well as travel per diems, were not captured by the Amex database. Because travel management related information is limited, branch managers developed their own manual tracking system to monitor their travel activities.

Appropriately integrated financial and travel management systems would provide the Agency with additional monitoring capacity, as it could produce statistical reports to assist management in analyzing travel activities as well as providing exception reports on unusual or high dollar value transactions.

Travel Administration

Travel Arrangements

Most CIDA employees made their travel reservations through the Amex on-site travel service provider. In some cases, travel reservations were made using an on-line booking tool or an Amex call centre, which are provided under the government-wide STSI, managed by PWGSC.

In the course of the audit, the OCAE provided CFOB with a cost and benefit analysis of the Amex on-site travel services. The analysis showed that the cost for travel reservations made using the on-line booking tool or the Amex call centre could be considerably lower than using the on-site travel service. The analysis also showed that a dedicated phone line service operated by Amex, such as the one used by Foreign Affairs and International Trade Canada, would also generate potential savings.

Based on the number of transactions (1,367 and 1,904) and the cost ($230,581 and $255,853) for the Amex on-site travel service in 2009-10 and 2010-11 respectively, the following table provides the potential savings to CIDA of using alternative booking methods:

These potential savings do not consider additional savings associated with costs currently incurred by CIDA to maintain the Amex on-site service, such as office space and equipment.

Travel Administrative Process

Travel approval, expense claim and account verification processes are manual and paper-based. In addition to being labour intensive, manual systems are more prone to errors and/or inefficiencies, and increase the risk of control deficiencies.  For example, the Agency's current process requires the manual input and calculation of data in the TAA and expense claim forms, and makes it more difficult for Branch managers to monitor travel activities.

All 90 expense claims reviewed contained errors, such as mathematical calculations errors or using incorrect per diems and exchange rates. However, these errors had been identified and corrected during the verification of the claims, which demonstrates that the controls in place were adequately designed and effective to ensure that travel expenses adhered to the TB Travel Directive.

As part of the audit, in addition to a cost and benefit analysis of the Amex on-site travel services, the OCAE provided CFOB with an analysis of STSI's Expense Management Tool (EMT), which is an end-to-end travel solution aimed at delivering value and savings. Its objective is to provide high-quality travel services, within an integrated travel management system that enables departments to manage travel more efficiently. The Agency currently uses all components of STSI (on-line booking, Amex card and call centre services), except for the EMT component.

The EMT automates the travel management process, including planning, approving and monitoring travel. In addition to increasing administration efficiency and reducing the likelihood of error rate for claim verification, EMT enhances rigorous compliance to TB Travel Directive through built-in policy rules and internal controls. Lastly, it increases travel management capacity because it fully integrates into departmental financial information systems.

EMT cost is based on the number of transactions. Using the Agency's actual number of reservations in 2010-11, the cost range for EMT would be between $7,198 and $25,178. STSI manages the software, and covers the cost for project management, configuration, training, and help desk during implementation. Agency start-up costs would include time spent on defining business requirements, interface and testing of the financial system, changes to the process, directives and tools, and training.

Recommendation 2:

CFOB should consider cost-effective options for automating the Agency's travel administrative and management processes.

Appendix A: Audit Criteria

1. A management control framework is in place to help ensure that the travel provisions under the Directive on Management of Expenses for Travel, Hospitality, and Conferences are consistently understood and applied by CIDA personnel.

2. CIDA has implemented processes to ensure that travel expenses comply with the Directive on Management of Expenses for Travel, Hospitality and Conferences.

3. Controls are properly designed and are effective to provide reasonable assurance that travel and related payments are properly authorized, and that they are accurately, timely and consistently recorded.

Appendix B: List of Recommendations and Management Action Plan