Archived information

Information identified as archived is provided for reference, research or recordkeeping purposes. It is not subject to the Government of Canada Web Standards and has not been altered or updated since it was archived. Please contact us to request a format other than those available.

Archived

This Web page has been archived on the Web

Second Follow-up Audit of Resource Allocation

Foreign Affairs and International Trade Canada
Office of the Chief Audit Executive

April 2012

Table of Contents

Executive Summary

In 2009-2010, the Department of Foreign Affairs and International Trade (DFAIT) encountered financial management challenges. Recognizing the significance of this situation, the Deputy Ministers and the Departmental Audit Committee requested that internal audit undertake work immediately. As a result, an internal audit of Resource Allocation was conducted in 2009 and a follow-up audit in 2010. These audits focussed on strengthening governance, processes and controls for the initial allocation and subsequent reallocation of funds within DFAIT. In response to the audit recommendations, the Chief Financial Officer developed an extensive Management Action Plan (MAP) which was endorsed by the Departmental Audit Committee. Given the importance and scope of the Management Action Plan, the Departmental Audit Committee requested that progress be audited. This is the second such follow-up audit.

What did we examine?

The objective of this second follow-up audit was to assess the effectiveness of initiatives undertaken to strengthen DFAIT’s financial management. Specifically, the audit addressed the:

What did we find?

Aligned with the objective, we noted positive achievements as well as areas for further enhancement in the following three key areas.

Financial Management Advisor (FMA)

The FMA is a very important function for the Chief Financial Officer Branch to exercise authority and oversight over financial reporting. Progress has been made in implementing the model; however, the Department is facing significant challenges in implementing the Financial Management Advisor (FMA) team as designed. FMAs are now in place; however, the existing working relationship indicated that they are subject to Area Management Advisor (AMA) direction despite the formal reporting relationship to the CFO. The AMO structure is hampering progress and, as such, exposes the Department to risk with respect to the reliability of financial forecasts. FMAs require the collaboration of their senior management clients to be effective. To date, some resistance has been noted. Ensuring that the function is carried out in a cost-effective manner is critical. Implementation of the revised Area Management Office (AMO) model will be an important element to support the effectiveness of FMAs.

As well, the reorganization of headquarters as a result of the Deficit Reduction Action Plan (DRAP), the related staffing freezes, position classification and lessons learned through the first year of implementation are causing the Chief Financial Officer (CFO) Branch to reassess the model.

Finstat Reliability

The Deputy Ministers’ messages on financial management are now well understood. Interviews with Assistant Deputy Ministers clearly indicated increased engagement in financial management over previous years.

Monthly FINSTAT reports provide relevant information on the Department’s financial position. They include key information and analysis of variances from the previous period as well as comparative data to the previous fiscal year.

The audit noted three issues with respect to the reliability of FINSTAT Reports that are discussed below. These include:

Process to Determine Branch Forecasts

The analysis of FINSTAT processes in two large entities – the International Platform Branch and the GeoGroup produced very different levels of confidence. Both of these groups rely on information provided by Missions.

The Heads of Missions (HOMs) are accountable for financial management in their respective missions. Consequently, they are required to sign-off their FINSTAT input prior to submission to headquarters. Auditors were informed by those interviewed that there is little confidence in the financial information submitted by many missions. The revised forecasts are not provided by the International Platform Branch or the GeoGroup to the HOMs for concurrence prior to submission. The audit observed that this part of the process does not support HOM accountability for financial management.

Display of Departmental Budget Information

Budget information, including approved funding and pending adjustment amounts in the monthly FINSTAT Reports, is not consistently and accurately reported. Pending adjustments are entered into the FINSTAT budget information based on the probability of receiving additional funds. This permits the branches to forecast in line with future budget amounts. The display of this information in FINSTAT, however, makes it difficult to keep track of the status of the request for additional funds and elevates the risk of errors in transferring from pending adjustments to approved funding to arrive at the overall financial position of the Department.

Importance of the Business Warehouse Tool

The implementation of the new Business Warehouse tool will assist in tracking changes to budget information. It is scheduled to be utilized for the preparation of the P-3 2012-13 financial data. This will be an important achievement for the CFO Branch. The Business Warehouse project takes on increased significance due to:

Salary Forecasting Tool

The Salary Forecasting Tool provides relevant and reliable information on the bulk of DFAIT salary expenditures. The Salary Forecasting Tool (SFT) is a powerful tool for managing salary expenditures when used fully and correctly. Issues identified in the first year of implementation have been corrected. The SFT supports the Department in a rigorous review of the salary component of its forecast.

There is, however, inconsistent application across branches of special salary situations (i.e. overtime, transfers-in). Ensuring appropriate handling of these situations would further increase the SFT effectiveness. This system is being enhanced to include Locally Engaged Staff salary in 2013-2014 which will allow for all salary expenditures to be tracked, monitored and reported from a single source.

Conclusion

The CFO Branch officials have made significant progress in implementing the MAP and resolving financial management issues in the Department, thereby strengthening financial management. Overall, the reliability of the financial forecasts has been improved. The challenge role expected of the FMA must, however, be embedded into the operations to ensure that the Deputy Ministers and the CFO are receiving relevant and accurate information. This is particularly important for the more complex environment of the GeoGroup where current practices do not demonstrate sound financial forecasting.

Opportunities for further improvement and the degree of importance/risk determined by the auditors are included in the table below.

Audit Recommendations and Priority / Risk Level

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 information contained in this report. This is based upon a comparison of the conditions, as they existed at the time, against pre-established audit criteria that were agreed to with management. The evidence was gathered in accordance with the Internal Auditing Standards for the Government of Canada and the International Standards for the Professional Practice of Internal Auditing.

Original signed by:
Yves Vaillancourt,
Chief Audit Executive

1. Background

During fiscal year 2009/2010, the Department of Foreign Affairs and International Trade (DFAIT) encountered financial management challenges. Recognizing the significance of this situation, the Departmental Audit Committee (DAC) requested that internal audit undertake work immediately. A risk assessment and an internal audit of Resource Allocation were conducted during the period from August to October 2009 to identify opportunities to strengthen governance, processes and controls in place for the initial allocation and subsequent reallocation of funds within DFAIT. The internal audit report was presented and recommended for approval by the Departmental Audit Committee in April 2010.

A follow-up audit was conducted in 2010 and it indicated that the department had made significant progress in implementing the initiatives outlined in the Management Action Plan to address the recommendations in the original audit. It also mentioned that attention had been focussed on improving financial management over the past year and that the creation of oversight bodies to monitor progress on several fronts had been a major achievement. This first follow-up audit also indicated that some areas required sustained focus to ensure that objectives were met. These audit reports included an extensive Management Action Plan to address the audit recommendations.

The Departmental Audit Committee and the Chief Audit Executive endorsed the Management Action Plan and committed to monitoring its progress through follow-up audits. Recognizing the importance of the situation, the Department responded immediately to the recommendations and appointed the Associate Deputy Minister to lead the implementation of the overall action plan. Key implementation actions included:

Audit Objective

This report represents the second follow-up audit. Again this year, the objective of this follow-up audit was to assess progress in strengthening DFAIT’s budget and allocation/reallocation processes by reviewing the actions taken by management to ensure that they are effective in addressing the recommendations as set out in the Management Action Plan. The audit addressed the essential questions of:

Methodology

The following approaches were used to gather audit evidence.

Interviews: Interviews were conducted with:

Document Review and Analysis: The auditors extracted financial reports from departmental financial system (IMS), Salary Forecasting Tool (SFT) and the Business Intelligence (BI) Cube and obtained other documentation from branches. We analyzed the content and compared and reviewed key documents with the appropriate Branch representatives in order to receive clarification and explanation to determine the accuracy of the information.

Process Walkthroughs: The auditors conducted process walkthroughs of the preparation of FINSTAT with two large Departmental entities – the International Platform Branch and the GeoGroup. The GeoGroup is a conglomeration of the four branches that manage bilateral relations with missions.

Scope

This audit work included information on initiatives undertaken since the time of the last follow-up audit in 2010. The audit work focussed on financial information from 2011-2012 to ensure that the most up-to-date and relevant information was provided. Financial information from 2010-2011 was used for comparative purposes. The audit work was completed prior to the availability of 2011-2012 year-end information.

2. Observations and recommendations

2.1 Financial Management Advisor (FMA)

The FMA is a very important function for the Chief Financial Officer Branch to exercise authority over financial reporting and provide effective oversight and some progress has been made in staffing and implementation. A "boot camp" was organized by the CFO office for the FMAs in January 2012. The objective was to provide training on various subjects such as Finance, Contracting, Planning and Resource Management and Accounting Operations. This training provided an excellent opportunity to clarify roles and responsibilities for FMAs. The model is being implemented progressively in three phases:

  1. Model Introduction (2009 to 2012), including the deployment of FMAs in client organizations and the establishment of working relationships with Area Management Advisors (AMA) and clients;
  2. Model Adjustment and Standardization (2012 to 2013), including adjustments to the FMA model in light of Strategic and Operational Review (SOR) implementation, establishment of Service Level Agreements (SLA) and standardization of related processes and tools;
  3. Model Maturity (2014 and beyond), including the initial 3-year review of the FMA model and implementation of any recommended changes.

Expected results for the FMA model are as follows:

Short-term (0-1 yr)

Medium term (1-3 yr)

Long-term (3 yr+)

The Department is facing significant challenges in implementing the Financial Management Advisor (FMA) Model as designed. Headquarters reorganization as a result of the Deficit Reduction Action Plan (DRAP), the related staffing freezes, position classification, the involvement of Area Management Advisors and lessons learned through the first year of implementation are causing the Chief Financial Officer (CFO) Branch to reassess the model.

Roles and responsibilities of the FMA are not yet formally established.

The FMA Model, approved by the Deputy Minister outlined three primary functions – challenge, advice and liaison. FMA implementation requires the development and signing of a Memorandum of Understanding (MOU) with each Branch. Currently, only one MOU is in place with the International Platform Branch. This MOU outlines the intent, scope, audience, branch mandates, date of transfer, budget transfer, accommodation needs, and initiation of employee transfer, responsibilities and approvals. In addition, appended to the MOU are the Service Level Agreement and the Service Delivery Targets.

This particular MOU, however, outlines duties of the FMA well beyond those approved by the Deputy Minister. A de facto ‘financial services directorate’ for the Branch has been created. This directorate covers the full gamut of financial services including the functions of an FMA as well as the processing of transactions and the preparation of reports, activities that would normally be completed by management, the AMA, and the Financial Services Directorate of the CFO Branch. This results in a lack of segregation of duties (between the preparation and challenge of FINSTAT reports) and blurs the line of accountability to the Chief Financial Officer. This structure, therefore, cannot be used as the example for other Branches.

With the completion of the Chief Audit Executive’s Review of the Area Management Offices, roles and responsibilities of the FMA and the AMA are being clarified. The CFO office indicated that for new FMAs, Service Level Agreements (SLAs) will be put in place for the new fiscal year. SLAs will be similar to a Performance Management Agreement in that they will have standard service level commitments (identical for all branches), as well as some client-specific ones which will be negotiated with each client.

Establishing MOUs and outlining clear roles, responsibilities and accountabilities in line with those approved by the Deputy Minister, will be important to the success of FMA implementation.

The FMA Model establishes clear accountability to the Chief Financial Officer; however, this concept is not yet firmly entrenched in the operations.

The challenge role to be performed by FMAs is not yet completely developed. Roles and responsibilities have not yet been clarified resulting in the FMA being subordinate, in practice, to the Area Management Advisor (AMA).

Throughout 2011-2012 FMAs got involved in the FINSTAT review in collaboration with the AMA. This resulted in a varied approach to FMA implementation across branches.
For example, one FMA indicated that they “started as the FMA for the Branch about two months ago. For P8, I was invited in a couple of meetings organized by the AMA office with some of the programs to discuss and challenge the forecast. For P9, I was not involved at all in the FINSTAT process as the AMA is still in charge of FINSTAT reviews for branches until the end of this fiscal year. As new employees to DFAIT, our main objective for this fiscal year is to get involved in FINSTAT review as much as we can in coordination and collaboration with the AMA office and to learn the clients’ business…”

In another case, the auditors were informed by an FMA that they were not yet participating in the FINSTAT process as no invitation had been provided by the AMA. On another front, the auditors were informed of a situation where the FMA was admonished by the Branch ADM for reporting an issue to the CFO without first informing the Branch.

The establishment of FMAs was to strengthen governance and oversight of the Chief Financial Officer. The challenges experienced in the first year of implementation, however, have limited the achievement of this goal. Implementation of the revised Area Management Office (AMO) model will be an important element of the effectiveness of the FMA.

The classification level of some FMAs is too low to influence senior management decisions.

The FMA Model includes a hierarchy of positions with a variety of classification levels. These range from FI-02 (relatively junior) to EX-01 (first level for executives). The Area Management Offices are generally headed by an EX-01 or an AS-07 (manager) that has established positive working relationships with the ADM.

In some cases, FMAs co-located within the Branch Area Management Office are at the FI-02 and FI-03 classification level. It is difficult, therefore, for the FMA to challenge and influence the decisions of management at the Director, Director General and Assistant Deputy Minister level. Indeed, at times, it presents difficulties in even being invited to the table as noted above. Throughout 2011-2102, the FI-02 and FI-03 FMAs have been coached by the AMAs to develop their understanding of the branch. Altering the nature of this relationship to enhance the challenge function may be problematic.

The CFO Branch has successfully converted some existing FI-04 positions to Financial Management Advisors. In the opinion of the auditors this is an appropriate classification level to fulfill the roles approved by the Deputy Minister. As well, it is consistent with other federal government departments where mature and effective FMAs are integrated into departmental operations.

Summary of the FMA

The FMA Model has faced significant challenges that have prevented it from full and effective implementation. To improve the overall capacity and quality of the financial forecasting of the Department, the CFO must clarify the role of FMAs and establish them as approved by the Deputy Minister almost three years ago. Until such time as FMAs are fully established, the branches will not benefit from sound financial advice and expertise.

Recommendation

  1. The Chief Financial Officer should reassess the design and implementation of the Financial Management Advisor (FMA) Model to ensure that the FMA:

2.2 FINSTAT Reports

FINSTAT reports constitute the main source of information for senior management to determine the financial status of their respective programs and for the DMs and CFO to monitor the overall Departmental financial situation. Timely and accurate financial information is of the utmost importance to properly manage the individual programs and ensure that fund reallocations take place in an effective and timely manner and in respect of Departmental priorities and authorities.

The Deputy Minister’s messages on financial management are now well understood. Interviews with Assistant Deputy Ministers clearly indicated increased engagement in financial management over previous years.

Branches released funds throughout 2011-2012 as opposed to holding funds until year end. These funds could then be reallocated to other Departmental priorities.

The increased commitment of senior management to manage and monitor their financial forecasts throughout the year was evidenced in 2011-2012. During our interviews, it was obvious that the DM’s messages to ADMs over the last two years concerning the importance of a sound financial management and attention to budgets has had a major impact on the focus by the ADMs to this key element of financial management. Closer scrutiny of the forecasts has resulted in branches releasing funds throughout the year. This allows the Department to fund new pressures that arise through reallocation of resources.

The auditors analyzed the Vote 1 Funds (salary and operating) of each of the FINSTAT reports from P6 through to P10 to assess the degree of change in branch forecasts. This analysis revealed that total projected expenditures decreased by $50.3M during this time period. The comparable figure for 2010-2011 indicated that only $29.8M had been released for reallocation. This trend can be perceived as an indication that the emphasis placed on the budget oversight role of managers is becoming entrenched in the Department’s operations.

The auditors also had an opportunity to review the FINSTAT for P11 during the completion of this audit work. The positive trend of releasing funds throughout the year resulted in only $6.2M being released in P11. This compares positively to the $17.7M released in P11 of the previous fiscal year.

In summary, this analysis supports our positive finding that the Deputy Minister’s messages on financial management are now well understood. Further, the auditors noted that the “cultural change” required in the department to truly mark progress continues to gain ground. The Resource Management Committee and CFO oversight remain critical components supporting sound financial management.

There were inconsistent approaches across the Department in preparing the FINSTAT Reports.

Monthly FINSTAT reports provide relevant information on the Department’s financial position. They include key information and analysis of variances from the previous period as well as comparative data to the previous fiscal year.

The auditors assessed the methodology used to produce FINSTAT reports in two large entities – the International Platform Branch and the GeoGroup. Both of these groups rely on information provided by the missions. The results of the analysis lead to different confidence levels.

The International Platform Branch applies a rigorous and consistent approach to producing the branch FINSTAT Report.

The International Platform Branch (IPB) receives information from the missions on ‘common services’. They have a rigorous methodology in place to incorporate the input from each individual mission to arrive at the Branch total. They perform a challenge function on the data received, roll up the information provided by the missions and arrive first at an amount for the bureau level and then an overall branch amount. There were no issues noted with respect to their confidence in the mission information or the IPB methodology to produce the FINSTAT.

The auditors are not able to express an opinion about the reliability of financial forecasts for the GeoGroup due to a lack of supporting documentation.

The GeoGroup comprises a large portfolio of four branches with headquarter divisions and approximately 170 missions operating abroad. The GeoGroup is responsible for the ‘program’ funds of missions. The auditors were not able to perform a walkthrough of the process as the documentation to support the process was not available. Employees explained that the forecasts are done on a global basis for the Branch. A global approach is used in identifying the needs and determining the surpluses and shortfalls in order to "balance the books" and/or to prorate the anticipated deficit. This methodology requires that the appropriate analysis and justifications be clearly identified in order to determine the exact nature of the forecasts being made. The auditors were unable to obtain this required justification. Rather, they were informed that the available funds were needed and would be fully utilised.

The Heads of Missions (HOMs) are accountable for financial management in their respective missions. Completing the financial reports and verifying the accuracy of the information is part of this function. Consequently, they are required to sign-off their FINSTAT input prior to submission to headquarters. Auditors were informed by those interviewed that there is little confidence in the financial information submitted by many missions. The auditors were not able to reconcile the individual mission input to the branch level FINSTAT. This raised the question as to whether, and how, the Head of Mission could be held accountable for their financial management responsibilities.

Recommendation

  1. The Chief Financial Officer should ensure that the methodology used by the GeoGroup to arrive at its financial forecast is:

Adjusting the presentation of budget information in FINSTAT reports would increase understanding and reduce the likelihood of errors.

FINSTAT reporting has been greatly improved since the time of the initial audit. Reports are now clear and provide the reader with relevant information. Further refinements in the presentation of ‘approved funding’ and ‘pending adjustments’ information would add clarity to the changing budget situation in DFAIT.

The Department includes budget information in the FINSTAT report when there is a high probability of the additional funds being received. This provides branch management with their most likely year-end budget and allows them to manage towards that amount. While this is a benefit for the Department, it can lead to confusion regarding what the Department has actually received and what it is likely to receive in the future.

There were inconsistencies in the timing of entering budget adjustments in the FINSTAT report. The auditors identified the following:

We are not suggesting the removal of this important information from the FINSTAT reports. Rather, identifying the stage in the process of the request for additional funds would add clarity for the reader and reduce the possibility of errors. Testing, conducted by the auditors on P7 data identified an error of $1.4M related to LES Salary Revision. In this case, it was double counted as both a Pending Adjustment as well as an Approved Budget item.

In summary, the amount of additional funding received by DFAIT throughout the year adds complexity to managing the related budget information. This information is completed through manual computations. Implementing procedures to effectively track variances in appropriation, throughout the year, would improve the overall reliability of the financial reports.

Recommendation

  1. The CFO should consider categorizing the information presented in the ‘approved funding’ and ‘pending adjustments’ section of FINSTAT to allow for more effective tracking of funding requests throughout the process.

Numerous manual computations are required for the preparation of the monthly FINSTAT Reports.

There are several manual computations involved in preparing the FINSTAT reports each month. Each of these represents an opportunity for error. The Director of Financial Systems has confirmed that the new “FINSTAT Financial Data Collection and Corporate Financial Forecasting with the IMS Business Warehouse Integrated Planning Application”, currently in development, is being designed to remove the need for manual computations. This new tool is scheduled for roll-out in the first quarter of 2012-2013.

The Business Warehouse Project is an important initiative to enhance the reliability of the FINSTAT. The reduced requirement for manual computations and reconciliations will free up valuable resources to dedicate more time towards the value-added function of financial analysis. It will also promote consistent processes on branch forecasting across the Department. The Director General of the CFO Branch responsible for financial systems indicated that the implementation of the new tool should take place in early 2012-13 and be ready for utilization for the preparation of the P-3 financial data. This will be an important achievement for the CFO Branch. While it is anticipated that there will issues to be resolved and communication and training required, this should not prevent the delivery of this new product in accordance with the established timelines.

Recommendation

  1. The CFO should maintain the high priority of the Business Warehouse Project.

There is little confidence in the Business Intelligence (BI) system throughout the Department, even amongst financial staff. The perceived complexity of using the BI system reduces its effectiveness as a management tool.

The expectation of the BI Dashboard component was to provide management with a tool to assist them in managing and monitoring their financial budgets. Both program management and financial staff, however, indicated that they had little confidence in the information provided. The auditors tested the reliability of information provided on two separate occasions throughout the conduct of the audit.

The results of the first test indicated that the Dashboard data was not reliable between December 2, 2011 and January 10, 2012. The BI Support Group indicated that they were performing updates during this period. Dashboard users were not advised that the system was not functioning correctly at this time. Users entering directly into the Dashboard as opposed to entering through the BI portal did not receive a warning message. Following January 10th, the auditors retested the Dashboard data and found that it did reconcile with information in IMS. Ensuring the continuous provision of reliable data is important in order to increase the confidence in the data and overall, the use of this management tool.

The auditors also tested the reliability of the FINSTAT BI Cube in November 2011. This test showed that the system did not “freeze” properly for P7. Reports generated with respect to budget data, commitments and expenditures at the fund centre level, therefore, were not accurate.

The BI system is relatively complex to use and requires a certain degree of knowledge to ensure that the information extracted from the system is done so appropriately. The auditors noted that some parts of the Department use this tool effectively. Overall, however, there is little confidence in the current BI system which reduces its effectiveness as a management tool.

2.3 Salary Forecasting Tool (SFT)

Accurate information on salary forecasts was an area that was considered particularly weak at the time of the original audit. In response, the Department implemented the Salary Forecasting Tool to enable managers to more accurately track and forecast their salary expenditures. SFT is a forecasting and expenditure management tool that allows managers to maintain and update employee information affecting forecasts directly into the Departmental financial system (IMS). It is integrated with IMS and shows the salary liability to the end of the fiscal year. The follow-up audit that was conducted in 2010-2011 indicated that this tool was fraught with technical problems during its first year of implementation and that management had little confidence in the information.

The technical issues with the SFT have been resolved; the tool is useful and provides reliable information for financial planning and reporting.

The SFT is now operating effectively and providing reliable information to management on the bulk of salary expenditures. With the modifications made during the last year, ADMs, AMAs and FMAs unanimously indicated that the SFT was now greatly improved and that they are quite satisfied with the end results. One of the benefits identified was the reduction of time spent on reconciliation of information between systems. Several corrective measures, which had been identified for strengthening the system functionality to improve the reporting, have been made.

Our testing of the system revealed that the SFT provides accurate information on salary forecasting. This is conditional, like any other system, on the information being entered correctly and being kept up to date. One often repeated common comment from the ADMs and AMA/FMAs was to the effect that the system requires a high degree of maintenance in order to keep the information up to date. In the auditor’s opinion, it is worth the effort to ensure reliable information.

Some special salary situations are not yet able to be recorded in the SFT or are entered incorrectly.

There are some situations with respect to salary forecasting that are complex. These include such things as transfers/secondments into the Department, Order-In-Council appointments and acting pay. Addressing these remaining areas consistently would improve the overall reliability of the salary component of Departmental financial reports.

Almost all Branches use tools such as Excel spreadsheets outside of the SFT in order to monitor special salary situations including overtime, acting pay, over/under level assignments, Order-In-Council appointments, deployments from Other Government Departments (OGD) and secondments. For example, in cases where employees are transferred-in from an OGD, a sub-system is often used to monitor the fact that the Department will have a liability vis-à-vis the OGD who continues to pay the employee’s salary until the pay file is transferred to DFAIT. In some instances the information is also entered in SFT, without the salary component, pending receipt of the salary details and other documents from Human Resources.

Discussions with the CFO office confirmed that it is not yet possible to manage all of these special situations (e.g. OIC) within the SFT. This system functionality is planned to be available to users in the next version of the SFT scheduled for April 2012.

In some of these special salary situations, the information is being entered into the SFT but it is not being entered correctly. This has an impact on the Department’s ability to analyze and challenge the forecasts appropriately. As an example, as of February 7, 2012, the SFT included $69M as FTYE (forecast to year end). Of this amount, $940K was ‘forecast by position’. Forecast by Position is used when there is not an employee occupying the position. This indicates, therefore, that the Department was planning to staff positions and expend salary of close to $1M before the end of March. This translates into roughly 56 people being brought in during a staffing freeze and while preparing for resource cuts – this does not appear reasonable. This conclusion could be misleading if the information had been entered into SFT incorrectly. For example, is it possible that it incorrectly includes secondments? This uncertainty hampers the ability to conduct proper analysis and perform an effective challenge function. We would expect to see issues such as this be analyzed effectively during the FINSTAT process.

Overtime forecasts are not reported consistently across the Department.

SFT has the capacity to accommodate overtime forecasting. Not all branches, however, use this function. The SFT report generated as of February 7, 2012, showed that $5.6M overtime was incurred that had not been forecast in SFT. This amount is consistent with the estimation of finance staff that roughly half of the Department does not use SFT to forecast overtime.

In the SFT data testing, the auditors observed that some AMAs use excel spreadsheets to track overtime forecasts. This information is then transferred and entered into Branch/Bureau monthly FINSTAT as “other planned expenditures”.

This practice reduces the effectiveness of SFT and increases the likelihood of errors. Importantly, this inconsistency leads to some overtime forecasts reported as “hard commitments” and others as “other planned expenditures”.

Summary of the Salary Forecasting Tool

The Department has implemented an excellent tool for managing salary forecasts. The information, when entered correctly and in a timely manner, is reliable. Opportunities exist to build upon the success of this tool to cover all salary situations.

Recommendations

  1. The CFO should continue to enhance the features of the Salary Forecasting Tool to accommodate special salary circumstances with the ultimate goal of having the entire Departmental salary budget managed through this single instrument.
  2. The CFO should ensure that clear guidance and training is provided to all users of the Salary Forecasting Tool with a particular focus on special salary circumstances in order to increase the reliability of FINSTAT.

3. Conclusion

The Chief Financial Officer Branch has made significant progress in implementing their Management Action Plan and resolving financial management issues in the Department.

Overall, the reliability of the financial forecasts and FINSTAT has been greatly improved. Senior management has demonstrated increased commitment to sound financial management. The completion and implementation of the Business Warehouse project is worthwhile and will reduce the manual computations required to produce reports.

Financial forecasting has been improved through the implementation of the Salary Forecasting Tool which provides reliable information. Technical issues noted during its first year of implementation have been resolved. There remain some specific areas for further enhancement and training to allow the entire Departmental salary to be housed in one system.

The challenge role expected of the FMA is a key control over the reliability of financial forecasts. To be effective, the accountability to the Chief Financial Officer must be embedded into the operations to ensure that the Deputy Ministers and the CFO are provided with relevant and accurate information. This is particularly important for the more complex environment of the GeoGroup where current practices do not demonstrate a sound approach to financial forecasting.

Appendix A - Management Action Plan

Audit Recommendation 1

The Chief Financial Officer should reassess the design and implementation of the Financial Management Advisor (FMA) Model to ensure that the FMA:

Management Action

The new HQ structure has prompted proposed revisions to the FMA structure with more senior personnel. This new structure and reporting relationship will be communicated to senior management and appropriate working level staff.

Area Responsible: Corporate Planning, Finance and Information Technology (Chief Financial Officer) (SCM)

Expected Completion Date: Complete

Management Action

A standard service level agreement is in draft form and branch-specific functions are now being incorporated. This will ensure clarity and consistency across all branches.

Area Responsible: Financial Planning and Management (SWD)

Expected Completion Date: Complete

Management Action

The new HQ structure with its larger branches and the need to ensure that senior management is serviced with senior financial managers, has prompted a proposed reclassification of the FMA positions. This change is currently being brought forward for implementation.

Area Responsible: Financial Planning and Management (SWD)

Expected Completion Date: Complete

Audit Recommendation 2

The Chief Financial Officer should ensure that the methodology used by the GeoGroup to arrive at their financial forecast is:

Management Action

The new HQ structure has prompted proposed revisions to the FMA structure and the new “geo-functional” branches will be serviced by a bolstered FMA presence that will ensure a rigorous financial management process.

Area Responsible: Financial Planning and Management (SWD)

Expected Completion Date: Complete

Audit Recommendation 3

The CFO should consider categorizing the information presented in the ‘approved funding’ and ‘pending adjustments’ section of FINSTAT to allow for more effective tracking of funding requests throughout the process.

Management Action

The summary table in the Executive Summary of the monthly FINSTAT report will be amended to include adjustment categories based on level of risk. This will provide management with a more precise context to the adjustments to forecasts.

Area Responsible: Financial Planning and Management (SWD)

Expected Completion Date: Complete

Audit Recommendation 4

The CFO should maintain the high priority of the Business Warehouse Project.

Management Action

The Business Warehouse project is a priority of the CFO and the projected completion date is on schedule.

Area Responsible: Financial Planning and Management (SWD)

Expected Completion Date: Complete

Audit Recommendation 5

The CFO should continue to enhance the features of the Salary Forecasting Tool to accommodate special salary circumstances with the ultimate goal of having the entire Departmental salary budget managed through this single instrument.

Management Action

The SFT group is working with branches to ensure that all salary costs are captured in SFT. Info sessions will take place before the first FINSTAT reporting for the fiscal year.

Area Responsible: Financial Planning and Management (SWD)

Expected Completion Date: Complete

Audit Recommendation 6

The CFO should ensure that clear guidance and training is provided to all users of the Salary Forecasting Tool with a particular focus on special salary circumstances in order to increase the reliability of FINSTAT.

Management Action

Info sessions will take place before the first FINSTAT reporting for the fiscal year.

Area Responsible: Financial Planning and Management (SWD)

Expected Completion Date: Complete

Report a problem or mistake on this page
Date modified: