Audit of the Canada Fund for Local Initiatives - Final Report

Global Affairs Canada
Office of the Chief Audit Executive

August 2016

Executive Summary

The Audit of the Canada Fund for Local Initiatives (CFLI) was identified as part of Global Affairs Canada’s 2015-2018 Risk Based Audit Plan, recommended by the Departmental Audit Committee, and approved by the Deputy Minister on March 30^th, 2015.

Why is this audit important?

For over three decades, Canada has funded modest small-scale projects in over 100 Official Development Assistance eligible countries through the CFLI. This Program supports small projects proposed and implemented by local-level community groups, civil society organizations, government institutions and on occasion, multilateral institutions. The Program enables Canada to respond to local needs by working at the local level. Equally important, the CFLI serves to further Canada’s foreign policy priorities, strengthen Canada’s relationships with civil society and local communities, and to build networks of contacts in countries around the world. 

In the fiscal year 2015-16, 584 contribution agreements in 117 recipient countries and the West Bank were signed for a total of $13.8 million with an average project value of $23,600.  While small in overall dollar amount in comparison to other Global Affairs Canada’s Grants and Contributions disbursements, the Program is considered to be highly impactful as the projects funded are most often with smaller groups which directly respond to local needs.

After having been administered for 30 years by the former Canadian International Development Agency, the CFLI was officially transferred to the former Department of Foreign Affairs and International Trade (now Global Affairs Canada) in August 2012. Since then, CFLI priorities were shifted from being solely oriented towards development to advancing democracy and ensuring security and stability. A new management structure and accountabilities were also designed for the CFLI. The CFLI Unit in the Deployment and Coordination Division (IRC) at headquarters (HQ) provides strategic direction and global oversight, while Missions select and approve the projects. On July 1, 2016, IRC was renamed the Peace & Stabilization Operations Program Planning and Deployments Division, within the Security and Political Affairs Branch (IFM). At the Mission, the Head of Mission (such as the ambassador or high commissioner) has overall accountability for the projects and signing contribution agreements. The Foreign Policy and Diplomacy Service (FPDS) officers at Mission are responsible for the oversight of the individual projects in conjunction, normally, with a locally hired CFLI coordinator who liaises directly with the recipient. Recent administrative changes to the CFLI have given Missions greater autonomy in the selection and approval of projects eligible for CFLI funding.

What did we examine?

The audit team examined the management practices of the CFLI under Global Affairs Canada’s (the Department) management structure, both at HQ and Missions. This included: governance and management accountabilities; risk-based management and program efficiency; controls; guidelines and tools; and performance measurement and reporting.

The audit team also followed up on the recommendations made in the 2007 internal audit report on the CFLI.

What did we find?

Overall Conclusion

The audit team concludes that the management control framework for the CFLI Program is generally adequate and operating effectively to ensure compliance with the Program’s Terms and Conditions, with opportunities for improvement in areas of risk management, performance measurement, and reporting. The Department has already begun to make administrative changes to address some of these issues and to improve the efficiency of the management of the Program.

Given the positive impact of this Program in the field, the Department is committed to a strong framework, as indicated by progress made on the recommendations of the 2007 Audit of the CFLI and the administrative changes made for the 2016-17 fiscal year.

Based on interviews with the CFLI management team at HQ and Missions, site visits, documentation examination and file review of CFLI projects, the audit found:

• Accountabilities regarding program oversight and administration were noted to be well-understood between HQ and the Missions. While a formal oversight body has not been established to provide strategic direction for the Program, IRC has fulfilled elements of this role.
• Although informal risk management practices are used to administer the Program, a formal risk management framework has not been developed for the CFLI.  This practice has resulted in significant procedural inefficiencies and a disproportionate administrative burden relative to the risk level of some recipients and projects. 
• A CFLI Committee was established in all Missions selected for the audit, and all had good representation. However, selection criteria for projects were not always customized to reflect the Mission strategy and a country’s specific operational context, and the assessment was not always documented. There are good practices already in place that can be leveraged by other Missions.
• To ensure consistency in program management, IRC provides many measures such as guidelines, standard tools and templates, and training to Missions for the management of the CFLI, which were well received. The audit team found that due to insufficient knowledge and experience for managing grants and contribution programs, many officers managing the CFLI would benefit from enhanced training in key management controls.
• The audit team found that the only Program level report is a memorandum to the Minister, which does not report against the defined expected program results and performance indicators that would help support informed decision-making.

Recommendations:

Based on the above findings, the audit team made the following recommendations:

• The Assistant Deputy Minister, International Security and Political Affairs should formally establish a Program Management Board or an equivalent governance body to ensure there is a forum through which all key stakeholders can decide on the strategic direction of the program and through which program-level performance results can be shared.
• The Assistant Deputy Minister, International Security and Political Affairs should establish a formal risk management framework for the CFLI that includes the definition of a level of risk tolerance and the establishment of  a formal risk management assessment process with supporting tools for Missions.
• The Assistant Deputy Minister, International Security and Political Affairs, in collaboration with  the Assistant Deputy Minister, Americas and Chief Development Officer , should provide necessary guidance and tools to ensure that Missions implement a risk-based approach in managing the CFLI, including in the selection of projects, which should be in line with the risk management framework established by HQ.
• The Assistant Deputy Minister, International Security and Political Affairs, in collaboration with the Assistant Deputy Minister, Americas and Chief Development Officer, should ensure that program-level reporting be results-based, including reporting against program objectives, expected results, and performance indicators.

Statement of Conformance

In my professional judgment as Chief Audit Executive, this audit was conducted in conformance with the Institute of Internal Auditors' International Standards for the Professional Practice of Internal Auditing and with the Internal Auditing Standards for the Government of Canada, as supported by the results of the quality assurance and improvement program. Sufficient and appropriate audit procedures were conducted, and evidence gathered, to support the accuracy of the findings and conclusion in this report, and to provide an audit level of assurance. The findings and conclusion are based on a comparison of the conditions, as they existed at the time, against pre-established audit criteria that were agreed upon with management and are only applicable to the entity examined and for the scope and time period covered by the audit.

________________________________
Chief Audit Executive

1. Background

The Canada Fund for Local Initiatives (CFLI) is a long-standing grants and contributions program that is delivered through Canada's high commissions and embassies in Official Development Assistance (ODA) eligible countries.

The objectives of the CFLI are outlined in the CFLI Terms and Conditions as follows:

1. To contribute to the achievement of Canada’s thematic priorities for international assistance, with special emphasis on the themes of advancing democracy and ensuring security and stability;
2. To assist in the advocacy of Canada’s values and interests and the strengthening of Canada’s bilateral relations with foreign countries and their civil societies; and
3. To provide humanitarian assistance in the immediate aftermath of natural disasters and emergencies.

For over three decades, Canada has funded modest small scale projects in ODA eligible countries. The CFLI is a program that supports small projects proposed and implemented by local-level community groups, civil society organizations, government institutions and on occasion multilateral institutions. This program enables Canada to respond to local needs by working at the local level. Equally important, the CFLI serves to strengthen Canada’s relationships with civil society and local communities and to build networks of contacts with local organizations in countries around the world.

Through transfer payments (known as contribution agreements and arrangements), the CFLI provides monetary assistance that covers all or a portion of the cost of projects that are comparatively modest in scope, scale and cost and that are usually conceived and designed by local authorities or organizations.

Each year, Global Affairs Canada (the Department), under the authority of the Minister of Foreign Affairs, sets specific priorities for the CFLI that align with its overall thematic priorities for international assistance. The CFLI’s thematic priorities for 2015-16 approved by the Minister of Foreign Affairs are as follows:

1. Preventing sexual and gender-based violence;
2. Protecting human rights and fundamental freedoms, including vulnerable groups such as sexual minorities;
3. Supporting democratic transition and expanded democratic participation, particularly by women and minority groups;
4. Entrenching the rule of law and combatting the destabilizing impact of crime and corruption, including through security sector capacity building;
5. Strengthening economic governance, including building free markets and an effective enabling environment for business;
6. Preventing child, early and forced marriage (CEFM); and
7. Protecting religious freedom.

Program Administration

The former Canadian International Development Agency (CIDA) administered the CFLI within each individual country program for approximately 30 years. In August 2012, the CFLI was officially transferred from CIDA to the former Department of Foreign Affairs and International Trade (DFAIT) (now Global Affairs Canada).

Since its transfer, the CFLI has been established as its own program within the Program Alignment Architecture (PAA) with new accountabilities and a new management framework. Notably, the CFLI retained its decentralized program delivery features where responsibilities and accountabilities for selecting, approving, managing, and assessing CFLI projects remain with the Missions. Foreign Policy and Diplomacy Service (FPDs) officers at Missions now play a significant role in administering the program at the Mission level.

The CFLI Unit in the Deployment and Coordination Division (IRC), since July 1, 2016 renamed the Peace & Stabilization Operations Program Planning and Deployments Division, within the International Security Branch provides strategic direction and global oversight and management for the program. This centralized management function did not exist before the 2012 transfer. As part of the centralized management function, IRC developed the CFLI Guidelines (the Guidelines), which are updated every year.

Presently, the CFLI is funded through transfer payments from the International Assistance Envelope and is reported as Official Development Assistance. Missions are provided with Vote 1 (an operating fund used to hire a local Fund Coordinator, pay promotional expenses, project monitoring, travel, etc.) and Vote 10 (programming funds given to recipients to cover project expenses) funds. These funds are determined annually as part of the CFLI allocation process. Vote 1 funds are equivalent to 10% of a Mission’s initial Vote 10 allocation, but can be adjusted by submitting a budget proposal to IRC that coordinates the budget requests within an overall Vote 1 budget ceiling. The initial Vote 10 allocation can also be adjusted during the course of the year (if additional funding is available). In fiscal year 2015-16, 584 contribution agreements (CA) in 117 recipient countries and the West Bank were signed across 70 Missions for a total of $13.8M, with an average project value of $23,600.

Description of the CFLI Administrative Process

This flowchart provides a high-level view of the CFLI administrative process for the fiscal year 2015-16, the period of the audit:

Thematic priorities and Missions allocations for 2015-16 were defined and approved by the Minister of Foreign Affairs on July 7, 2015. Once received by Missions with CFLI allocation, the Missions develop their Mission CFLI Annual Strategies. This is the document that describes the intended orientation of the Mission’s CFLI program to ensure that projects funded by the Mission align with the approved thematic priorities.

The next step is the call for proposals, which are launched at Missions to gather proposals for projects submitted by recipients which could be funded by the Program. The Mission CFLI Committee reviews project submissions to ensure feasibility and alignment with thematic priorities and prepares a short list of projects to be presented to Heads of Missions (HoMs) for their approval. In 2015-16, a Project Alignment Submission (PAS) form was created in order to ensure that all CFLI projects were in line with the approved priorities. This document is the means by which Missions submit a brief outline of their project for endorsement by IRC. IRC compares the project description and details to the thematic priorities and determines if it is appropriately aligned. If the project is not considered aligned, the IRC will not endorse the project and it cannot move forward.

The next step is the preparation of a draft contribution agreement/arrangement (CA). The CA defines the project’s funding and terms and conditions. The Centre of Expertise for Grants and Contributions (SGGS) reviews all CAs and any amendments to ensure consistency with the CFLI Terms and Conditions (Ts&Cs) and the Guidelines. Once the CA is approved by SGGS, the Mission is advised and the HoM signs the CA. A project cannot officially commence until the CA is signed by the HoM and the recipient organization.

Project recipients receive their initial payment based on the terms of payment outlined in the CA. In general, terms of payment for CFLI projects have 90% of the contribution made upfront, with 10% held back until the end of the project. Payment terms can vary depending on the project. In order for subsequent payments to be made, interim reports must be submitted based on the monitoring of projects and verification of expenditures that ensure compliance with the terms of payment.

At the end of the project, recipients prepare an end-of-project report to close out the initiative. Each Mission compiles all of their recipients’ end-of-project reports to create the Mission’s End-of-Year Program Report that describes the CFLI’s successes and lessons learned. These reports are then used by IRC to prepare the final memo to the Minister.

Throughout the course of the fiscal year, IRC may undertake a fund reallocation exercise if additional funds become available. 

It should be noted that some administrative requirements were reduced starting in fiscal year 2016-17, including discontinuation of the practice of endorsing the PAS and the review of CA by HQ for all CFLI projects. Moving forward, only Missions that do not use the standard CA template will be required to submit the CA to HQ for review. However, Missions still have an opportunity to seek advice from IRC when needed. These new procedures are expected to enhance the Mission accountabilities in the delivery of the CFLI and are accordingly expected to improve the efficiency of the administration of the CFLI.

Additional Oversight

An internal audit of the CFLI was conducted in 2007 by CIDA’s Audit Division. The objective of this assessment was to review and assess the efficiency and effectiveness of CIDA management practices, systems and controls as they applied to the planning, organizing, managing, accounting for and reporting on the use of the CFLI as a mechanism for the delivery of development assistance. Please see Section 2.4 for a follow-up on this audit’s recommendations.

After the transfer of the Program to Global Affairs Canada, an evaluation was conducted in 2015 to assess the relevance and performance of the Program and identify lessons learned regarding the efficiency, effectiveness and economy of its delivery. The evaluation concluded that despite limited resources, the Program was found useful to further the foreign policy objectives of Canada, to contribute to heightened awareness of Canadian values amongst local stakeholders as well as increased visibility of Canadian priorities and interests.

2. Observations and Recommendations

The audit team examined the administration and delivery of the CFLI at HQ and Missions based on the criteria described in Appendix A. Audit results were derived from examination of program documentation, interviews with the CFLI management team, interviews via videoconference with eight Missions, and eight Mission visits. During the site visits, interviews were conducted with CFLI staff and recipients and 45 project files were reviewed. In addition, the audit team reviewed the evaluation report on the CFLI completed by the Evaluation Division of Global Affairs Canada and progress made on recommendations from the 2007 internal audit. Based on this work, observations and recommendations were made and developed for HQ and Missions in the themes of: governance and accountability; risk management and controls; guidelines, tools, and training; and performance measurement and reporting.

2.1 HQ Administration

The audit team examined whether accountabilities are defined and supported by a formal governance structure, a framework for the management of risk is established, and guidelines and tools are in place.

Governance and Accountabilities

The audit team found that accountabilities, authorities, and the governance structure for the CFLI at HQ are defined in key program documentation, including the 2015 CFLI Guidelines, the Terms and Conditions for the Canada Fund for Local Initiatives Contribution Program (Ts&Cs), and the 2012 Performance Measurement Strategy (PMS). Accountabilities were noted to be well-understood between HQ and the Missions, with IRC accountable for providing policy and administrative guidance for the overall Program and HoMs accountable for Program management and results in their respective countries of accreditation.

There is a requirement set out in the Ts&Cs for a Program Management Board (PMB) composed of the Assistant Deputy Ministers (ADMs) for the Geographic branches. The Ts&Cs state that the PMB is intended to provide overall direction for the CFLI, setting budget allocations by Mission, providing policy and administrative guidance to Missions, and serving as a locus of accountability at the ADM-level. For fiscal year 2016-17, IRC fulfilled elements of this role by gathering Geographic Director Generals (DGs) and HoM feedback for the 2016-17 thematic priorities to ensure regional context is considered in the direction of the CFLI. This was seen as a positive change to the program. As in the past, there was no evidence the PMB or an equivalent oversight body had been established.

Without a formalized and active oversight body that includes senior management of the Geographic branches, there is no forum through which all key stakeholders can collectively decide on strategic direction or through which program-level performance results can be shared to make evidence-based decisions to go forward. Discussions are underway on the best location and oversight for the program.

Recommendation #1:

The Assistant Deputy Minister, International Security and Political Affairs should formally establish a Program Management Board or an equivalent governance body to ensure there is a forum through which all key stakeholders can decide on the strategic direction of the program and through which program-level performance results can be shared.

Risk Management and Program Efficiency

Although risk management processes and procedures are utilized by HQ and Missions, the audit team noted the absence of a formal risk management framework for the CFLI. Each project is managed in the same manner with the same amount of attention placed on the administration process rather than   managing the select risks of the project or program. Program management does not have access to risk information that should be considered in planning and resource allocation decisions.  While Missions selected for the audit reported using an informal, undocumented risk management approach, there is no prescribed system.  An overall CFLI risk management framework would guide the identification, assessment, and monitoring of key program and project related risks in a consistent manner across the program.

An absence of a risk management framework for the CFLI means that the administrative requirements for this Program may not be commensurate with risk levels. For example, in 2015-16, all PAS forms were sent by Missions to HQ for endorsement so that all projects had the same level of monitoring and reporting requirements regardless of size, dollar value and country context. The challenge and burden of these review requirements were compounded by a late allocation of 2015-16 funding to Missions, whereby all management and administrative requirements had to be completed by scarce resources in HQ and Missions in a tight timeframe. In addition, interviews with Missions’ CFLI management teams and with recipients revealed that CFLI application packages for funding are demanding in terms of administrative detail and that CAs are complex, regardless of the size and scope of the project (i.e., 16 pages long). This creates a large workload for the Department and the fund applicants.

Program management has taken steps to reduce the administrative burden of the program. For fiscal year 2016-17, thematic priorities and allocation amounts were provided to Missions at the beginning of the year, thus allowing them more time to administer the program.  As well, the SGGS will now only review a sample of CAs after all the agreements have been signed. In 2015-16, despite the Ts&Cs stating that only Missions not using the standard CA template must have it reviewed by SGGS, all 584 CAs were submitted to and reviewed by SGGS. All of the CAs examined by the audit team used a standard template. The audit team further examined comments provided by SGGS to Missions on these selected CAs and concluded many were administrative in nature and that an internal quality review within the Mission could have identified these errors. The anticipated benefits of this limited monitoring approach, should it be continued in future years, would be to allow SGGS analysts to focus on higher-risk files and to permit quicker CA approval times, all while maintaining a level of assurance that the CFLI is functioning within its mandate.  It was noted that Missions will still be able to contact IRC and SGGS for advice during the development of CAs.

Recommendation #2:

The Assistant Deputy Minister, International Security and Political Affairs should establish a formal risk management framework for the CFLI that includes the definition of a level of risk tolerance and the establishment of a formal risk management assessment process with supporting tools for Missions.

Guidelines, Tools, and Training

Guidelines and tools are available on the CFLI’s intranet website. Further, when updates are made to priorities, guidelines, tools and templates, they are communicated by IRC to key stakeholders, such as FPDS officers and HoMs. Missions can also reach out to IRC, which serves as a point of contact for Missions when policy and administrative guidance is needed. Missions may also leverage the Department’s online forum, Agora, to discuss CFLI matters. These mechanisms ensure that consistency and efficiency are achievable.

According to the Guidelines, effective management of the CFLI requires 20-30% of a full-time employee’s time to be devoted to program administration and 10-20% of the time of a full time employee for program management. Due to human resource constraints, 15 of the 16 selected Missions delegated the day-to-day administration to a consultant hired as a CFLI coordinator. The audit team noted that since CFLI coordinators, depending on their contracts arrangements, are not allowed access to the CFLI intranet website, they rely on the FPDS officers to obtain those tools and guidelines. IRC may take into consideration the option to provide CFLI coordinators with a toolkit similar to what is provided to FPDS officers to assist them in the execution of their tasks and clarify their roles and responsibilities.

Formal training for the CFLI is available to key stakeholders, including pre-posting training for FPDS officers and regional-based training sessions conducted by IRC. The pre-posting training for FPDS officers consists of a one day dedicated course on the CFLI that focuses on presenting program objectives, expectations, and processes and contribution agreements/arrangements, while the regional training sessions bring FPDS officers together from across the Geographic branches as a networking opportunity, to conduct field visits to active projects when feasible, to review processes and to discuss lessons learned and best practices. Both training activities have a strong focus on the advocacy and visibility of the CFLI in the regions. The training is also designed to ensure consistency between Missions and explain activities and responsibilities in the administration of the program. A survey conducted by IRC to identify training needs concludes that Missions would benefit from more in-depth training on key management control areas such as financial, contract, and risk management because these areas are included only at a high-level in the training curriculum. For example, the survey stated that 84% of participants would like future workshops to focus on budgets (e.g. budgets in the CFLI Annual Strategy) and 58% would like more training on properly reviewing and approving CAs. Interviews with FPDS officers in selected Missions also confirmed the desire for additional training with more focus on financial and risk management competencies. Training has become even more important given the fact that the recent administrative changes to the CFLI have given Missions greater autonomy in the selection and approval of projects eligible for CFLI funding.

2.2 CFLI Program Management at Missions

The audit team examined Mission-level accountabilities and authorities for the CFLI to determine if they were understood and appropriately exercised. We also reviewed whether the framework for the management of risk established by HQ is applied by Missions to ensure administrative requirements for the CFLI and project delivery are proportionate with risk level. Lastly, we verified if tools and guidelines developed by HQ are used consistently across Missions and funding allocations support effective project implementation.

Governance: Authorities, Roles, and Responsibilities

The audit team found that accountabilities, authorities, and the governance structure for the CFLI in Missions are defined in key program documentation, including the Guidelines, Ts&Cs, and the 2012 PMS. Signing authorities for CFLI in Missions, including financial, are also well-understood by all Mission staff and were found to be exercised as defined in program documentation. The audit team found that HoMs in all selected Missions approved all projects and have delegated the Section 34 financial authority to program managers.

The CFLI Committee is a key governance body for decision-making at Missions and designed to support the HoM’s accountability for successful implementation of the CFLI. As required by the Ts&Cs, this committee is established at each Mission to review and assess applications and make recommendations on which proposals should be funded and at what level of funding. The audit team confirmed existence of these committees in all selected Missions and noted that they had a wide-range of representation, including HoMs, FPDS officers, and representatives from the Development section, Locally-Engaged Staff (LES), and other stakeholders as applicable to the Mission. Committees at all selected Missions leveraged the generic selection criteria outlined in the Guidelines in order to assess applications. Audit work found that only two of eight visited Missions had documented Mission specific selection criteria that incorporated country context, Mission strategy, and operational environment, as well as identified risks. Mission specific selection criteria will increase even more the chance for funding projects that will help tackle local issues.

The audit team also noted that, despite being prescribed in the Guidelines, the CFLI Committee’s assessment of proposals was not documented in 13 out of the 16 sampled Missions. This is a missed opportunity for the Mission to demonstrate a fair and transparent decision-making process. Not documenting the assessment of application also makes it challenging for the Mission to establish recipient organization profiles year-over-year to preserve corporate memory. The importance of this record of decision is further underscored by the fact that rotational staff transition in and out of Mission every two to three years. Canada’s Missions in Mexico City, Mexico, and San José, Costa Rica, are examples of good practices of Missions that have effectively documented their proposal review, selection process, and results, with Mexico City Mission using a proposal assessment matrix and San José Mission preparing a summary report of meeting minutes.

FPDS officers are responsible for the management of the CFLI, while CFLI coordinators are responsible for day-to-day administration of the CFLI. Despite the distinction, visits to all of the selected Mission revealed that in practice, there is a realignment of responsibilities where program managers confirmed that they rely heavily on CFLI coordinators to go beyond their administrative role and assume a managerial role in the program. Unclear, inconsistent and imbalanced roles and responsibilities between the manager, coordinator and other team members may result in key management activities, including financial management activities, being overlooked or duplicated; or may lead to a lack of segregation of duties. Challenges were identified in that the transfer of the CFLI from CIDA to Global Affairs Canada was not necessarily accompanied with required expertise in managing a grant and contribution program. In the current administrative configuration, some managers expressed concern in their abilities to effectively manage the CFLI based on little to no prior program management experience and insufficient training on the CFLI as described earlier in this report.  This is because CFLI program managers are generally Political Officers and the CFLI is often their first experience managing a grant and contribution program. There is a risk to the organization that the managers lack the tools, training and experience to manage a program with a financial component.

Risk-Based Management Approach

Templates for the CFLI Annual Strategy, Project Approval Document (PAD), fund application forms, and interim project reports require Mission staff to identify program risks and risk responses. Recipients are also requested to identify project risks as part of their project proposals. The audit team noted that these risks, as well as other risk factors (e.g., political risk) are considered informally during the project selection process due to a lack of formal guidance from HQ. For example, none of the 45 project files selected for examination had a risk profile and none of the selected Missions had a CFLI Mission risk profile. As a result, terms of payment, project monitoring, and reporting requirements activities were the same for all projects and may not have been commensurate with recipient or project risks. A formal, written risk management framework with prescribed risk management procedures would enable Missions to better identify, assess, and manage risks associated with the implementation of CFLI projects.

The transfer of the CFLI from the former CIDA resulted in a significant increase in the workload at certain Missions without provision of additional Canadian-Based Staff (CBS) and LES resources to manage the program. A risk-based approach would reduce this burden by allowing Missions to gain efficiencies and better allocate resources to Mission priorities and activities. It would mean that less work would be necessary for some project submissions and administrative requirements would be in line with the risk level of projects for the Mission and the recipient.

Internal Controls for Ensuring Compliance with Ts&Cs and Applicable Policies

Project file reviews indicated that all selected Missions use existing tools and templates. Interviews with staff at all selected Missions revealed the vast majority of staff are satisfied with the existing tools and guidelines, as well as with the support received from IRC once tools and guidelines were distributed and operationalized. Mission staff indicated that IRC has been responsive to inquiries and client feedback in a timely manner despite the fact that IRC had a high turnover and had not been able to staff all its vacant positions.

As per the Guidelines, the amount of programing funds (Vote 10) and operating funds (Vote 1) provided to each Mission is determined annually as part of the CFLI allocation process. Funds provided under one vote may not be used to cover expenses chargeable to the other vote. The audit team found that all selected Missions have a clear understanding of what expenses are eligible under each vote and all CFLI payments tested were coded to the correct vote.

The Ts&Cs dictate that the HoMs or the delegated signing official must sign and certify eligibility for payments pursuant to Section 34 of the Financial Administration Act (FAA) and that the Management Consular Officer or other authorized Mission employee must sign Section 33. The audit team noted financial authorities were well-understood and applied in selected Missions and all Section 34 signing officers had appropriate delegated authority for CFLI project payments. However, there is limited oversight exercised by Section 34 signing officers whose reliance on the CFLI coordinator’s work was not always based on their knowledge of what work had been performed on the project files with regard to financial management. For example, the audit team found that all eight selected Missions had insufficient challenge of and a lack of a documented risk-based review of financial reports and receipts (i.e., a review based on recipient risk, type of receipt, or type of activity being claimed). Note, that Section 33 signing authority has recently been transferred to the Common Service Delivery Points (CSDP) but Section 34 remains with the Missions.

For the current fiscal year (i.e., 2016-17), Missions will have more flexibility in planning the CFLI programming because the thematic priorities and fund allocation amounts were received early on at the outset of the year. This decision was made by Geographic branch ADMs and IRC after concerns were raised by Missions regarding the timing pressures experienced in previous fiscal years.  For example, in 2015, funding was received in the fall.  This delay created numerous downstream impacts on program delivery for HQ, Missions, and recipients, including the inability to hire a CFLI coordinator in a timely manner at some Missions, having to reject certain proposals because projects could not be implemented in the remaining short time period, and the inability to complete interim progress reports as per CFLI requirements. Nevertheless, Missions were able to disburse 97% of their committed funds for the year. Receiving the thematic priorities and allocations earlier in 2016 was well-received by Missions.

Another financial challenge faced by Mission staff concerns currency fluctuation.  In some countries currency rates are not stable, creating a challenge in managing shortfalls or surpluses. Missions are responsible for managing their own currency fluctuation risk because IRC cannot guarantee additional allocations in cases of shortfalls due to exchange rate fluctuations. Going into 2016-17, IRC provided instruction on managing foreign exchange rate fluctuations and advised Missions to either inform recipients of this risk for transparency purposes or to maintain a small reserve at the Mission (e.g. 5% of Vote 10) to address currency losses, as needed. This instruction should be integrated into future CFLI Guidelines because in the past, limited guidance was provided to Missions on how to manage exchange rate fluctuations.

The visits to the 8 selected Missions revealed that currency risk is managed inconsistently across Missions. In 2015-16, 13 out of 71 Missions (18%) experienced “currency exchange losses”; predominantly among those Missions integrated with CSDP where there were delays in payment transfers. Losses were addressed through deductions to Vote 10 or relying on IRC to cover overspending. Further, the CAs did not include a statement to inform recipients that Canada does not assume any responsibility should exchange rates fluctuate.  Historically, Missions were not proactive in communicating this potential risk to recipients. To mitigate these challenges in 2016-17, IRC worked with SMFF to develop guidance to Missions and CSDPs to avoid currency exchange losses experienced by some Missions using the Secure Payment System (SPS). The new approach, communicated to all Missions, should help to manage the currency exchange losses experienced in 2015-16 by some Missions.

Recommendation #3:

The Assistant Deputy Minister, International Security and Political Affairs, in collaboration with  the Assistant Deputy Minister, Americas and Chief Development Officer, should provide necessary guidance and tools to ensure that Missions implement a risk-based approach in managing the CFLI, including in the selection of projects, which should be in line with the risk management framework established by HQ.

2.3 Program Performance Measurement and Reporting

The audit team examined performance measurement activities to determine whether senior management receives sufficient, complete, timely and accurate information to support decision-making with regard to the CFLI. We also examined whether a performance measurement strategy was in place for the CFLI and was used to report program and project achievement against the expected results.

Departmental CFLI Program Reporting

The Ts&Cs specify that a report which summarizes the operations of the CFLI during the previous fiscal year will be presented to the Program Management Board. From 2012-13 until 2014-15, the Minister of Foreign Affairs requested quarterly reports on the CFLI. The CFLI’s results are also presented in the Departmental Reports on Plans and Priorities (RPP) and Departmental Performance Report (DPR). At the Mission level, Missions that receive CFLI funding for the reporting year submit their annual End-of-Year Program Report where their CFLI projects’ results and lessons learned are highlighted.

The Program has a PMS, developed in 2012, that describes the program Performance Measurement Framework (PMF), which includes a list of 31 specific performance indicators that IRC should report on annually. These performance indicators report on performance against 18 different outcome statements, each of which fits under different levels of the logic model (i.e., ultimate outcome, intermediate outcomes, immediate outcomes, and outputs). The PMS also indicates that an expected result, an amalgamation of several aspects of CFLI, and three performance indicators specific to CFLI, have been developed for the Department’s PAA to feed the related departmental PMF. IRC, as the CFLI Unit, is expected to report on this expected result and the indicators on an annual basis as of 2014. The audit team noted that these performance indicators are not reported on.

The Guidelines also define expected results and performance indicators for the CFLI. There are some inconsistencies between the performance indicators and expected results defined in the Guidelines and those outlined in the PMS, such as the Guidelines defining two additional performance indicators. These differences make it difficult for Program staff to align data collection methods to performance indicators and to ensure reporting is done against defined expected results. 

A review of the information contained in the quarterly memorandums indicate that it is project-based (e.g., number of funded projects) rather than program-based and they do not present key strategic information, such as achievement of expected results or actual expenditures versus the budget. Our review of the most recent RPP (2015-16) and DPR (2014-15) concludes that the CFLI performance indicators listed in these reports are inconsistent with performance indicators defined in the PMS. In the absence of a program-level performance report that includes strategic information, senior management is limited in its ability to demonstrate or understand program achievements or progress and to make results-based decisions and adjust course as needed.

Mission CFLI Program/Project Reporting

Missions prepare an annual End-of-Year Program Report based on the final project report submitted by each recipient organization. Audit testing concludes that all recipient organizations and Missions in the sample respected and followed their year-end reporting submission requirements.

The audit team noted that the template for the End-of-Year Program Report provided by IRC does not align with the expected results or performance indicators outlined in the PMS, nor does the template include a separate section where Missions can make a reference to and report against expected results or performance indicators. All the Missions considered in our sample reported that the final reporting template did not allow for a complete presentation of the Program achievement and results. In order to ensure that reporting at the program-level is comprehensive, reporting templates at the Mission-level should facilitate the collection, analysis and reporting of expected results and performance indicators as identified in the PMS. The template could better reflect the positive impacts the CFLI has on the local communities through advocacy and capacity building.

Information Systems for CFLI Program Reporting

The Department’s information management system (IMS) is used by the CFLI to capture financial information such as budget, commitments, and payments. The IMS allows for comprehensive financial reporting on the CFLI, including tracking of financial commitments versus expenditures and it is managed by the CSDPs for most Missions. The CSDPs are not accountable for the financial management of the program; that responsibility rests with the Mission.  Audit results found that Missions are limited to read-only access to IMS.  Consequently, five out of eight selected Missions developed their own informal budget tracking and reconciliation processes, including the use of Excel spreadsheets. This may result in inaccurate tracking of actual expenditures versus total authorized allocation and duplicity of effort. The Mexico City CSDP provides a best practice example, whereby it sends a daily financial report from IMS to their allocated Missions with up to date financial information on budget, actuals, and remaining allocation. Another example of best practice is in Canada’s Mission in Kyiv, Ukraine, where the internal Mission financial services provide monthly financial statements related to CFLI accounts to the FPDS officer managing the program. Additionally, the audit team found that IRC does not request comprehensive financial reports from IMS, so that reports to senior management are focused on total CFLI commitments as opposed to actual Program or project expenditures.

The Security and Stabilization Project Management Tool (SSPMT) is used by IRC as an information management tool to store project data, mainly non-financial information. In the past, project information was automatically uploaded to this system via the PAS form. Given that the PAS is no longer a reporting requirement for Missions for 2016-17, IRC has developed a Project Details and Information form that will automatically upload project information into SSPMT moving forward. The audit team found that information recorded in the system is minimal due to the fact that the SSPMT is not being used to its fullest extent. Project information currently stored in SSPMT and used by IRC is limited to project tombstone data (i.e., country, Mission project name, project description, recipient organization, etc.) and some key financial data points. This is a missed opportunity to collect and retain project-related risk management and performance measurement information. This information could be leveraged to generate reports on overall Program performance. Using the tool to its full potential would result in a more comprehensive reporting and senior management may make better informed, results-based decisions for the CFLI.

Recommendation #4

The Assistant Deputy Minister, International Security and Political Affairs, in collaboration with the Assistant Deputy Minister, Americas and Chief Development Officer, should ensure that program-level reporting be results-based, including reporting against program objectives, expected results, and performance indicators.

2.4 Follow up on the 2007 Audit Recommendations

The audit team also followed up on the internal audit recommendations made in former CIDA’s 2007 internal audit report. We concluded that management has made significant progress in responding to the recommendations with a few outstanding areas to be addressed, specifically:

• CFLI program managers should exercise more due diligence in managing the risks that the CFLI fund may not be used as intended.
• The assessment of submitted recipient proposals should be performed according to well-established selection criteria and documented.
• An analysis on CFLI program performance, including financial and non-financial aspects, should be strengthened.

Those improvements are incorporated in the recommendations provided in this report.

Conclusion

The Department is committed to a strong framework, as indicated by the progress made to the recommendations of the 2007 Audit of the CFLI and the administrative changes made going into the new fiscal year 2016-17. The audit team also concludes that the management control framework over the Program is generally adequate and operating effectively to ensure compliance with the Program’s Terms and Conditions, with some opportunities for improvement in areas of governance, risk management, performance measurement and reporting.  All these efforts will go towards streamlining the process, relieving administrative burden and supporting the program. 

The audit team recognizes the value of the CFLI program and its unique capacity to respond to local needs while supporting Canada’s foreign policy priorities. Mission staff stated that the CFLI is useful to further the foreign policy objectives of Canada, especially in countries where there is an absence of bilateral programs.

With an enhanced risk-based management approach implemented, the CFLI program will gain program administration efficiencies to ensure achievement of the CFLI program objectives and to support the Department in meeting its mandate.

Appendix A: About the Audit

Objective

The objective of this audit was to assess the adequacy and effectiveness of the management control framework over the CFLI, including responses made to the recommendations of the 2007 Audit of the CFLI. The audit team also looked for opportunities for efficiency in order to support the achievement of the program objectives.

Scope

This audit examined processes, systems, and operating procedures in place for the management and delivery of CFLI program and projects at both HQ and the Missions between April 1, 2014 and March 31, 2016.

The progress made in response to audit recommendations from the 2007 Audit of CFLI was assessed and included in the scope of this audit.

Criteria

The criteria were developed following the completion of the detailed risk assessment and considered the audit criteria related to the Management Accountability Framework developed by the Office of Comptroller General of the Treasury Board Secretariat. The audit criteria were discussed and agreed upon with the auditees. The detailed criteria are presented as follows.

• Accountabilities for CFLI program management are formally defined, communicated, exercised, and are supported by an appropriate level of governance structure. 
• Guidelines and tools for the management and the delivery of the CFLI program are appropriately developed, clearly communicated and, consistently applied.
• A framework for the management of risk related to CFLI is established to help ensure the achievement of program objectives.
• The program and projects are delivered and administered in an efficient and effective manner and in compliance with the TB Policy on Transfer Payments and related departmental policies. 
• Measures are in place to assess the achievement of the CFLI program objectives and to support an effective and timely decision-making.

Approach and Methodology

In order to conclude on the above criteria, and based on identified and assessed key risks and internal controls associated with the related business processes, the audit methodology included, but was not limited to the following:

• Identification and review of relevant policies, directives, guidelines, and tools;
• Review and analysis of relevant documents (e.g., program and project reports, strategies, etc.);
• Review and analysis of financial and performance documents and data related to the program;
• Interviews (including video and tele conferences) of management and key personnel at HQ and in selected Missions;
• Walk through and mapping of the CFLI program management process and assessed the effectiveness of internal controls;
• Visits to eight selected Missions and examination of their CFLI management practices and project files (five project files were sampled at each selected Mission); and
• Analysis and consolidation of information.

A list of selected Missions:

A program evaluation was completed in 2015-16 and recipient audits were completed in 2015-16. The audit team worked collaboratively with these two groups to leverage knowledge and to share results and documents, where applicable.

Appendix B: Management Action Plan

Appendix C: Acronyms