Risk-Based Audit Plan 2018-2019

April 2018

Introduction

The Treasury Board of Canada Policy on Internal Audit seeks to contribute to the improvement of public sector management by ensuring a strong, credible, effective and sustainable internal audit function within departments as well as government-wide. In response to this requirement, Global Affairs Canada has developed this two-year Risk-Based Audit Plan. This plan details the assurance and advisory services that the Office of the Chief Audit Executive (OCAE) will provide, independent of line management, to sustain a strong, credible internal audit regime that contributes directly to sound risk management, control and governance.

The mandate of Global Affairs Canada^{Footnote 1} is to manage Canada's diplomatic and consular relations, to encourage the country's international trade and to lead Canada’s international development and humanitarian assistance. Global Affairs Canada was renamed in 2015 from the Department of Foreign Affairs, Trade and Development which brought together the portfolios of Foreign Affairs, Trade and Development under a single organization for greater cohesion in conducting Canada’s external affairs.

The Department administers a broad array of funding programs to protect Canadians and advance Canada’s priorities, interests and leadership abroad, including funding to international organizations. In addition, services are provided to Canadian businesses, Canadians travelling or living abroad, Canadian citizens, and foreign representatives and their dependents in Canada.

In Canada, Global Affairs Canada operates its headquarters in the National Capital Region and has regional offices in eight locations across the country. Global Affairs Canada also manages 178 missions in 110 countries^{Footnote 2}. These missions house departmental employees who carry out the Global Affairs Canada mandate abroad, as well as 37 partner departments, agencies and co-locators. For 2018-2019, there is $6.49 billion in planned spending^{Footnote 3} and as of June 30, 2017 there were 9,990 active Global Affairs Canada Employees, of which 6,238 were Canada Based Staff while 3,752 were Locally Engaged Staff positions at missions abroad.^{Footnote 4}

1.1 Purpose

The Office of the Chief Audit Executive of Global Affairs Canada prepared this document for the Deputy Minister to outline the 2018-19 to 2019-20 Risk-Based Audit Plan (RBAP or the Plan) for the Department. The Plan is designed to support the allocation of audit resources to those areas that represent the most significant risks to the achievement of Global Affairs Canada’s objectives and to respond to the requirements of the Treasury Board Policy on Internal Audit (April 1, 2017). In considering the appropriateness of the Plan, the Deputy Minister is advised by an independent Departmental Audit Committee (DAC) comprised of four external members.

1.2 The Role and Scope of Internal Audit

Internal auditing in the Government of Canada is a professional, independent and objective appraisal function.^{Footnote 5} As per the Financial Administration Act, the Department is required to have an internal audit capacity, designed to add value to departmental operations by using a disciplined, evidence-based approach to assessing and improving the effectiveness of risk management, control and governance processes.

Internal audit provides oversight over management systems and practices, including emerging risks in an ever-changing environment. In order to ensure internal audit's organizational independence, the Chief Audit Executive reports directly to the Deputy Minister of Foreign Affairs who is the Department’s accounting officer. This enables the provision of independent and objective advice on performance regarding operations, safeguarding of assets, reliability and integrity of reporting and compliance with laws and policies.

The practice of internal audit at Global Affairs Canada, including the development of the RBAP, is in line with the International Professional Practices Framework from the Institute of Internal Auditors (IIA), the suite of internal audit policies from the Treasury Board, and guidance from the Office of the Comptroller General (OCG) within the Treasury Board of Canada Secretariat.

The Institute of Internal Auditors^{Footnote 6} endorses the 'Three Lines of Defence in Effective Risk Management and Control' model as a way of explaining the relationship between these functions and as a guide to how responsibilities should be defined:

• First line of defence - Functions that own and manage risk. Operational management has ownership, responsibility and accountability for directly assessing, controlling and mitigating risks.
• Second line of defence - Functions that oversee risk and compliance. Consists of activities covered by several components of internal governance (compliance, risk management, quality, information technology and other control functions). This line of defence monitors and facilitates the implementation of effective risk management practices by operational management and assists the risk owners in reporting adequate risk related information up and down the organization.
• Third line of defence - Functions that provide independent assurance. An independent internal audit function will, through a risk-based approach to its work, provide assurance to the organization’s Executive Board and senior management. This assurance will cover how effectively the organization assesses and manages its risks and will include assurance on the effectiveness of the first and second lines of defence. It encompasses all elements of an institution’s risk management framework (from risk identification, risk assessment and response, to communication of risk related information) and all categories of organizational objectives: strategic, ethical, operational, reporting and compliance.

Exhibit 1 below outlines the three lines of defence in effective risk management and control at Global Affairs Canada. Internal audit is considered to be the third line of defence within the Department and as such plays a key role in the corporate governance structure to provide assurance in the areas of risk management, control and governance processes.

At Global Affairs Canada, the Executive Board provides direction to senior management by setting the organization’s risk appetite. The Executive Board also seeks to identify the principal risks facing the organization. Thereafter, the Executive Board assures itself on an ongoing basis that senior management is responding appropriately to these risks.

Management exercises primary ownership and responsibility for operating risk management and control. As such, management provides leadership and direction to the employees in respect of risk management, and controls the organization’s overall risk-taking activities in relation to the agreed levels of risk.

To ensure the effectiveness of an organization’s risk management framework, the Executive Board needs to be able to rely on adequate line functions – including monitoring and assurance functions – within the organization.

In addition to the provision of oversight services, the OCAE acts as the secretariat for the DAC which is comprised of four independent external members as well as two internal Deputy-level ex-officio members. The DAC provides objective advice and recommendations regarding the sufficiency, quality and results of assurance on the adequacy and functioning of the Department's risk management, control and governance framework and processes (including accountability and auditing systems).

Source: Adapted from IIA Position Paper: The Three Lines of Defense in Effective Risk Management and Control, January 2013.

Risk-Based Audit Planning Approach

To meet the requirement of the Treasury Board of Canada Directive on Internal Audit for the establishment of a multi-year plan for internal audit, an assessment of Global Affairs Canada’s areas of risk was conducted by the OCAE’s Risk-Based Audit Plan (RBAP) project team and OCAE management. The RBAP was then updated to ensure that internal audit resources continue to be targeted to the areas of highest risk and significance.

The engagements included in this plan were identified as a result of a comprehensive planning process, which is outlined below.

2.1 Development of the Audit Universe

The Global Affairs Canada audit universe is revised at the outset of the RBAP process in order to ensure a clear relationship with the Departmental Results Framework (DRF) while allowing for maximum flexibility in designing engagements that target areas of risk (see Appendix A – Global Affairs Canada Audit Universe). The audit universe is comprised of auditable elements organized on the basis of the DRF as well as the Department’s internal services. This approach includes elements at the program delivery, service delivery or internal service level, and facilitates the consideration of in-depth vertical or horizontal organization-wide engagements.

The DRF program inventory and the organizational chart were considered in the development of the universe as well as recognized finance, audit and IT frameworks such as COBIT^{Footnote 7} and COSO^{Footnote 8}. Stemming from the Treasury Board of Canada Policy on Results, the audit universe has undergone a significant transformation for 2018-2019 to realign it with the Departmental Results Framework from the previous Program Alignment Architecture (PAA).

2.2 Senior Management Consultations and Documentation Review

The RBAP process included consultations and risk assessment sessions with management (Directors and Directors General) representing key branches and areas of activity in the Department. An additional range of senior management consultations were undertaken in support of the RBAP, with selected Assistant Deputy Ministers, the Programs Committee and the Departmental Audit Committee all of which contributed to the development of the Plan. As a final step, the RBAP was presented to the Executive Board for further validation.

The objective of the consultations was to obtain input and assessment of risk, proposed audit engagements and upcoming changes and challenges in the operating environment. Senior managers were encouraged to share information on their specific areas of responsibility and horizontal risks across the Department, based on their experience and knowledge of operations.

An extensive review of corporate and external documents was also carried out. This included various internal and external plans, operational reports, and information on monitoring, performance, upcoming initiatives and priorities. The objective of this review was to gain knowledge on the internal and external operating environments.

2.3 Risk Assessment and Prioritization

A focused and structured analysis of the audit universe for operational, strategic, security, and financial risks was conducted by the OCAE using the risk assessment scale outlined in Table 1 below. The assessment also considered the risks identified as part of the annual corporate risk planning exercise. It is important to note that estimates of materiality of programs and operations were considered in the assessment of risk.

This analysis resulted in the auditable elements being prioritized based on inherent risk and past and future assurance engagements (including internal and external audits) to provide a comprehensive base for selecting the engagements to be included in this plan.

2.4 Consideration of Other Assurance Provider Activities

Further to the OCAE’s role as liaison between the Department and external assurance providers, the OCAE aims to coordinate its risk-based audit planning activities with these entities with a view to: 1) ensuring audit coverage of high risk areas; and 2) minimizing overlap and duplication, thus reducing the audit burden on auditees.

Risk-Based Audit Plan 2018-2019

3.1 Overview

This section presents an overview of the Global Affairs Canada 2018-2019 Risk-Based Audit Plan (see Table 2).

Table 2 – Overview of engagements planned to start in 2018-2019

3.2 Audit Coverage

This section describes how the RBAP addresses areas of higher risk and significance. There is coverage of all ‘Very High’ and ‘High’ risk auditable entities for which it was determined that audit work is a priority. These entities derive from the audit universe detailed in Appendix A.

In support of the Chief Audit Executive’s annual report to the Deputy Minister and the Departmental Audit Committee, the RBAP also endeavours to address all Core Responsibilities under the Departmental Results Framework). Appendix B - Crosswalk between Departmental Results Framework Core Responsibilities and Planned Audits for 2018-2019 summarizes the extent to which the elements of this framework are covered in the planned audits for 2018-2019.

In addition, the RBAP also sought to ensure coverage of the Global Affairs Canada Ministers’ mandate letters as reflected in their policy and programming priorities. For a crosswalk linking these priorities to relevant planned engagements, please refer to Appendix C – Crosswalk of Ministerial Mandate Letters to Planned Audits.

Appendix A – Global Affairs Canada Audit Universe

Appendix B – Crosswalk between Departmental Results Framework Core Responsibilities and Planned Audits for 2018-2020

Appendix C – Crosswalk of Ministerial Mandate Letters to Planned Audits

The following table outlines the Risk-Based Audit Plan’s audit coverage against Global Affairs Canada’s Ministers’ mandate letters^{Footnote *}.