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Audit of Standards Council of Canada – Enquiry Point

March 2011

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Personal and sensitive information has been edited from this report (shown in the report as "*****") in accordance with the provisions of the Privacy and Access to Information Acts.

Table of Contents

Executive Summary

Introduction

This report presents the results of an internal audit of the Standards Council of Canada (SCC) in their capacity as a service provider to operate Enquiry Point on behalf of the Department of Foreign Affairs and International Trade (DFAIT).

As a member of the World Trade Organization (WTO) and the North American Trade Agreement (NAFTA), Canada is required to gather and distribute trade-related regulatory and standards information among the members. On behalf of Canada, the Department of Foreign Affairs and International Trade (DFAIT) is responsible for Canada's Enquiry Point in order to ensure that Canada fulfills its transparency obligations under these agreements.

DFAIT has engaged SCC to operate Canada's Enquiry Point. SCC is a federal crown corporation and has been providing these services for DFAIT for over 25 years. A Memorandum of Agreement, valid from April 1, 2008 to March 31, 2011, outlines the services to be provided by SCC for an annual maximum amount of *****. These services include:

  • responding to enquiries;
  • preparing notifications to Canada's WTO and NAFTA partners;
  • disseminating information to appropriate authorities in Canada; and
  • providing timely and accurate Enquiry Point-related information to DFAIT and other federal departments as required.

The Technical Barriers and Regulations Division under the Trade Policy and Negotiations Branch of DFAIT administers this Memorandum of Agreement. The terms and conditions will be renegotiated prior to the expiry of the Agreement ending on March 31, 2011.

The objective of the audit was to determine if the costs charged by the Standards Council of Canada to perform Enquiry Point services are reasonable and eligible for reimbursement according to the terms and conditions of the Memorandum of Agreement between DFAIT and SCC. The scope of this audit covered the period from April 1, 2009 to November 30, 2010.

The criteria selected for this audit have been mapped to the applicable Office of the Comptroller General Core Management Controls. Please refer to Appendix A for further details.

Key Strengths and Areas for Improvement

Throughout the audit fieldwork, the audit team observed strengths in SCC's administration of Enquiry Point. Examples of key strengths noted include the following:

  • Experience and continuity of SCC staff providing Enquiry Point services for DFAIT.
  • Timely invoicing that is well supported by documentation for amounts charged to DFAIT

The audit noted that there were no significant risks identified in the fixed and discretionary costs charged to DFAIT. The fixed costs of salaries, benefits and accommodation were found to be reasonable compared to actual costs incurred. In addition, the discretionary costs charged were deemed reasonable as they were computed based on actual costs incurred or a percentage allocation of the total costs incurred by SCC.

Recommendation

As a result of the identified area for improvement, the following recommendation is made:

  1. DFAIT should consider defining acceptable protocols for budget reallocations among discretionary expenditure items in the MOA.

Conclusion

Fixed costs charged to DFAIT are reasonable for the quantity and quality of services provided and discretionary costs charged to DFAIT are supported by appropriate documentation. All costs are aligned with the Memorandum of Agreement.

It is important to note however that the cost of Enquiry Point services will gradually increase every year if not due to increased reporting requirements then due to inflation. At the same time, DFAIT's budget is decreasing annually; therefore there is a risk that this delivery approach may not be able to be sustained over the medium to long term. Management should assess the impact of increasing costs during strategic and operational planning exercises.

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, March 25, 2011

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1.0 Background

As a member of the World Trade Organization (WTO) and the North American Trade Agreement (NAFTA), Canada is required to gather and distribute trade-related regulatory and standards information among the members. In order to fulfill this obligation, two entities need to be established, namely the National Notification Authorities and the National Enquiry Points. On behalf of Canada, the Department of Foreign Affairs and International Trade (DFAIT) has consolidated these two entities under Canada's Enquiry Point in order to ensure that Canada fulfills its transparency obligations under these agreements.

DFAIT has engaged the Standards Council of Canada (SCC) to operate Canada's Enquiry Point for various international and regional bodies and systems. SCC is a federal crown corporation that has a mandate to promote efficient and effective standardization in Canada. This organization reports to Parliament through the Minister of Industry and oversees Canada's National Standards system. SCC has been providing these services for DFAIT for over 25 years.

A Memorandum of Agreement, valid from April 1, 2008 to March 31, 2011, outlines the following services to be provided by SCC:

  • Respond to enquiries received from foreign countries;
  • Prepare notifications of measures to protect human, animal or plant life and health proposed by Canadian federal, provincial and territorial authorities to Canada's WTO and NAFTA partners;
  • Maintain up-to-date records of notifications/comments received/sent by Canada and prepare reports;
  • Disseminate information to appropriate authorities in Canada; and
  • Provide timely and accurate Enquiry Point-related information to DFAIT and other federal departments as required.

According to the terms of the Memorandum of Agreement, an annual maximum amount of ***** is paid to SCC. This total is comprised of a fixed amount of ***** to cover salaries, employer contributions and accommodation expenses while the remaining variable costs cover general office expenses which are reimbursed after being incurred. DFAIT is exposed to very low risk given that approximately 92% of the expenditures are fixed while the remaining portion is variable.

The Technical Barriers and Regulations Division under the Trade Policy and Negotiations Branch of DFAIT administers this Memorandum of Agreement. The terms and conditions will be renegotiated prior to the expiry of the Agreement ending on March 31, 2011.

At the request of the Division, the Office of the Chief Audit Executive undertook this audit included in the Risk-Based Audit Plan for 2010-2011. Given that Canada's Enquiry Point has never been audited, the Division has indicated that the results of this audit will provide valuable information with respect to the renegotiation process.

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2.0 Observations and Recommendations

To obtain an understanding of the Enquiry Point services provided by SCC, documentation was reviewed and a number of interviews were conducted. An assessment was then carried out to determine the extent to which each of the audit criteria had been met. Significant gaps between an audit criterion and an observed practice were evaluated and consideration was given to the degree of risk in order to assist in the development of recommendations for improvement. Details on the observations are provided in this section.

2.1 Fixed Costs Charged to DFAIT

Under the terms of the Memorandum of Agreement, SCC may charge annual fees of ***** over the three year term. These fixed charges are described below.

Salaries and Benefits

The current MOA is based on a salary budget schedule completed in 2008 comprised of the following:

Table 1: Salary Budget Schedule (2008)
SubjectAmount
Total*****
**********
**********

SCC has assigned two staff on a full-time basis and another six staff on a part-time basis resulting in 4.35 Person Years (PY) as shown in the table below.

Table 2: Staff Assigned by SCC for Enquiry Point Services Operations
Position at SCCLevel of Effort (Person Years)
Total*****
Enquiry Point Coordinator*****
Information Officer*****
Enquiry Point Administrative Assistant*****
Enquiry Point Assistant*****
Business Analyst*****
Corporate Secretary*****

Interviews were conducted with the Enquiry Point Coordinator, Assistant and Administrative Assistant, to understand their role and the tasks performed on a day-to-day basis. We understand that there is no time reporting system to capture the actual time spent on Enquiry Point services; however, SCC did conduct an activity analysis in 2008 to assess the time spent by staff on Enquiry Point activities for a one month period. This activity analysis identified 3.7PY.

From the time at which this activity analysis was done, Enquiry Point notifications have not remained stable. WTO notifications have increased 35% since 2007 and Canadian notifications have increased 150% since 2007. These changes are attributable to increased WTO members, increased transparency requirements and changing requirements in Canada. Due to the augmented volume of notifications and enquiries, staffing levels have risen to a lesser degree by balancing workload and resources through improved automation and information management.

Based on interviews with key Enquiry Point related staff and the increased volume of activity since 2007, 4.35 PY is a reasonable allocation.

Payroll registries were reviewed to obtain the actual salaries for the eight staff members. Their salaries were prorated for their time spent on Enquiry Point and benefits at 24% of the computed salaries were added. The total was compared to the amount paid by DFAIT for these expenses. Based on our analysis, the actual salaries paid is consistent with the salary amount budgeted in the MOA.

SCC charged employee benefits at a rate of 24% of salaries. These benefits include employer contributions to dental and health insurance plans, pension plan, employment insurance, Canada pension plan etc. We compared the amount charged to the actual benefits paid and deem the amount charged for benefits to be reasonable.

Accomodation

DFAIT is charged ***** annually for accommodation fees which is part of the fixed charges included in the MOA. We reviewed the 2010 rental schedule of costs from SCC's landlord that identified accommodation claims that include net rent, storage, parking, hydro, operating costs and realty taxes. The accommodation charge is computed based on the percentage of the floor space occupied by the 4.35PY to the total number of SCC staff. We reviewed SCC's calculation of the floor space allocation which resulted in 4.52% and deemed it to be reasonable. We computed Enquiry Point's portion of the accommodation cost and compared it to *****. The fixed amount budgeted in the MOA is reasonable.

2.2 Discretionary Costs Charged to DFAIT

Under the terms of the Memorandum of Agreement, SCC may be reimbursed for expenses that have been reasonably and properly incurred in performance of the work. These are payable monthly and are not to exceed ***** each year.

The table below shows the reimbursable costs as outlined in the MOA, the actual costs incurred for 2009/10 and the variances from the budgeted amounts.

Table 3: Reimbursable Costs as per MOA, Costs Incurred in 2009/10 and Variances
Discretionary CostsAnnual Budgeted Amount as per MOAActual Costs 2009/10$ Variance (underspent) or overspent% Variance (underspent) or overspent
Total********************
Advertising********************
Books & subscriptions********************
Printing & duplication********************
Travel-staff********************
Telecommunications********************
Office supplies********************
Equipment rentals********************
Meetings********************
Postage********************
Freight********************

Although the total costs incurred of ***** is close to the budgeted amount of *****, there are significant variances among the individual expense items. For instance, travel costs were not expended in 2009/10 as WTO Enquiry Point committee meetings in Geneva occurred in the following year. The SCC redistributed travel budget allocations to other expense items to address these fluctuations. In addition, the budget for books and subscriptions used to cover DFAIT's share of the use of information and research services and databases that are purchased by the SCC was allocated additional budget from other under-expended budget items.

Since the MOA does not define how any budget variances are to be treated, SCC has sought approval from DFAIT prior to reallocating funds from one expense item to another. DFAIT has indicated that if the allocations are not well balanced, efforts should be made to balance variances properly. Consideration should be given to defining appropriate protocols for in year variances among budgeted discretionary costs.

We discussed methods of invoicing and cost capture and allocations to DFAIT for each of the reimbursable expenditure items. We found that SCC records actual costs incurred by staff who perform Enquiry Point services. For instance, photocopy, telecommunication and postage metre charges represent actual usage costs incurred by Enquiry Point staff. As part of the audit fieldwork, invoices were selected from the expenditure categories from claims made between April 1, 2009 to November 30, 2010 (*****). The costs charged were directly related to activities included in the MOA. Original invoices were aligned with the amounts submitted for reimbursement to DFAIT. All SCC invoices tested were well supported and were traced to suppliers' invoices and to SCC's general ledger as evidence of payment by SCC.

There were no significant risks identified from discretionary costs charged to DFAIT.

Recommendation:

  1. DFAIT should consider defining protocols for budget reallocations among expenditure items in the MOA.

2.3 Delivery on Service Levels and Reporting Requirements

The SCC provides statistical reports to DFAIT on a semi-annual basis, reporting volumes of Enquiry Point activities. Service standards are also defined in the Benchmarks/Service Standards section of the MOA.

SCC did note that consideration should be given to extending the notification period from 2 business days to 3-4 days following federal Gazette publications to assist with meeting this challenging service level. As well, SCC reports on an exception basis, instances where enquiry point notifications do not meet deadlines as defined by WTO and NAFTA. For the period January to June 2010, approximately 15% of notifications to the WTO did not meet prescribed timeframes for the comment period. SCC provided variance explanations for each occurrence and these were deemed to be reasonable by DFAIT.

Lastly, Technical Barriers and Regulations Division of Trade Policy and Negotiations Branch has acknowledged that the level of service and reporting delivered by SCC over the last three years has met expectations.

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3.0 Conclusion

Fixed costs charged to DFAIT are reasonable for the quantity and quality of services provided and aligned with the Memorandum of Agreement. Discretionary costs charged to DFAIT are supported by appropriate documentation and are aligned with the Memorandum of Agreement.

It is important to note however that the cost of Enquiry Point services will gradually increase every year if not due to increased reporting requirements then due to inflation. At the same time, DFAIT's budget is decreasing annually; therefore there is a risk that this delivery approach may not be able to be sustained over the medium to long term. Management should assess the impact of increasing costs during strategic and operational planning exercises.

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Appendix A - About the Audit

Objective

The objective of the audit is to determine if the costs charged by the Standards Council of Canada to perform Enquiry Point services are reasonable and eligible for reimbursement according to the terms and conditions of the Memorandum of Agreement between DFAIT and SCC.

Scope

The conduct of the audit took place at DFAIT Headquarters and SCC premises located in Ottawa. The audit examined a sample of financial transactions incurred during the period from April 1, 2009 to November 30, 2010. While the audit considered the volume of work handled and the performance standards to determine the reasonableness of costs, the audit did not include an assessment of the quality of the services provided by SCC. DFAIT management indicated that this was not an area of concern.

Approach and Methodology

The audit was conducted in accordance with the Treasury Board Standards for Internal Audit. The following methods were used to gather audit evidence in order to conclude on the criteria.

  • Interviewing key DFAIT and SCC staff.
  • Analyzing financial and non-financial information;
  • Testing a sample of financial transactions to support the amount and eligibility of costs charged to DFAIT; and
  • Reviewing documents (reports relating to volume of work, service standards etc.).

Audit Criteria

The audit examined whether:

  • Fixed costs charged to DFAIT are reasonable for the quantity and quality of services provided and aligned with the Memorandum of Agreement.
  • Discretionary costs charged to DFAIT are supported by appropriate documentation and are aligned with the Memorandum of Agreement.

The audit lines of inquiry were linked to the applicable Core Management Controls1 of Stewardship.

Table 4: The audit lines of inquiry were linked to the applicable Core Management Controls of Stewardship
MAF ElementRelated Management Controls
StewardshipST-1. The activities, schedules and resources needed to achieve objectives have been integrated into the budget.
ST-2. A formal procedure is in place to challenge the assumptions and related resource allocation within the budget.
ST-4. Forecasts are monitored on a regular basis.
ST-10. Transactions are coded and recorded accurately and in a timely manner to support accurate and timely information processing.
ST-12. Records and information are maintained in accordance with laws and regulations.
ST-16. Management compares results achieved against expectations on a periodic basis.

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Appendix B – Management Action Plan

Table 5: Management Action Plan
Audit RecommendationManagement ActionArea ResponsibleExpected Completion Date
DFAIT should consider defining acceptable protocols for budget reallocations among discretionary expenditure items in the MOA.The Technical Barriers and Regulations Division accepts this recommendation and has inserted a new clause into the MOA, effective April 1, 2011 that requires that:

"The SCC will, without undue delay, inform the Department in writing when variable expenditures in support of the operation of the Enquiry Point, as defined in this Agreement, necessitate the transfer of funds among discretionary expenditure items as reflected in Annex 1 of this Agreement. In doing so, the SCC will provide sufficient rationale and copies of original invoices to the Department to substantiate the budget reallocation. The Department will respond to all budget reallocation requests in writing without undue delay."
Director, Technical Barriers and Regulations Division, TIBApril 1, 2011

1 Core Management Controls: A Guide for Internal Auditors, Internal Audit Sector-Office of the Comptroller General, Draft, November 2007.


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Date Modified:
2013-01-08