Foreign Affairs, Trade and Development Canada
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Foreign Affairs, Trade and Development Canada

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Internal Audit of Cash and Banking

(PDF Version 901 KB)*

June 2009

Executive Summary

1. Introduction

2. Observations and Recommendations

3. Conclusion

Appendix A – About the Audit

Appendix B – Summary of Recommendations and Management Action Plan

Appendix C – Listing of Missions Included in the Sample

Executive Summary

The Office of the Chief Audit Executive (ZBD) undertook an audit of cash and banking as part of the approved Transitional Audit Plan for 2008–2009. Cash and banking at Foreign Affairs and International Trade Canada (DFAIT) was included due to the high risk posed by the large number of departmental bank accounts (known at DFAIT as mission bank accounts) in various currencies, the high volume of transactions, the existence of cash accounts, the high turnover of staff in the Corporate Finance, Planning and Systems Bureau (SMD) and the geographic dispersion of the department’s cash and banking operations.

The objective of the audit was to assess the effectiveness and adequacy of controls over cash and banking activities in order to provide reasonable assurance regarding compliance with applicable Treasury Board policies. Cash and banking is governed by the Treasury Board Policy on Departmental Bank Accounts, the Policy on Petty Cash, the Policy on Recording Receipts of Money, the Policy on Deposits and the Cheque Issue Regulation, 1997 Part II and III.

On–site audit work was performed at eight missions and at headquarters. Site visits took place between December 2008 and March 2009. Missions were selected to obtain a balanced overall picture of the state of the processes and controls over cash and banking activities in DFAIT. The audit work included testing of transactions posted during the fiscal year ended March 31, 2009, interviews with headquarters and mission personnel and process walkthroughs in order to provide a high level of assurance on this audit work.

The complete audit objective, criteria, methodology and scope are included in Appendix A – About the Audit.

Overall, controls over cash and banking activities were effective and adequate in order to provide reasonable assurance regarding compliance with applicable Treasury Board policies. The policy and procedural requirements for departmental bank accounts were generally being followed. The monitoring, reconciliation and deposit of public money was, in most cases, conducted effectively to prevent and reduce, to the extent possible, instances of error, malfeasance, or omission. Bank reconciliations were prepared monthly for each active bank account.

To enhance control over cash and banking, improvements are required with respect to:

  • Policy and procedural guidance;

  • Consistency in applying controls over handling of cash; and,

  • Monitoring

Recommendations are included to address:

  • Enforcement of policies and procedures through improved monitoring of inactive bank accounts;

  • The authorization of mission bank account transactions;

  • The clarification of roles and responsibilities between DFAIT and Citizenship and Immigration Canada (CIC) relating to the processing and safeguarding of immigration revenues;

  • Processing and reconciliation of immigration and consular revenues;

  • Monitoring and review of bank reconciliations;

  • Use of cash accounts;

  • Segregation of duties for the management of cash accounts;

  • Application of the procedural requirements for petty cash funds;

  • Relationship between the Financial Operations, International Unit (SMFF) and the missions.

Financial Operations, International (SMFF) is responsible for cash and banking including the processes and controls in place for the departmental bank accounts, deposits, the bank reconciliations, cash transactions and cash on hand. The audit work included cash and banking activities of foreign missions and interfaces with the operations of the Corporate Finance, Planning and Systems Bureau (SMD) and more specifically with Financial Operations, International (SMFF).

Management has already taken some important actions based on discussions with the auditors. As well, management has developed an action plan to address the above issues. A complete list of recommendations and the Management Action Plan can be found at Appendix B.

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1. Introduction

Federal government departments use the payment facilities of the Receiver General for Canada for receipts and disbursements of money. Exceptions are made to operate departmental bank accounts (known at DFAIT as mission bank accounts) where Receiver General for Canada facilities are not immediately available such as in foreign countries. Consequently, DFAIT missions abroad use individual bank accounts.

DFAIT is responsible for collecting and processing consular revenues as well as for monitoring, reconciling, and depositing immigration revenues as agreed to in a Memorandum of Understanding (MOU) with Citizenship and Immigration Canada (CIC). Public funds are received, controlled and deposited by DFAIT employees to the mission bank accounts or in some cases secured in the mission safe, hereafter referred to as a cash account.

Cash and banking operations at DFAIT are the responsibility of Corporate Finance, Planning and Systems Bureau (SMD) which includes Financial Operations, International (SMFF) and Financial Operations, Domestic (SMFH).

Cash and Banking is considered a priority at DFAIT because a breakdown in controls would have significant financial and reputational impact on the department. Cash and Banking is a high risk area for malfeasance and therefore requires stringent and effective control.

2. Observations and Recommendations

2.1 Mission Bank Accounts

It is government policy to use the receipt and disbursement facilities of the Receiver General for Canada (RG). Departments may apply for approval to operate departmental bank accounts (known at DFAIT as mission bank accounts) where it is not possible to use the normal facilities of the Receiver General for Canada.

In addition to receiving this approval, due to the nature of DFAIT’s operations, certain exceptions have been granted to the department on the classes of payments and the maximum dollar amount of the payments made from the mission bank accounts.

Treasury Board policies and procedural requirements for mission bank accounts are generally being followed. Opportunities for improvement, however, were identified in the following areas.

2.1.1 Inactive Bank Accounts in the Integrated Management System (IMS)

Several bank accounts recorded in the Integrated Management System (IMS) had been inactive for more than one year. For fiscal year ended March 31, 2009, IMS records showed thirty–one inactive bank accounts with outstanding balances. Seventeen of these accounts had debit (positive) balances totalling $497,000 and fourteen had credit (negative) balances totalling $502,000. An explanation for this situation could not be provided to the auditors.

It was unclear which inactive IMS bank accounts represented actual bank accounts that still existed but hadn’t been used and which represented bank accounts that had been closed in reality but had not been closed in the system. The continued existence of these inactive accounts creates an increased administrative burden related to reconciliation as well as increased risk of unauthorized use of these bank accounts going undetected.

Recommendation 1:

Correct the current situation of inactive bank accounts with balances in IMS by:

  • Eliminating or transferring all unnecessary balances from inactive Integrated Management System (IMS) bank accounts; and,

  • Closing local bank accounts which are not used.

Prevent the problem from continuing by:

  • Ensuring missions have support and training to properly close bank accounts;

  • Enforcing policies and procedures; and,

  • Improving monitoring of inactive bank accounts.

2.1.2 Authorization of Transactions

Section 34 of the Financial Administration Act (FAA) is the authority exercised by managers to confirm that goods and services have been received as per the specifications. Section 33 is the authority to make payment. The Section 33 certification process ensures that all requirements of Section 34 are carried out.

Audit procedures revealed that approval under Section 34 and Section 33 of the FAA was not always properly performed at missions. In three out of eight missions, there were instances of employees signing Section 34 and 33 without having been delegated authority. In three other missions, there were instances of Section 33 being signed without prior validation that the goods or services were received under Section 34. It was also found that “acting” Specimen Signatures Cards were rarely completed at missions when an officer was temporarily in a position. This increases the risk of unauthorized employees signing under Section 34 and 33.

In one mission, as a result of the audit field work, the Head of Mission (HOM) realized the importance of the situation and requested that training be immediately delivered to all staff with such delegated authority. This training was delivered by Financial Operations, International (SMFF).

Recommendation 2:

Financial Operations, International (SMFF) and/or the Centre for Corporate Services Learning (CFSS) should remind employees at missions with delegated authority under Sections 33 and 34 of the importance of complying with the Financial Administration Act (FAA). Awareness sessions should be considered.

SMFF should ensure that Specimen Signature Cards are up to date (including temporary ones for acting appointments) and that those who are signing have been delegated authority to do so.

2.1.3 General Ledger Account # 24010 – Outstanding Imprest Account Cheques

The purpose of general ledger account # 24010 – “Outstanding Imprest Account Cheques” is to establish a liability, pending the issuance of a replacement cheque for a previously issued cheque that has been cancelled or has expired.

Many of the expired cheques recorded in this account were for immigration refunds which had not been collected and which may never be collected. Instructions were unclear when or how these amounts should be written off.

Unclear instructions on the use of this account have also led to many transactions being recorded in this account that are not related to the replacement of cancelled or expired cheques. Many of these transactions originated during the transfer from the old accounting system Finex to the new financial Integrated Management System (IMS) and occurred prior to 1999. Other transactions are invalid or the origin is unknown. The balance in this account has been carried over from year to year.

Recommendation 3:

To ensure that general ledger account #24010 “Outstanding Imprest Account Cheques” accurately reflects current liabilities:

  • Determine, in conjunction with Citizen and Immigration Canada, when and how to write off uncollected refunds;

  • Resolve other pending transactions recorded in this account.

  • As recommended by the Office of the Inspector General (ZIV) in 2003, issue clear instructions on the appropriate use and means to clear this account.

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2.2 Deposits

Overall, the effectiveness and adequacy of controls in place for the deposit of public money is satisfactory. Opportunities for improvement, however, were identified in the following areas.

2.2.1 Roles and Responsibilities between DFAIT and CIC

The Memorandum of Understanding (MOU) signed June 5, 1992, between External Affairs and International Trade Canada (now known as DFAIT) and Canada Employment and Immigration Commission (now known as CIC) is not clear on the roles and responsibilities related to ensuring that effective and adequate controls are in place for the collection and safeguarding of immigration revenues.

The 1992 Memorandum of Understanding clearly indicates that DFAIT will provide the immigration programs with financial management services overseas including cash receipt and deposit facilities.

Some ambiguity exists in the roles and responsibilities relating to the implementation of effective and adequate controls over the collection and safeguarding of immigration revenues. This may prevent corrective measures from being implemented when weaknesses are identified in the controls.

*****

There are a variety of means to submit an immigration application and accompanying fee including:

  • Third party service providers;

  • An envelope slot at a mission – not necessarily in the service area;

  • Postal and courier services; and

  • In person at the mission.

For each of these scenarios, Management Consular Officers (MCO) expressed concern about where DFAIT’s responsibility for safeguarding revenue started. It was unclear who was responsible between the time an application was submitted and the time it was recorded in the Immigration Point of Sale software program (POS+).

In some missions:

The volume of immigration files waiting for processing was significant – sometimes several weeks worth. Other missions with large volumes of immigration applications were up to date in their application processing. Best practices from these missions should be shared.

*****

*****

It was noted at several missions that alternatives such as using credit cards and debit cards would have been welcomed. These were not acceptable payment methods for collecting immigration revenues at missions in 08/09.

On April 27, 2009 a Memorandum of Understanding (MOU) on Operations and Support at Missions Abroad was signed by DFAIT and its partners. The MOU is not intended to provide details on all components of the agreed responsibilities of DFAIT and partner departments. It does however, provide for the development of supplemental annexes to address partner–specific program issues where applicable.

Recommendation 4:

Clarify the roles and responsibilities between Foreign Affairs and International Trade Canada and Citizenship and Immigration Canada regarding auditing and the implementation of effective and adequate controls over the collection and safeguarding of immigration revenues, and clearly communicate the changes to the Financial Operations, International Unit (SMFF) as well as to all Head of Missions (HOM) and Management and Consular Officers (MCO).

Recommendation 5:

Financial instruments deemed to be the responsibility of DFAIT as a result of the clarification of the roles and responsibilities with CIC should be appropriately safeguarded.

As well, the use of payment methods such as debit and credit cards should be explored with partner departments to minimize risk.

2.2.2 Receipts for Consular Revenues

Provision 5.11.3 of Chapter 5 of the Manual of Consular Instructions states that “Official Receipts (EXT 25) are never issued to the general public for fees received for passport services. Official Receipts (EXT 25) are issued for fees paid for all other consular services. … Receipts on ordinary forms purchased locally may be issued upon request for passport services rendered.”

The Corporate Finance, Planning, and Systems Bureau’s (SMD) policy on Collecting Revenue and Issuing Official Receipts at Missions states that, “Immediately following the collection of public money at Mission, a receipt must be issued.”

This discrepancy has contributed to an inconsistent approach to the issuance of receipts for passport and consular fees. *****

*****

Recommendation 6:

Develop, implement, and communicate a consistent policy for issuing receipts at missions. As a further control, this policy and a sample receipt should be posted in the consular waiting rooms at all missions to inform clients of the standard procedure.

2.2.3 Reconciliation Form – Immigration Revenues

The daily revenue reconciliation in the Immigration Point of Sale software program (POS+) requires the senior immigration officer to enter a personal password and authorize the reconciliation. As part of the reconciliation process, the 1203A report, which lists various payments received, is printed and compared against the summary tape and cash receipts to identify any variances.

The 1203A report was usually not initialled or signed by the senior immigration officer because their password was already required to create the report. In some missions, the 1203A report was initialled or signed by the senior immigration officer to compensate for possible breach of password security. This best practice added assurance to the accuracy and completeness of the immigration revenues without adding additional burden to the process.

It was noted as a best practice in another mission, that the Immigration Cost Recovery (ICR) Clerks counted the money collected for the day and provided the actual totals to the Immigration Cost Recovery Supervisor without knowing the totals recorded in the POS+ system. The Immigration Cost Recovery Supervisor then printed the reconciliation reports and completed the reconciliation process. Variances were followed–up on with the Immigration Cost Recovery Clerks. This process provided an additional control to account for all revenues collected.

Recommendation 7:

As a compensating control for breach of password security, ensure that the Immigration Point of Sale (POS+) 1203A report is signed by the senior immigration officer prior to acceptance by the accounting section at missions.

2.2.4 Reconciliation Form – Consular Revenues

Provision 5.11.4 of Chapter 5 of the Manual of Consular Instructions provides that all fees received for consular services rendered must be recorded immediately upon receipt on the Record of Fees Received – Passport Consular Services form (EXT 119).

In most of the missions visited, the reconciliation of consular revenues was performed using in–house custom made forms instead of the prescribed forms. These custom made forms did not always contain all the relevant information fields that were required such as a field for the client receipt number and a field for manager approval.

Similarly, form EXT 119 was also missing these same important information fields and the link to this form under the Consular home page on DFAIT’s Intranet site was not working. This form was also not available under Forms on–line on the main page of the Intranet site.

The use of an appropriate form would contribute to ensuring that an effective and adequate reconciliation of consular revenues is performed consistently in all missions.

Recommendation 8:

Redesign the Record of Fees Received – Passport Consular Services form (EXT 119) to contain a field for management approval and the client receipt number. Create a quick link to the new EXT 119 form under Forms on–line and under the consular home page. Headquarters should effectively monitor the reconciliation of consular revenues.

2.2.5 Providing Change to Clients

Payments in excess of the required fee were treated inconsistently at missions.

Some clients arrived at Canadian missions without exact change or with financial instruments written for amounts exceeding the current fee. It is often not feasible for them to return with exact amounts. Challenges in various countries include obtaining Canadian dollars or financial instruments, travelling long distances to reach the mission, and frequently changing fees due to volatile currency exchange rates.

In some missions, there were cash floats and the mission provided change to clients. In other missions, the practice was to not issue change to clients and to accept the excess amount. Sometimes clients would tell mission staff to “keep the change” rather than having to leave and return with the exact change. In still other missions, the clients were asked to sign a waiver indicating that they did not expect to receive change.

For applications received by mail, it was the practice in some missions to return the certified cheques or money orders or to issue refunds through the cheque payment system. In other missions, the certified cheques or money orders were accepted and no refund issued if the excess amount was within an acceptable range that approximated a recent adjustment in the exchange rate.

Recommendation 9:

Develop, communicate, and implement a clear and consistent policy to be applied by all missions regarding payment amounts that do not match fees charged. The policy should consider both accounting for monies received and good client service.

2.3 Bank Reconciliations

2.3.1 Verification and Monitoring of Bank Reconciliations at Headquarters

Verification and monitoring of bank reconciliations are key detective controls for cash and banking operations. There are usually differences between the bank statement and accounting records due to the timing differences when the data is recorded in the accounting books and at the bank. The purpose of bank reconciliation is to check whether the differences are due to timing rather than error. It is important that sufficient verification and monitoring takes place so that immediate action can be taken on accounting errors or unusual transactions.

Although completed by the missions, bank reconciliation packages were not routinely submitted in a timely manner and insufficient monitoring was performed by Financial Operations, International (SMFF) with regard to the outstanding bank reconciliations. In some cases, the bank reconciliation packages had not been submitted to SMFF for several months. Policy requires the bank reconciliation packages to be submitted to SMFF within ten working days of the closing of the financial period. At many missions this was not a reasonable amount of time to receive the official month end statement from the bank, complete the bank reconciliation file package and have it transported by the most appropriate means to headquarters. In some countries, delays were longer than expected because of limited access to on–line bank statements and unreliable mail, courier and diplomatic bag services.

SMFF used a risk based approach to identify the sample of bank reconciliations to verify in detail. For fiscal year ended March 31, 2009, SMFF planned to perform 219 detailed verifications, out of a possible 2088. Actual verifications were performed for 82 bank reconciliation packages. SMFF reduced their planned coverage to 109 bank reconciliations for fiscal year ending March 31, 2010.

Recommendation 10:

Financial Operations, International (SMFF) should provide effective oversight of the bank reconciliation process to ensure, to the extent possible, that errors, omissions, and malfeasance are detected, by:

  • Developing, documenting, and implementing a monitoring plan based on sampling methodology that allows for reliable assessments; and,

  • Ensuring that all bank reconciliations are completed and submitted as required.

SMFF should allow reasonable timelines for the submission of bank reconciliations (not to exceed 30 days after the closing of the financial period). In exceptional circumstances, this could include alternative methods of submission, such as sending scanned copies followed by originals.

2.3.2 The Bank Reconciliation Statement in the Integrated Management System (IMS)

Over the years there have been improvements made to the Bank Reconciliation Statement in the Integrated Management System (IMS). These changes improved the quality of the information and facilitated review of the report. One recent change improved functionality by allowing the work in progress on the bank reconciliation to be saved.

As with the old statement in IMS, a separate screen has been provided to include details on: (1) IMS Unrecorded Transactions/Encashments; and (2) Adjustments Outstanding (Unresolved Bank Statement Transactions). The total of the items entered under these sections appear as an adjustment on the Bank Reconciliation Statement. Missions are encouraged to provide as much detail as possible to assist with the identification of these transactions.

The adjustment sections of the Bank Reconciliation Statement in IMS were being interpreted inconsistently by the mission accountants. Adjustment items that should have been included under the first section “IMS Unrecorded Transactions/ Encashments” were entered in the second section “Adjustments Outstanding” as “Unresolved Bank Statement Transactions” and vice versa. This made it difficult for the reviewer to understand the nature of the adjustments. Also, adjustments that required follow–up may not have been properly highlighted and could have been missed during mission management and/or headquarter review.

Recommendation 11:

Reword the headings of the adjustment sections of the Bank Reconciliation Statement in the Integrated Management System (IMS) to eliminate ambiguity. Include an instruction note in IMS to ensure consistency in all missions.

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2.4 Cash Accounts

2.4.1 The Use of Cash Accounts and Shipments of Money via Diplomatic Bags

The Department had sixteen active cash accounts in place at missions during the fiscal year ended March 31, 2009. Cash accounts are sometimes necessary due to local circumstances. For example, one mission paid employee salaries in cash because they were prohibited by law from writing cheques or making electronic payments to local employees.

Cash accounts are used primarily for paying day–to–day operating expenses, providing travel advances to employees traveling to other countries, depositing cash revenues and paying salaries of locally engaged staff. The cash accounts are either replenished directly from the mission bank account, the revenues collected from immigration and consular activities, *****.

Overall the controls in place for cash accounts were effective and adequate to ensure the safeguarding of cash and the processing of payments and deposits. All missions in the audit sample that had cash accounts required them to conduct business in their respective countries. Reliance on cash accounts, however, could be reduced at certain missions, therefore reducing the risks associated with cash transactions.

In one mission, almost all payments to vendors and locally engaged staff were made from the cash account. ***** because the bank used by the mission did not provide electronic transfer of funds. Other banks in the country, however, had recently begun offering these services. Following the on–site audit work, the mission switched banks, meaning that *****. The mission was also considering making electronic payments to locally engaged employees and suppliers which would significantly reduce the use of cash.

Cash transactions increase the risks relating to the safeguarding of public money and the security of employees. ***** may have negative effects on the mission’s cash flow.

Recommendation 12:

To reduce risk by reducing the use of cash:

  • Explore and use modern local banking practices *****;

  • Make payments using electronic funds transfers when possible.

2.4.2 Segregation of the Duties of Cash Custodians

Segregation of duties is a fundamental control that reduces the risk of error or inappropriate actions. Whenever possible, an organization must ensure that no one person has control over all aspects of any financial transaction.

Foreign Affairs and International Trade Canada has several active cash accounts at missions. In some circumstances funds were used infrequently and cash balances were relatively low with an associated lower risk. *****

***** This, combined with weaknesses in the authorization of transactions at missions (refer to recommendation 2), increases the risk of loss and malfeasance.

Recommendation 13:

Segregate duties between the custodianship, recording, and reconciling of cash accounts. Review situations where duties can not be segregated and implement compensating controls.

2.5 Petty Cash

2.5.1. Application of Procedural Requirements for Petty Cash Funds

Although petty cash is considered low risk based on its materiality to DFAIT, the maximum advance, equivalent to $2,000 CAD, is a significant amount in some countries. The attractiveness of petty cash results in a high risk to the petty cash custodian, who may be held accountable if money is missing from the fund. Inconsistencies were found in the application of the petty cash procedures at most missions visited. Inconsistencies were also identified at Headquarters but to a lesser extent.

*****

*****

*****

*****

*****

Reimbursement of expenses from the petty cash was not always conducted properly. Issues included:

  • Payments made to the claimant before Section 34 approval;

  • An acknowledgement of receipt of payment was not always obtained from the claimant;

  • Cash issued in advance of the purchases was not always recorded; and,

  • Reconciliation between the cash on hand, the vouchers, and the advances was not always performed during petty cash replenishment.

Official petty cash forms were not designed to document all relevant information, facilitate proper reconciliation and guide people through appropriate processes. Petty cash forms were often improved by customization in the missions to meet the needs of the custodian.

Some petty cash custodians and managers did not clearly understand their responsibilities with respect to petty cash.

Recommendation 14:

Implement the following measures to improve management of petty cash and to reduce risk:

  • Improve oversight of petty cash accounts by following Treasury Board policies regarding regular reconciliation and surprise cash counts of petty cash funds;

  • Assess and revise, where necessary, official petty cash forms to ensure relevant information is captured and that user needs are met. Best practices of missions with excellent in house forms should be considered;

  • Create and maintain accurate records of active and closed petty cash funds at headquarters; and,

  • Ensure that managers and custodians of petty cash are properly trained.

2.6 Other

2.6.1. Support provided by the Financial Operations, International Unit (SMFF) to the Missions

Cash and banking operations at DFAIT are under the responsibility of Corporate Finance, Planning and Systems Bureau (SMD) and more specifically the Financial Operations, International Unit (SMFF).

The knowledge and experience of the SMFF staff is well appreciated by mission accountants and Management and Consular Officers. Some missions expressed frustration, however, at the level of communication and support available in a timely manner from SMFF. In some cases, employee frustration has led to a lack of consistency in controls and procedures when questions were not answered or methods explained. Mission accountants sometimes used their experience and judgment to make their own operational decisions after consulting with other missions. It was expressed by some missions that they would welcome more visits and training sessions from SMFF staff.

Recommendation 15:

The Corporate Finance, Planning and Systems Bureau Directorate (SMD) or more specifically the Financial Operations, International Unit (SMFF) should:

  • Assess the level and quality of support provided to missions;

  • Incorporate feedback from missions; and,

  • Implement necessary measures to strengthen support.

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3. Conclusion

Overall, controls over cash and banking activities were effective and adequate in order to provide reasonable assurance regarding compliance with applicable Treasury Board policies. The policy and procedural requirements for departmental bank accounts were generally being followed. The monitoring, reconciliation and deposit of public money was, in most cases, conducted effectively to prevent and reduce, to the extent possible, instances of error, malfeasance, or omission. Bank reconciliations were prepared monthly for each active bank account.

To enhance control over cash and banking, improvements are required with respect to:

  • Policy and procedural guidance;

  • Consistency in applying controls over handling of cash; and,

  • Monitoring

Recommendations are included to address:

  • Enforcement of policies and procedures through improved monitoring of inactive bank accounts;

  • The authorization of mission bank account transactions;

  • The clarification of roles and responsibilities between DFAIT and Citizenship and Immigration Canada (CIC) relating to the processing and safeguarding of immigration revenues;

  • Processing and reconciliation of immigration and consular revenues;

  • Monitoring and review of bank reconciliations;

  • Use of cash accounts;

  • Segregation of duties for the management of cash accounts;

  • Application of the procedural requirements for petty cash funds;

  • Relationship between the Financial Operations, International Unit (SMFF) and the missions.

Management has already taken some important actions based on discussions with the auditors. As well, management has developed an action plan to address the above issues. A complete list of recommendations and the Management Action Plan can be found at Appendix B

Appendix A – About the Audit

Audit Objective

The objective of the audit was to assess the effectiveness and adequacy of controls over cash and banking activities in order to provide reasonable assurance regarding compliance with applicable Treasury Board policies.

Audit Scope

The scope of this audit included cash and banking activities of foreign missions and interfaces with the operations of the Corporate Finance, Planning and Systems Bureau (SMD) which has responsibility for cash and banking within DFAIT. This included the processes and controls in place for the departmental bank accounts (mission bank accounts), cash transactions, cash on hand, deposits and preparation of bank reconciliations.

On–site audit work was necessary at a sample of missions and at headquarters. Site visits took place between December 2008 and March 2009. The missions were selected to obtain a balanced overall picture of the state of the processes and controls over cash and banking activities in DFAIT. The scope of the audit included a review of transactions during the fiscal year ended March 31, 2009.

Audit Criteria

The audit criteria were as follows:

  1. The Departmental Bank Accounts (DBA) are used effectively and are adequately controlled.

  2. The deposit of public money is effectively and adequately controlled.

  3. Bank reconciliations are used as an effective control.

  4. Cash is effectively and adequately controlled.

Audit Approach

The following audit techniques were used as part of the audit of Cash and Banking in order to conclude on each audit criteria:

  • Data mining and analysis of cash and banking transactions recorded in the Integrated Management System (IMS)

  • Process control mapping and analysis

  • On–site visit

  • Transaction testing (e.g. verification of bank reconciliations, verification of deposit receipts and verification of petty cash vouchers)

  • Interviews with headquarters and mission staff

  • Document review (e.g. policies, procedures, directives, etc)

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Appendix B – Management Action Plan

Significance NumberSignificance
1Lack of compliance with laws, acts, regulations or significant weakness in core control with no appropriate compensating factors
2Lack of compliance with departmental policy or procedure or weakness in core control with some compensating factors
3Opportunity for improvement to make programs and processes more cost effective

Level of SignificanceAudit RecommendationManagement ActionArea ResponsibleExpected Completion Date
3

1) Correct the current situation of inactive bank accounts with balances in IMS by:

  • Eliminating or transferring all unnecessary balances from inactive Integrated Management System (IMS) bank accounts; and,
  • Closing local bank accounts which are not used.

Prevent the problem from continuing by:

  • Ensuring missions have support and training to properly close bank accounts;
  • Enforcing policies and procedures; and,
  • Improving monitoring of inactive bank accounts.

SMFF has already been reviewing the inactive bank accounts and will be closing all the local bank accounts that are not used. All unnecessary balances will be cleared from the Integrated Management

System (IMS).

SMFF will provide the required procedures to all missions to properly close bank accounts. We will be monitoring all bank accounts to ensure that inactive bank accounts are closed immediately unless there are still transactions to be process.

See list of acronyms below.

SMFF

September 2009
1

2) Financial Operations, International (SMFF) and/or the Centre for Corporate Services Learning (CFSS) should remind employees at missions with delegated authority under Sections 33 and 34 of the importance of complying with the Financial Administration Act (FAA). Awareness sessions should be considered.

SMFF should ensure that Specimen Signature Cards are up to date (including temporary ones for acting appointments) and that those who are signing have been delegated authority to do so.

SMO is responsible for maintaining the Delegation of Financial Signing Authorities Chart and therefore has primary responsibility to identify training requirement in this area in conjunction with other stakeholders (CFSI, SMFF, SMFH)

SMO participates in workshops in HQ and abroad to explain and to provide hands–on assistance with the completion of specimen signature cards as they relate to the delegation of financial authorities chart and its implications. The following training is currently being held:

1) SMO with CFSI:

  • HOM
  • Program managers
  • LES accountants
  • MCO development

2) Canada School of Public service mandatory training for managers (G110)

3) DFAIT On–line tutorial

SMFF will be monitoring financial transactions at missions to ensure that they comply with the departmental delegated authority and that employees exercising authority under Section 33 and 34 of the FAA are aware of their responsibilities. SMFF will be meeting with all MCOs leaving from Ottawa this summer to remind them of their financial signing authority responsibility.

SMFF will be monitoring all the Specimen Signature Cards of employees at missions to ensure that they are aligned with the delegation of authority and verifying that the mandatory training (course G110) has been taken prior to employees exercising financial signing authorities. SMFF will request a Specimen Signature Card for employees in acting assignments.

SMFF/SMO and/or CFSS

SMFF

December 2009

December 2009

3

3) To ensure that general ledger account #24010 “Outstanding Imprest Account Cheques” accurately reflects current liabilities:

  • Determine, in conjunction with Citizenship and Immigration Canada, when and how to write off uncollected immigration refunds;
  • Resolve other pending transactions recorded in this account.
  • As recommended by the Office of the Inspector General (ZIV) in 2003, SMFF should issue clear instructions on the appropriate use and means to clear this account.

SMFF will meet with Citizenship and Immigration to discuss the write off of uncollected immigration refunds and resolve pending transactions in the Outstanding Imprest Account Cheques.

SMFF will issue procedures to monitor this account and to ensure only appropriate transactions are recorded into this account.

SMFFDecember 31, 2009
2

4) Clarify the roles and responsibilities between Foreign Affairs and International Trade Canada and Citizenship and Immigration Canada regarding auditing and the implementation of effective and adequate controls over the collection and safeguarding of immigration revenues, and clearly communicate the changes to Financial Operations, International (SMFF) as well as to all Head of Missions (HOM) and Management and Consular Officers (MCO).

SMF will review the current MOU with the help of APD to clarify the roles and responsibilities between Foreign Affairs and International Trade Canada and Citizenship and Immigration Canada regarding auditing and the implementation of effective controls over the collection and safeguarding of immigration revenues. SMF is currently reviewing business processes in order to improve controls over the collection of revenues and to determine the viability of using credit/debit cards in the missions.

SMD will communicate any changes required to HOMs and MCOs.

APD 
1

5) Financial instruments deemed to be the responsibility of DFAIT as a result of the clarification of the roles and responsibilities with CIC should be appropriately safeguarded.

As well, the use of payment methods such as debit and credit cards should be explored with partner departments to minimize risk.

Once the roles and responsibilities have been clarified by APD, SMD will adjust any current practices as required.SMD/APD 
2

6) Develop, implement, and communicate a consistent policy for issuing receipts at missions. As a further control, this policy and a sample receipt should be posted in the consular waiting rooms at all missions to inform clients of the standard procedure.

Current DFAIT policy on receipts and the mission accounting manual support TB policy requirements in this area.

The existing policy on official receipts states that receipts should be issued following collection of public money. The mission accounting manual states those receipts must be issued when cash is received or when requested.

SMO will initiate discussions with the Consular Branch with regards to clarification of procedures in the consular manual to bring it in–line with SMD’s policy

SMOOctober 2009
3

7) As a compensating control for breach of password security, ensure that the Immigration Point of Sale (POS+) 1203A report is signed by the senior immigration officer prior to acceptance by the accounting section at missions.

A complete review will be done by SMD under the Audit Readiness Assessment initiative for collecting money abroad. Proper controls will be identified to be imbedded in our standardizing of processes. Detailed procedures will be developed for the collection of money abroad.

SMFF will provide instructions to the accounting section of the missions to accept the report only when it is signed by the senior immigration officer.

SMFMarch 2010
3

8) Redesign the Record of Fees Received – Passport Consular Services form (EXT 119) to contain a field for management approval and the client receipt number. Create a quick link to the new EXT 119 form under Forms on–line and under the consular home page. Headquarters should effectively monitor the reconciliation of consular revenues.

A complete review will be done by SMD under the Audit Readiness Assessment initiative for collecting money abroad. Proper controls will be identified to be imbedded in our standardizing of processes. Detailed procedures will be developed for the collection of money abroad.SMRMarch 2010
2

9) Develop, communicate, and implement a clear and consistent policy to be applied by all missions regarding payment amounts that do not match fees charged. The policy should consider both accounting for monies received and good client service.

It will be very important for SMF to review the exact change policy and the refunds that are required in many circumstances. It is a burden for the missions and DFAIT to provide different levels of service from mission to mission.

SMO is responsible for developing financial policies,

SMFF and SMFH for developing operational procedures.

Policies generally consist of broad statements and not detailed procedures. The Audit recommendation is describing a best practice or procedural document to provide clarification of processes in different situations occurring at missions.

Clear directives and procedures will be developed and communicated to the missions.

SMFF/APDMarch 2010
2

10) Financial Operations, International (SMFF) should provide effective oversight of the bank reconciliation process to ensure, to the extent possible, that errors, omissions, and malfeasance are detected, by:

  • Developing, documenting, and implementing a monitoring plan based on sampling methodology that allows for reliable assessments; and,
  • Ensuring that all bank reconciliations are completed and submitted as required.

SMFF should allow reasonable timelines for the submission of bank reconciliations (not to exceed 30 days after the closing of the financial period). In exceptional circumstances, this could include alternative methods of submission, such as sending scanned copies followed by originals.

SMFF will put in place a monitoring plan to ensure that there are no errors, omissions or malfeasance by requesting financial documents on an adhoc basis or through a sampling methodology.

SMFF will implement procedures to ensure that all bank reconciliations are completed and submitted on time every month.

SMFF

March 2010

December 2009

3

11) Reword the headings of the adjustment sections of the Bank Reconciliation Statement in the Integrated Management System (IMS) to eliminate ambiguity. Include an instruction note in IMS to ensure consistency in all missions.

SMFF will request a modification in IMS to clarify the headings of the adjustment section of the Bank Reconciliation Statement and will require a specific note in the Help menu to ensure a clear understanding of this procedure for bank reconciliation adjustments.

SMFFDecember 2009
1

12) Reduce risk by reducing the use of cash.

  • Explore and use modern local banking practices *****
  • Make payments using electronic funds transfers when possible.

SMFF has considerably reduced the amount of cash shipments to the missions and will proceed to eliminate this requirement.

SMFF is promoting the ***** to ensure that the available technology for payments are used.

SMFFMarch 2009
1

13) Segregate duties between the custodianship, recording, and reconciling of cash accounts. Review situations where duties can not be segregated and implement compensating controls.

SMFF is currently reviewing the segregation of duties at missions for all cash accounts to ensure that appropriate controls are in place.

SMFF will provide clear procedures where there is an issue on the segregation of duties.

SMFF

December 2009 and ongoing

1

14) Implement the following measures to improve management of petty cash and to reduce risk.

  • Improve oversight of petty cash accounts by following Treasury Board policies regarding regular reconciliation and surprise cash counts of petty cash funds.
  • Assess and revise, where necessary, official petty cash forms to ensure relevant information is captured and that user needs are met. Best practices of missions with excellent in house forms should be considered.
  • Create and maintain accurate records of active and closed petty cash funds at headquarters.
  • Ensure that managers and custodians of petty cash are properly trained.

SMFH/SMFR has developed a process in accordance with the Treasury Board policy and will undertake in the next few weeks surprise cash counts of all petty cash funds. This activity has been added to the annual work plan.

SMFH/SMFR/SMFP will undertake a review of all petty cash forms and records and will update if necessary in order to ensure that they are accurate and meet users’ needs.

Upon issuance of the petty cash funds, SMFH/SMFP will provide all new petty cash custodians and their manager a copy of the Petty Cash Policy along with the corresponding appendices and will ensure it is understood.

SMFF will review all petty cash records of the missions and ensure that all required forms and records are maintained in accordance with the Treasury Board policies and departmental polices..

SMFF and SMFHDecember 2009
3

15) The Corporate Finance, Planning and Systems Bureau Directorate (SMD) or more specifically Financial Operations, International (SMFF) should:

  • Assess the level and quality of support provided to missions;
  • Incorporate feedback from missions; and,
  • Implement necessary measures to strengthen support.

SMFF has limited resources but will develop a plan to improve the support provided to the missions. SMFF will develop a travel plan based on the requirement of the missions and to provide better support to more missions.

A monitoring process will be developed to ensure proper follow ups are done with the missions within a reasonable timeframe.

SMD/SMFF 

Appendix C – Listing of Missions Included in the Sample

MissionCountry
AlgiersAlgeria
BuffaloUnited States
CaracasVenezuela
DamascusSyria
HavanaCuba
LondonUnited Kingdom
ManilaPhilippines
New DelhiIndia

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Date Modified:
2012-02-28