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Passport Canada Revenue (PPTC Fees) Audit

June 2008

(PDF Version , 111 KB) *

Executive Summary

The Audit Division carried out an audit of Passport Canada's revenues in accordance with the 2006/07 Audit Plan. The objective of the audit was to assess the adequacy of the management control framework related to the collection and reporting of revenues during the 2006/07 fiscal year. Passport Canada reported a total of $231 M in revenues for the 2006/07 fiscal year.

Domestic Issuing Offices

Generally, roles and responsibilities are well understood by management and staff and are applied consistently across issuing offices. Duties are, overall, properly segregated amongst staff. The audit concluded that, overall, appropriate management oversight is exercised for the reconciliation process at the local level.

Documents describing the revenue and cash management practices to be applied by issuing offices contain gaps in coverage and have not been consistently published and distributed to all concerned. In addition, no financial training is available to office and assistant managers in support of discharging their financial management responsibilities. This has adversely affected the level of compliance by issuing offices, created gaps in internal controls, weakened the effectiveness of existing internal controls and reduced operational efficiency.

Measures to enhance the safety of employees and to promote the safeguarding of assets were implemented in each of the issuing offices visited by the Audit Team. These measures included the installation of security cameras in key areas of the office and the use of dual cash drawers with locks. There is a need, however, to improve the effectiveness of the controls related to the receipt of mail in the mail-in environment, petty cash and change funds, and the transfer of cash between the officer and the assistant manager.

Financial Services Division

The Audit Team tested the key financial controls related to bank deposits and revenues and found that they had been effectively applied by the Financial Services Division during 2006/07. Accordingly, the results of the audit provide Passport Canada Senior Management with assurance that the bank deposits and revenue information recorded in PASSAP (1), which is used for internal and external reporting, is accurate and complete.

While the key financial controls were effectively applied during 2006/07, some improvements can, however, be made. Standards for the application of the controls need to be defined and formalized in business process documentation. In addition, existing management oversight practices can be expanded. These improvements will reduce the risk of error and inconsistency, improve operational efficiency and strengthen employee morale.

A detective control applied by Passport Canada Corporate Services identified 274 instances in 2006/07 where a passport (2) was in the custody of the applicant but where a payment (i.e. DZ) and revenue (RV) entry had not been recorded in PASSAP (herein referred to as instances of no DZ/RV). There were also 628 additional instances identified where a revenue (RV) entry had not been recorded in PASSAP (herein referred to as instances of no RV (3)). The above instances of no DZ/RV and no RV have been subject to some degree of management oversight by Passport Canada Senior Management.

However, the Audit Team is of the view that greater effort needs to be invested into determining the specific root cause(s) of the identified instances of no DZ/RV and no RV. An inadequate explanation was received by Financial Services Division from issuing offices for 62% or 171 of the 274 reported instances of no DZ/RV. Follow-up of the 628 reported instances of no RV is underway to identify the associated cause(s). ***

Passport Canada Corporate Services has launched an Internal Control Framework initiative in 2006/07 in anticipation of the Treasury Board Secretariat's promulgation of a policy on internal control. The thrust of the audit recommendations contained in this report are very much in line with the objectives of the Internal Control Framework initiative. For this reason, the Audit Team regards the Internal Control Framework as a key corporate initiative.

Financial Services Division has developed an action plan to implement the Internal Control Framework initiative over a three year time span (i.e. 2006/07 to 2008/09). The action plan has been prepared at a summary level, identifying major tasks by fiscal year and providing a high level consideration of resource requirements. The Audit Team is of the view that a more detailed action plan is, however, required given the importance of the Internal Control Framework initiative both in terms of complying with TBS policy requirements and addressing the observations raised by the audit.

1.0 Background

1.1. Under the Canadian Passport Order, Passport Canada is entrusted with the responsibility of issuing travel identity documents to Canadians and residents of Canada for the purpose of travelling abroad. The Canadian Passport Order charges Passport Canada with the administration of all matters relating to the issuing, revoking, withholding, recovery and use of the Canadian passports.

1.2 Passport Canada operates on a revolving fund basis and is self-financing through user fees charged for various travel documents. Unlike other government departments, Passport Canada has no annual parliamentary appropriation for its operations and must generate sufficient revenues to meet its expenses. In December 2001, the passport fee was raised to $87 for a regular adult passport. Of this fee, $62 funds the operations of the PPTC through its revolving fund and the remaining $25 recovers consular service costs. The amount of revenue reported by Passport Canada for the 2006/07 fiscal year was $231 M.

1.3 Passport Canada currently offers domestic passport-related services to in-person clients through 33 local offices as well as a central directorate, which receives and processes applications submitted by mail.

1.4 Given the importance, risks, and high dollar value that are associated with the management of passport service fees, the Departmental Audit and Evaluation Committee approved an audit of Revenues in the 2006/07 Audit Plan.

2.0 Audit Objective, Scope, Approach and Timing

2.1 Audit Objective and Scope

2.1.1 Overall, the objective of the audit was to assess the adequacy of the management control framework related to the collection and reporting of revenues during the 2006/07 fiscal year. Appendix A contains a detailed description of the audit's objectives and scope.

2.2 Audit Approach and Timing

2.2.1 The key tasks associated with the audit approach consisted of reviewing applicable Passport Canada policies and procedures, conducting interviews with management and staff and testing the effectiveness of key internal controls related to the revenue cycle applied by a sample (4) of issuing offices and the Financial Services Division.

2.2.2 The audit took place during the period of October 2006 and May 2007.

Observations and Recommendations

3.0 Management Control Framework - Issuing Offices

3.1 Role, responsibilities and authorities

3.1.1 Generally, roles and responsibilities are well understood by management and staff and are applied consistently across issuing offices. Segregation of duties is generally respected. The roles and responsibilities recognized by staff are in accordance with prescribed policies and procedures.

3.1.2 Overall, appropriate management oversight is exercised for the reconciliation process related to the Office Tally Report, including sign-off by the office manager or his/her delegate.

3.1.3 Situations where staff roles and responsibilities were not accomplished effectively were generally due to a lack of awareness or understanding of the financial policies and procedures and of the impact their actions have on other areas of the organization (eg. change fund management; adequacy of supporting documents).

3.2 Information

3.2.1 Interviews with Managers and Assistant Managers indicate that there is limited awareness of financial policies as they apply to the processing and receipt of revenues. Knowledge is generally passed on from one manager to the next through on the job training. This lack of awareness is mostly notable in the National Processing Centre where the reconciliation of the Cashier's Daily Tally was transferred from Support Services to the Assistant Managers approximately 2 years ago without adequate training and supporting information.

3.2.2 Financial policies have not been translated into operational procedures. Consequently, procedures to support operational requirements have been independently developed at the local level and, for the most part, meet the needs of the office. However, in some circumstances, procedures do not fully account for policy requirements and lead to situations of non-compliance or gaps in internal controls.

3.2.3 Issuing offices do not consistently reconcile by payment method. Although this is a key control that ensures the accuracy of the amounts reported on the Office Tally Report, and of the information on client records, the requirement to reconcile by payment method has never been formalized. The Cash and Revenue Management Manual provides guidance on the reconciliation requirements. Although, the Cash and Revenue Management Manual (CRMM) was created several years ago, it had not been formally released at the time of the audit.

3.2.4 There is limited and high level information regarding the information required to support the Office Tally Report discrepancies. Internal documents do not provide sufficient guidance regarding the type and level of information required to justify overage/shortages, only that a justification is required. Consequently, justifications are provided on a number of different forms, include varying level of information, sign-off by the officer and assistant manager is haphazard and, occasionally, no information is provided at all.

3.2.5 Assistant managers have a limited understanding of the information captured under the section of the Office Tally Report entitled "Listing of Cashiers and ESRF Statuses (Over/Under Payment)". This section represents a listing of accounts where payments are processed for services sold in a previous day or the service was sold in the current day but payment has yet to be processed (e.g. credit card payment declined). If used effectively, the information contained in this part of the Office Tally Report (OTR) could be useful for monitoring purposes.

3.2.6 Adjusting entries are ill-defined. Guidance of when and how an adjusting entry is to be prepared is not available and poorly understood by issuing offices. According to the Cash and Revenue Management Manual (CRMM), the "office manager is to prepare an adjusting entry for the overage/shortage". Based on our interviews with office managers, observations and review of the Office Tally Report, none of the issuing offices visited prepare adjusting entries since, at this time, these are input by Financial Services Division.

3.2.7 Office managers, or delegates, are responsible for authorizing the creation and distribution of codes used for the debit/credit card machines. However, there are no policies and procedures regarding the use and set up of the debit/credit card machines. Consequently, it is unclear what the business practices and standards are with respect to:

  • Requirements for User IDs;
  • Roles, responsibilities and authorities;
  • Access controls;
  • Authorizing refunds;
  • Processing of deposits (i.e. by machine or at the office level); and,
  • Information on receipts.

3.2.8 In some cases, individual user ID's for the use of debit/credit card machines has not been implemented. Although such a requirement hasn't been formally stated, the absence of this financial control minimizes accountability for the financial transactions processed by an officer and preempts management ability to conduct an effective and thorough reconciliation by payment type and by officer.

3.2.9 Overall, documents describing the revenue and cash management practices to be applied by issuing offices contain gaps in coverage and have not been consistently published and distributed to all concerned. Consequently, there are varying levels of awareness of Passport Canada's revenue and cash management policies, procedures and directives which adversely affect the level of compliance by issuing offices.

Recommendation - Director Financial Services Division

3.2.10 As a priority, ensure existing financial documents relating to operational reconciliation policies and procedures are valid, up to date and accessible to all staff.

3.2.11 Prepare, in consultation with the Operations Bureau, a document that fully describes the Office Tally Report reconciliation process to be adopted by issuing offices, including National Processing Centre. At a minimum, the following areas should be addressed in the business process documentation:

  • Role, responsibilities and authorities of management and staff, including review and approval requirements;

  • Standards and procedures to apply when documenting the overages/shortages, including supporting documentation;

  • Description of the purpose of the information contained in the Office Tally Report;

  • Guidance on resolving anomalies, requirements for reconciling by payment method and tools available in support of these functions; and,
  • Description of reports available MARA and IRIS and their intended use.

3.2.12 Distribute the Office Tally Report reconciliation business process documentation developed per 3.2.11 to applicable stakeholders and provide related training.

3.2.13 Establish standards to apply for the use and set-up of debit/credit card machines.

Management Action Plan and Time Frame

3.2.10 PPCF will ensure appropriate policies exist, are up-to-date and are accessible to all staff. They will also ensure that reconciliation procedure internal to Financial Services Division exist, are up-to-date and are accessible to all Financial Services Division staff.

3.2.11 PPCF will take the lead to create a joint working group, which is composed of representatives of Operations, Systems, Human Resources HR training and Financial Services Division, whose purpose is to develop a document that fully describes the reconciliation and provide an advanced IRIS training course (3.3.3) for office managers and assistant managers.

3.2.12 A new FI02 position (Operational Liaison) will be created in Fiscal Year 2007/08 in Financial Services Division Corporate Accounting and Quality Assurance. One of the responsibilities on this position will be to provide input and advice to Operations and Human Resources HR Training on fee management to ensure operational procedures respect policies and regulations. They will also assist Operations in designing and signing off specs for change or development requests related to systems, reports and forms that involve fee management.

3.2.13 Each office will be supplied with instructions from the supplier on the use and set-up of terminals in addition to internal standards and requirements set by Passport Canada. Financial Services Division also recommends that the Operational Liaison ensures this information is updated into an Office Managers Operational Manual.

3.3 Training

3.3.1 Passport officers are generally well versed on procedures as described in the Officer Training Manual. All offices commented that the formal officer training is supplemented by on the job training, including particularities of each office.

3.3.2 There is no financial training available to office managers and assistant managers in support of their reconciliation responsibilities. The Audit Team found limited knowledge of the potential cause(s), impact(s) and resolutions to anomalies found in the Office Tally Report which require in-depth knowledge of IRIS' "service sold" and "fee processing" functionalities. Although reconciliations are completed with varying degrees of efficiency, there is limited use of tools and reports available in IRIS and, particularly, in MARA.

Recommendation - Director Financial Services Division

3.3.3 In partnership with the Operational Training Division, initiate the development of an advanced IRIS training course for office and assistant managers with a specific objective of providing education required to effectively discharge their financial management responsibilities with particular focus on the Office Tally Report reconciliation process.

Management Action Plan and Time Frame

3.3.3 Financial Services Division will take the lead, in consultation with Operations, IT and HR Training to develop the Office Tally Report reconciliation process and provide an advanced IRIS training course for office managers and assistant managers. In order to accomplish this, Financial Services Division will commit that the new FI-02 (Operation Liaison officer), will provide input for and sign off on the fee related sections. Operations will initiate and carry out training combined with HR training after the courses are developed (included in the official training material). Operations will ensure that policy changes are communicated to the issuing offices.

3.4 Safeguarding of Assets

3.4.1 Measures to enhance the safety of employees and to promote the safeguarding of assets were implemented in each of the issuing offices visited. These measures included the installation of security cameras in key areas of the office and the use of dual cash drawers with locks. ***

3.4.2 Financial policies require that when money is received by mail, the mail opening process must always involve two employees. This requirement is not consistently applied in the Mail-in environment.

3.4.3 In one of the issuing offices visited, the Audit Team observed that there was no sign off between the officer and the assistant manager during the transfer of cash. The absence of this control increases the risk of improprieties and of potential issues should a loss or theft of monies occur.

3.4.4 The Audit Team noted inconsistency in the management and control of the change funds. Only one of the six offices visited has implemented the processes and controls as described in the Petty Cash and Change Fund Directive. The remaining offices have developed in-house procedures with varying degrees of efficiency and effectiveness. Issues observed include:

  • ***
  • Petty cash and change funds were used interchangeably;
  • Change fund was used to "top-up" shortages or to deposit overages; and,
  • ***

3.4.5 The above observations are due to gaps in guidance and the inconsistent enforcement of existing standards by issuing offices. ***

Recommendation - Director Financial Services Division

3.4.6 To promote the complete segregation of the petty cash and change fund, re-issue the Petty Cash and Change Fund directive in two separate documents. As part of this exercise, re-assess the change fund management procedures with a view of simplifying control activities and promoting a greater degree of compliance.

Recommendation - Director General Operations

3.4.7 Implement dual control (ie. two persons attending) for the opening of passport applications in the Mail-In work environment.

Management Action Plan and Time Frame

3.4.6 Financial Services Division will separate the petty cash and change fund directives.

Financial Services Division will consult with offices to clarify what is preventing them from respecting the procedural requirements in the change fund directive.

3.4.7 Operations will determine the feasibility and impact on staffing. The impact will be considerable as it would double the number of staff required to open the mail.

3.5 System Controls

3.5.1 The automated controls and functionalities in IRIS for recording the receipt of cash payments were generally found to be weak as demonstrated by the following:

  • Officers rarely use the function of "Amount Tendered", preferring to manually calculate the "change due". Situations of overages/shortages usually arise because the wrong change is given to the client particularly in cases where multiple services are sold; and

  • The controls for the processing and recording of cash payments are inadequate when compared to the controls for debit/credit card payments, as officers are not required to retain a copy of the payment receipt for reconciliation purposes.

3.5.2 IRIS profiles are regularly reviewed by Office Managers to ensure ongoing validity of the access privileges. However, assigned profiles are not in line with operational responsibilities of issuing offices staff. Passport Canada processes require that Production Clerks be assigned the same IRIS privileges and user profile as those of Passport Officers thereby increasing the risk of inappropriate actions (ie. passport entitlement). ***

Recommendations - Director Financial Services Division and DG, Operations

3.5.3 Investigate the reason(s) why Operations Bureau staff are not using IRIS' "Amount Tendered" and "Change Due" functionality with a view of improving this function or introducing alternate controls.

3.5.4 Implement a requirement that a second receipt for cash payment be printed from IRIS and attached to the Office Tally Report.

3.5.5 Establish user profiles that appropriately reflect the operational responsibilities of issuing offices staff and grant officer privileges only to those employees that have completed the Examiner Training course and that are granted entitlement privileges.

3.5.6 ***

Management Action Plan and Time Frame

3.5.3 Operations will broadcast a reminder to office managers and cashiers to use IRIS' the "Amount Tendered" and "Change Due" functionality with a view of improving this function or introducing alternate controls.

3.5.4 PPCF does not see the added value/control of requiring an additional cash receipts be printed and attached to the Office Tally Report (OTR) at the end of each day. The additional printing will add processing time to each ESRF and each receipt will have to be saved and provided to the manager at the end of the day. Providing a copy of each examiner's cash tally report may be the better solution. Operations and Financial Services Division will explore this solution.

3.5.5 Operations will take the lead and work with IT Development and Security to implement this recommendation. Lead: Software Development

3.5.6 Operations will work with IT Services and Security to implement this recommendation.

4.0 Deposits and Revenue Controls - PPCF Financial Services Division

4.1 Bank Deposit Reconciliation Process

4.1.1 Financial Services Division, Financial Quality Assurance reconciles the bank deposits (5) information recorded in PASSAP through the IRIS/PASSAP and Bank Cash Management System (6) (BCMS)/PASSAP interfaces on a monthly basis. The bank deposits reconciliation process represents a key financial control as it provides Passport Canada Senior Management with assurance that PASSAP's deposits information (i.e. receipts), used for internal and external financial reporting, is accurate and complete.

4.1.2 Overall, the reconciliation control was effectively exercised by Financial Services Division, Financial Quality Assurance during the 2006/07 fiscal year.

  • Financial Services Division, Financial Quality Assurance prepared, in a timely manner, a total of 425(7) Excel reconciliation spreadsheets, one for each issuing office and month of the fiscal year. The reconciliation spreadsheets identified shortages/overages (8) by day and by payment method(9) and provided a net shortage/overage for the day and the month.

  • Adjustments to reconcile PASSAP's deposit information to the amounts recorded in the BCMS are posted to GL 30015 (PPT Cash over/short). The total net amount posted to GL 30015 during 2006/07 by the Financial Quality Assurance Officer amounted to a net shortage of $9.2K (10). The Audit Team tested a sample of adjusting entries and found that they were properly substantiated and accurately posted in PASSAP.

4.1.3 Passport Canada Senior Management can take comfort that:

  • A reconciliation process is in place that identifies and substantiates when adjustments are required;

  • A review of a sample of Excel reconciliation spreadsheets indicated that the figures contained in the spreadsheets agreed with the deposit information recorded in PASSAP and relevant data captured in the applicable Office Tally Report (OTRs) (i.e. correct figures were used for reconciliation and adjusting entry purposes); and,

  • The net amount (i.e. $9.2K) of adjusting entries posted in PASSAP in 2006/07 as a result of the reconciliation process was not material when compared to the amount of deposits generated by the domestic issuing offices in 2006/07 (i.e. approximately $283M). This indicates that, for the most part, the amount of deposits recorded in PASSAP through the IRIS/PASSAP interface agreed with the amount of deposits in PASSAP posted through the BCMS/PASSAP interface. Accordingly, the reconciliation process results in assurance as to the integrity of the bank deposits information related to domestic operations recorded in PASSAP (i.e. entries posted to GL 62200 and GLs 119XX).

4.1.4 While the reconciliation process was effectively exercised in 2006/07, some improvements can, however, be made. The Audit Team's review of the 425 reconciliation spreadsheets prepared in 2006/07 indicated that:

  • 194 (46%) of the 425 reconciliation spreadsheets identified a net overage/shortage for the month that exceeded the $87 (11) threshold. 47 (24.2%) of the spreadsheets did not contain an explanation(s) of the net overage/shortage as required by Financial Services Division Financial Quality Assurance practice;

  • 239 (56.2%) of the 425 reconciliation spreadsheets did not identify whether a correcting entry was recorded in PASSAP as a result of the reconciliation process;

  • 182 (98%) of the 186 reconciliation spreadsheets that did identify that a correcting (12) entry was posted in PASSAP did not specify, with the exception of transfers, the applicable PASSAP document number used to effect the entry. Financial Quality Assurance reports, however, that this information was consistently noted in the reconciliation working paper files;

  • Different practices were used to document the impact of the correcting entries on the numbers used for reconciliation purposes (i.e. adjusting the amount associated with a particular assignment and value date versus reflecting the net impact of all correcting entries as a single number on the reconciliation sheet);

  • The level of detail contained in the explanation of the net overage/shortage for the month, when it exceeded the $87 threshold, varied;
  • The layout/design of the reconciliation spreadsheet varied (i.e. different practices used to document the correcting entries made and the explanation of the net overage/shortage for the month);

  • The "text field" of the clearing entries identified on the reconciliation spreadsheet and posted in PASSAP did not accurately capture the reason for the entry (i.e. typically contains text such as "Recon" followed by the name of the issuing office with no mention that an amount had been posted to GL 30015 (overage/shortage);

  • Different practices were used to clear amounts recorded in GL 62200 (Treasury Clearing X - CRF). That is, at times, a clearing entry was posted in PASSAP for the amounts recorded in GL 62200 associated with a day, a group of days or the entire month; and,

  • The results of the reconciliation process are not formally reviewed nor approved by either the Manager, Financial Operations nor the Deputy Director, Financial Operations and Systems (i.e. no formal approval documented on the reconciliation spreadsheet).

4.1.5 At present, a document does not exist which describes the reconciliation business process. This explains, in part, the variation in practice that was observed by the Audit Team as described above. As well, the absence of business process documentation creates risks from an operational efficiency perspective and for corporate memory purposes.

4.1.6 Overall, there is some management oversight being exercised by the Manager, Financial Operations and the Deputy Director, Financial Operations and Systems over the reconciliation process applied by the Financial Quality Assurance Officer. This occurs periodically through their review of an Excel spreadsheet that indicates the issuing offices and months for which the reconciliation procedures have been completed. It also occurs through both formal and informal meetings with the Financial Quality Assurance Officer to discuss the status of the reconciliation process and any issues that may exist. There is a need, however, to strengthen Financial Services' oversight practices by having an individual in a managerial capacity formally review and approve the results of the monthly reconciliation process, including an analysis of the reasons for the reported net overages/shortages. We also noted that Financial Services Division does not conduct any active monitoring of operational reconciliation and financial management activities at the local level. The Audit Team is of the view that this additional oversight is justified considering that:

  • Carrying out and documenting the reconciliation process represents a key financial control;

  • The reconciliation process often results in correcting, adjusting and clearing entries being posted in PASSAP; and,

  • A document describing the reconciliation process does not currently exist thereby increasing the risk of inconsistency and error.

4.1.7 In summary, the domestic operations of Passport Canada processes a significant amount of client payments (i.e. approximately $283M in 2006/07) that are deposited in financial institutions across the country. Reconciling the amount of deposits reported by the financial institutions to the amount of deposits recorded in PASSAP becomes, therefore, a key financial control. The Audit Team reviewed the reconciliation practices followed by Financial Services Division during 2006/07 and found that they were effectively applied. Accordingly, the results of the audit provide assurance as to the integrity of the bank deposits information related to domestic operations recorded in PASSAP (i.e. entries posted in GL 62200 and GLs 119XX).

While the reconciliation process was effectively exercised in 2006/07, some improvements can, however, be made. Standards for documenting the application of the reconciliation process need to be defined and formalized in business process documentation. In addition, Financial Services Division management oversight efforts need to be augmented given the significance, from a financial control perspective, of the reconciliation process.

Recommendations - Director Financial Services Division

4.1.8 Prepare a document that describes the bank deposits reconciliation process. At a minimum, the following areas should be addressed in the business process documentation:

  • The objectives of the bank deposits reconciliation process;

  • Role and responsibilities of Financial Services Division and Issuing office stakeholders, including review and approval requirements;

  • Frequency of the reconciliation process;

  • Tasks to be performed and their associated timing;

  • Threshold(s) to apply for purposes of explaining the net overage/shortage for the month;

  • Standards to apply when documenting the results of the reconciliation process; and,

  • Working paper file content, structure and archiving practices.

4.1.9 Promulgate the business process document per 4.1.8 to applicable Financial Services Division and issuing offices stakeholders and provide related training.

4.1.10 Augment existing management oversight practices by having the Manager, Financial Operations:

  • Review and approve the results of the monthly bank deposits reconciliation process;
  • Review a report, prepared on a quarterly basis, which provides an analysis of the reasons for the reported net monthly overages/shortages; and,
  • Implement remedial action, based on the review of the quarterly report, when warranted.
  • Conduct periodical monitoring visits in the Regions.

Management Action Plan and Time Frame

4.1.8 PPCF Financial Systems is currently redesigning the IRIS-PASSAP interface, which will significantly change the revenue and cash management procedures. Therefore part of this project will be to document, deliver, and train all Financial Services Division staff on the new bank reconciliation procedures. A requirement to add oversight procedures into this documentation will be added to the project documentation requirements. This will include regular review and sign off on bank reconciliation reports in addition to analysis and explanation of overages and shortages and follow-ups.

4.1.9 See 4.1.8

4.1.10 See 4.1.8

4.2 Financial Controls over Revenue

4.2.1 Financial Services Division carries out a number of procedures that provide comfort as to the accuracy and completeness of the revenue data recorded in PASSAP. The Audit Team examined procedures with respect to:

  • Reconciling IRIS sales and PASSAP revenue information;
  • Clearing Customer Account (CA) open items; and,
  • Investigating instances of a passport being issued without associated payment and/or revenue entries being recorded in PASSAP.

4.3 IRIS/PASSAP Revenue Reconciliation

4.3.1 Financial Services Division Revenues, Accounts Payable and Receivables reconciles IRIS' sales information to PASSAP's revenue data (herein referred to as the revenue reconciliation). The revenue reconciliation occurs as part of the year-end procedures applied by Financial Services Division. The revenue reconciliation represents a key financial control. It provides Passport Canada Senior Management with comfort that the revenue data recorded in PASSAP, which is used for financial reporting, is accurate and complete.

4.3.2 Financial Services Division, Accounts Payable and Receivables documents the application of the revenue reconciliation procedures by way of preparing a series of Excel spreadsheets. The spreadsheets compare and identify variances between the sales information recorded in IRIS and the revenue data recorded in PASSAP, at the issuing office level. The total net variance between IRIS' sales figures and PASSAP revenue data was $270K on a total reported revenue of $231M for the 2006/07 fiscal year. The total net variance represents less than one percent of the total reported revenue and is, therefore, immaterial. The Audit Team traced the amounts appearing in the spreadsheets to source data from both IRIS and PASSAP and established that the figures used for the revenue reconciliation were accurate.

4.3.3 While a reconciliation of IRIS' sales information and PASSAP's revenue data is occurring, opportunities exist to strengthen the control, as evidenced by the following:

  • The revenue reconciliation is currently being performed on an annual basis as part of Financial Services Division year-end procedures. Increasing the frequency from an annual to a quarterly basis would allow the division to detect and investigate significant variances (if they arise) and take corrective action in a timely manner. Moreover, a more frequent application of the revenue reconciliation is warranted as it represents a key financial control;

  • IRIS information contained in the 2006/07 reconciliation spreadsheets was supported by a hard copy IRIS report detailing service fees by issuing office. This was not the case for the PASSAP revenue information (13) recorded on the reconciliation spreadsheets. In 2005/06, the Financial Services Division Accounts Payable and Receivables revenue reconciliation file contained a hard copy of a "Profit and Loss" report which supported the PASSAP figures used for reconciliation purposes;

  • Documentation used and prepared in relation to the 2006/07 revenue reconciliation process was not consolidated into a well organized working paper file;

  • Dollar and percentage thresholds have not been formally established to guide the analysis of variances identified by the revenue reconciliation process;

  • Documentary evidence does not exist indicating that the variances associated with the 2005/06 revenue reconciliation were analyzed. To date, PPCF Financial Services Division has not investigated the variances identified in the 2006/07 revenue reconciliation spreadsheets. ***

  • The results of the 2006/07 revenue reconciliation was subject to management oversight. That is, the Manager, Financial Operations and the Deputy Director, Financial Operations and Systems both reviewed the revenue reconciliation spreadsheets and provided feedback to the staff member who had prepared them. However, the spreadsheets do not bear any evidence (i.e. signatures) that the management oversight had been exercised.

4.3.4 The Audit Team attributes the observations raised above to the absence of formal business process documentation that specifies standards for purposes of conducting and documenting the application of the revenue reconciliation process. The absence of standards increases the risk of inconsistency and error and reduces operational efficiency. Moreover, there is also a risk that staff will become frustrated given the absence of specific guidance on how the revenue reconciliation process is to be performed and documented.

4.3.5 In summary, reconciling IRIS' sales information to PASSAP's revenue data represents a key financial control. This control has been incorporated into PPCF Financial Services Division management control framework and evidence exists that it has been applied on an annual basis. Opportunities do exist, however, to strengthen the design and application of the control. Standards need to be articulated by way of preparing and promulgating business process documentation and greater emphasis placed on variance analysis.

Recommendations - Director Financial Services Division

4.3.6 Prepare a document that describes the IRIS/PASSAP revenue reconciliation process. At a minimum, the following areas should be addressed in the business process documentation:

  • The objectives of the revenue reconciliation process;

  • Roles and responsibilities of Financial Services Division staff, including review and approval requirements;

  • Frequency of the reconciliation process;

  • Tasks to be performed and their associated timing;

  • Reports to be generated to substantiate IRIS/PASSAP figures used for reconciliation purposes;

  • Threshold(s) to apply for variance analysis purposes;

  • Standards to apply when documenting the results of the revenue reconciliation process; and,

  • Working paper file content, structure and archiving practices.

4.3.7 Promulgate the business process document per 4.3.6 to applicable Financial Services Division stakeholders and provide the appropriate training.

4.3.8 Perform the IRIS/PASSAP reconciliation on a quarterly basis.

(Note - quarterly frequency should be incorporated in the business process documentation per recommendation 4.3.6)

4.3.9 Establish a threshold(s) for purposes of analysing selected variances identified in the 2006/07 revenue reconciliation spreadsheets. The results of the variance analysis should be documented and remedial action defined and implemented, when warranted.

(Note - established threshold(s) for variance analysis purposes should be incorporated in the business process documentation per recommendation 4.3.6)

4.3.10 Ensure that the Manager, Financial Operations and Deputy Director, Financial Operations and Systems sign the revenue reconciliation spreadsheets as evidence of having reviewed and approved respectively the results of the revenue reconciliation process.

Management Action Plan and Time Frame

4.3.6 PPCF Financial Systems is currently redesigning the IRIS-PASSAP interface, which will significantly change the revenue and cash management procedures. Therefore part of this project will be to document, deliver, and train all relevant staff on the new revenue reconciliation procedures. The requirements for signed quarterly reports, thresholds, variance analysis, and follow actions requirements, will be added to the documentation requirements of this system's project.

4.3.7 See response to 4.3.6

4.3.8 See response to 4.3.6

4.3.9 See response to 4.3.6

4.3.10 See response to 4.3.6

4.4 Clearing of Customer Account (CA) Open Items.

4.4.1 Clearing of Customer Account (CA) open items is a financial control that is designed to improve the integrity and reliability of the revenue and consular fee liability information recorded in PASSAP.

4.4.2 Financial Services Division Financial Quality Assurance clears about 30 customer account open items each month, for an average of 360 open items per year. Customer Account (CA) open items are not, therefore, material either in terms of volume nor dollar value (14). The Audit Team determined that there were no outstanding Customer Account (CA) open items at March 31st, 2007.

4.4.3 Clearing of Customer Account (CA) open items results in entries being posted in PASSAP. Financial Services Division, Financial Quality Assurance did not, however, consistently maintain a record of the entries posted in PASSAP during the 2006/07 fiscal year. In addition, the unit did not consistently access an Excel spreadsheet, that had been introduced by the Manager Financial Operations in January 2007, to record that the month-end task had been completed. Accordingly, the above indicates that the documentation practices associated with clearing Customer Account (CA) open items could be improved. The Audit Team attributes this situation to the absence of formally promulgated documentation which describes the business process for clearing Customer Account (CA) open items.

Recommendations - Director Financial Services Division

4.4.4 Prepare a document that describes the process to clear CA open items. At a minimum, the following areas should be addressed in the business process documentation:

  • The objectives of the Customer Account (CA) open items clearing process;
  • Roles and responsibilities of Financial Services Division staff;
  • Frequency of the clearing process;
  • Tasks to be performed and their associated timing;
  • Standards to apply when documenting the results of the clearing process; and,
  • Working paper file content, structure and archiving practices.

4.4.5 Ensure that documentation practices are improved by maintaining a complete record of the entries posted in PASSAP and by updating the "Year End and Month End" Excel spreadsheet once the clearing of CA open items has been completed.

Management Action Plan and Time Frame

4.4.4 PPCF Financial Systems is currently redesigning the IRIS-PASSAP interface, which will significantly changes the service request revenue and A/R procedures which can account for open Customer Accounts (CA). Under this re-design we will reduce the number of transaction that post to customer accounts from 15,000 to 50 daily which significantly reduces the time and effort to monitor open customer accounts. Some of the previous mandatory clearing procedures will also be automated under the new interface design.

4.4.5 See response to 4.4.4

4.5 Passports issued without associated payment and/or revenue

4.5.1 Passport Canada has put in place a month-end procedure whereby issuing offices perform a physical count of the passports held on hand. The physical count information (quantity and location of the various types of passports) is compared to the equivalent data recorded in PASSAP. Discrepancies are identified and communicated to the headquarters Administrative Services Division (PPCA) which investigates the noted instances.

4.5.2 Administrative Services Division identified 274 instances in 2006/07 where a passport (15) was in the custody of the applicant but where a payment (i.e. DZ) and revenue (RV) entry had not been recorded in PASSAP (herein referred to as instances of no DZ/RV) as detailed below. These instances were listed in a series of Quattro Pro spreadsheets that were forwarded to Financial Services Division, Financial Quality Assurance for further investigation and corrective action.

DZ/RV occurred or attributed its occurrence to non-compliance

Issuing Officeof PassportsPercentage (%)
NPS15858%
MP3011%
IPS7226%
Other145%
Total274100%

4.5.3 Financial Services Division, Financial Quality Assurance contacted representatives from the applicable issuing offices and requested an explanation of the reported instances of no DZ/RV. The Audit Team's review of the feedback received from the issuing offices indicated that either they could not explain why the instance of a no DZ/RV occurred or attributed its occurrence to non-compliance with work flow procedures as detailed below.

Fiscal Year 2006/07 - Explanation of Instances of no DZ/RV

Issuing OfficeExplanationTotal
None ProvidedNon-Compliance Operational Procedures  
NPS6890158
MP25530
IPS64872
Other14014
Total171 (62%)103 (38%)274 (100%)

4.5.4 Financial Services Division, Financial Quality assurance manually posted entries associated with the sales order cycle in PASSAP in order to recognize the revenue associated with the 274 passports. It also posted entries to GL 30015 to record the shortage in cash (i.e. no payment received for the 274 passports issued).

4.5.5 Administrative Services Division also identified 628 instances in 2006/07 where a passport was in the custody of the applicant but where a revenue (RV) entry had not been recorded in PASSAP (herein referred to as instances of no RV (16)). These instances were listed in a series of Quatro Pro spreadsheets that were forwarded to Financial Services, Revenues, Accounts Payable and Receivables for further investigation and corrective action. Discussions with Financial Services Division indicated that corrective action was taken by means of manually posting entries associated with the sales order cycle in PASSAP in order to recognize the revenue associated with the 628 passports. At the time of the audit, the Deputy Director, Financial Operations and Systems was investigating the reason(s) why the instances of no RV occurred.

4.5.6 ***

4.5.7 Corporate Services Senior Management are aware that there may be potential instances of non-compliance with Passport Canada's refund policy and fee regulations. Details as to the instances of no DZ/RV and no RV were shared by the Deputy Director, Financial Operations and Systems with the Director Financial Services Division. Passport Canada Corporate Services have launched an initiative entitled "Internal Control Framework". Objectives of the initiative include revising Passport Canada policies and procedures (as required) and documenting business processes for effective staff training. The Internal Control Framework will likely be a step in the right direction to address instances of no DZ/RV given that Operations Bureau staff attribute their occurrence, in part, to procedural related issues.

4.5.8 In summary, an effective detective control is in place to identify instances of no DZ/RV and no RV. These instances have been subject to some degree of management oversight. Passport Canada Senior Management have launched an initiative in 2006/07 to improve the degree of staff compliance with the organization's fee regulations and policies. This initiative is a positive step.

However, the Audit Team is of the view that greater effort needs to be invested into determining the specific root cause(s) of the identified instances of no DZ/RV and no RV. An inadequate explanation was received from issuing offices for 62% or 171 of the 274 reported instances of no DZ/RV. Follow-up of the 628 reported instances of no RV is underway to identify the associated cause(s). ***

Recommendations - Director Financial Services Division

4.5.9 Investigate, in consultation with staff from the Operations Bureau, the reported instances of no DZ/RV and no RV related to the 2006/07 fiscal year in order to determine with certainty the specific cause(s) for their occurrence.

4.5.10 Implement remedial action based on the results of 4.5.9, including creating an automated control within IRIS which would prevent a passport (with the exception of a gratis passport) from being issued to an applicant without having previously recorded a service fee and payment.

4.5.11 Until such time the automated control per 4.5.10 is programmed in IRIS, continue to detect and investigate all reported instances of no DZ/RV and no RV and implement appropriate remedial action.

Management Action Plan and Time Frame

4.5.9 Operations will monitor, investigate and resolve instances that fees are not being collected or services are not being selected in IRIS (F12). Operations will develop and implement procedures for preventing fees transactions being overridden (in IRIS F12). Financial Services Division will document all cases that are related to interface technical problems and have them remedied. Any others will be forwarded to Operations for their follow up.

4.5.10 Operations will monitor, investigate and resolve instances that fees are not being collected or services are not being selected in IRIS (F12). Operations will develop and implement procedures for preventing fees transactions (IRIS F12) from being overridden. ***

4.5.11 PPCF will formalize procedures to identify and notify Operations of all cases. Operations will be responsible for formalizing procedures to identify the reasons (lack of training, lack of IRIS functionality need electronic transfer, no money was ever received, money missing, etc). This information will be used to identify other possible IRIS or procedural changes.

5.0 Internal Control Framework Project

5.1.1 Passport Canada Corporate Services launched an Internal Control Framework (ICF) initiative in 2006/07 in anticipation of the Treasury Board Secretariat's (TBS) promulgation of a policy on internal control. The initiative's objectives are to:

  • Ensure Passport Canada internal controls are in full compliance with the requirements of the TB policy on internal control by April 1, 2010;
  • Revise Passport Canada policies and procedures, as required;
  • Document business processes for effective staff training and eliminate loss of corporate memory; and,
  • Provide effective tools/reference sources to staff.

5.1.2 Several of the Audit Team's recommendations point to a need to strengthen Passport Canada (PPTC's) cash and revenue management internal controls through documenting business processes, establishing documentation standards, improving active monitoring practices and following-up noted deficiencies with internal stakeholders. The thrust of the recommendations are, therefore, very much in line with the objectives of Passport Canada (PPTC's) Internal Control Framework initiative. For this reason, the Audit Team regards the Internal Control Framework initiative as a key means by which Passport Canada could address the observations raised during the course of the audit.

5.1.3 Financial Services Division has developed an action plan to implement the ICF initiative over a three year time span (i.e. 2006/07 to 2008/09). The action plan has been prepared at a summary level, identifying major tasks by fiscal year and providing a high level consideration of resource requirements. The Audit Team is of the view that a more detailed action plan is, however, required given the importance of the ICF initiative both in terms of complying with the Treasury Board Secretariat's policy requirements and addressing the observations raised by the audit.

Recommendations - Director, Financial Services Division

5.1.4 Develop a detailed implementation plan for the Internal Control Framework (ICF) initiative that:

  • Describes the tasks required to be performed;
  • Develops an estimate of the level of effort required to implement each task;
  • Articulates a resourcing strategy;
  • Assigns the responsibility for completing the defined tasks to specific staff resources; and,
  • Establishes key milestone dates for monitoring and reporting purposes.

5.1.5 Submit the Internal Control Framework detailed implementation plan developed per 5.1.4 to the Director General, Corporate Services for approval.

5.1.6 Provide periodic reports on the status of the Internal Control Framework implementation plan to the Director General, Corporate Services.

Management Action Plan and Time Frame

5.1.4 Financial Services Division will submit a detailed plan for this fiscal year and will include the activities cited within this management response.

5.1.5 See response under 5.1.4

5.1.6 Upon approval, at a minimum, quarterly updates will be submitted to the Director of Finance.

Appendix A - Audit Objectives & Scope

Management Control Framework - Issuing Offices
Audit Objective (AO)Audit ScopeFY
AO-1.1 Assess the management control framework in regards to the effectiveness, adequacy and relevance of the revenue policies, procedures, processes and systems that have been established by Passport Canada.Controls in place for the handling, recording and safeguarding of revenues at five (5) issuing offices. Authorities, responsibilities and accountabilities.Adequacy of Information, communication and training.2006/07
AO-1.2 Assess the compliance with Passport Canada policies and procedures.Receipt, Deposit and Recording of Public Money. Refunds and Remissions.Petty Cash and Change Funds.Cash and Revenue Management.2006/07
Deposits and Revenue Controls - PPCF
AO-2 To assess the adequacy of the bank deposits reconciliation process applied by Financial Services, Financial Quality Assurance.Reconciliation of bank deposits from domestic issuing offices. Exclusion - deposits from receiving agents and missions.Exclusion - deposits recorded in GL 61200 through the RGGL interface.2006/07
AO-3 To assess the adequacy of the controls exercised by Financial Services to ensure that the revenue associated with the services rendered by Passport Canada is accurately recorded in PASSAP.Year-end process for reconciling IRIS and PASSAP revenue data. Monthly process for reviewing and clearing Customer Account open items.Periodic process for investigating passports issued to an applicant with no corresponding deposit and revenue information recorded in PASSAP.2006/07

1 PASSAP = Passport Canada Financial SAP System

2 PPCA, Administrative Services Division, ensured that the instances did not represent "gratis" issued passports.

3 Instances of no RV differ from the no DZ/RV scenario in that the client's payment (i.e. DZ) is recorded in PASSAP.

4 The Audit Team visited the following issuing offices: Ottawa, Winnipeg, Toronto, Montreal, Laval and National Processing Services (NPS)

5 Deposits, for reconciliation purposes, relate to cash, debit card and credit card payments. PASSAP, through the use of an Assignment Coding structure, separately records cash, debit card and credit card payments by office, month and value date.

6 The BCMS interface records, in PASSAP, the deposits made at the Bank of Canada by issuing offices.

7 35 issuing offices x 12 months = 420 + 4 reconciliation spreadsheets associated with the Renewal Centre for the period of April to July 07 + 1 reconciliation spreadsheet for the Mississauga (216).

8 Overages/shortages are quantified by comparing the amount recorded in PASSAP through the BCMS/PASSAP interface (i.e. deposits per Bank of Canada) to the amount recorded in PASSAP through the IRIS/PASSAP interface (i.e. deposits per Passport).

9 Payment methods consist of cash, debit and credit cards.

10 This figure represents a net shortage derived from total debits of $112.7K (i.e. shortage) and total credits of $103.5K (i.e. overage).

11 PPCF Financial Services established a $87 dollar threshold for purposes of identifying when an analysis of the month's net overage/shortage was required. The threshold was increased to $261 for the months of February and March 2007.

12 A correcting entry is posted in PASSAP, where applicable, in order to correct the deposit figures used for reconciliation purposes. For example, the transfer of an applicant's file, with an accompanying PPT-218, results in a correcting entry being recorded in PASSAP to affect the transfer of the payment amongst the two applicable offices. (Note - effective March 13/07, a new transfer procedure was introduced that no longer requires the posting of a correcting entry in PASSAP to transfer the deposits amongst the applicable offices).

13 An interview with the PPCF RAPR staff member who prepared the 2006/07 revenue reconciliation spreadsheets indicated that he accessed PASSAP and "copied and pasted" the revenue information into the spreadsheets. There was, however, no note to this affect inserted into the spreadsheet such that it was not evident as to how the PASSAP revenue information was specifically derived.

14 Approximate value of $31K (i.e. 360 x $87).

15PPCA ensured that the instances did not represent "gratis" issued passports.

16 Instances of no RV differ from the no DZ/RV scenario in that the client's payment (i.e. DZ) is recorded in PASSAP.

Office of the Chief Audit Executive


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Date Modified:
2012-03-20