Audit of the Canadian Apparel and Textile Industries Program (CATIP)

Audit and Evaluation Branch
Final Audit Report

September 2008

Recommended for Approval to the Deputy Minister
by the DAC on September 16, 2008
Approved by the Deputy Minister on


Table of Contents


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Cat. No. Iu4-141/2-2008E-PDF
ISBN 978-1-100-10965-7
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Aussi offert en français sous le titre Vérification du Programme des industries canadiennes du textile et du vêtement.


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1.0 Executive Summary

1.1 Introduction

In June 2002, the Government of Canada announced a new strategic framework for the apparel and textile industries aimed at increasing international competitiveness. IC was provided with funding to implement the Canadian Apparel and Textiles Industries Program (CATIP) component of the Framework. CATIP enables IC to work in partnership with firms, associations and other partners to focus primarily on best practices, marketing initiatives and e-commerce. This initiative is to help Canadian firms take advantage of global apparel and textile opportunities. The overall administration of CATIP resides with IC and a portion is delivered by Canada Economic Development for Quebec Regions (CED-Q).

On February 27, 2004, the Government announced the extension of the CATIP program to March 31, 2007 as well as a new Textiles Production Efficiency Component called CANtex, to support productivity and cost competitiveness initiatives related to textile production activities. In December 2004, the Government announced a further extension of CATIP to March 31, 2010 and expansion of CANtex to include the re-engineering of textiles production processes and re-tooling of production equipment and facilities to produce innovative and/or value-added textile products. Under CATIP, IC has supported a total of 481 projects with authorized assistance of $35.4 million.

The funding was apportioned between contributions for recipients and expenditures for program operations. Contributions have been directed at specific projects by apparel and textile companies as well as not-for-profit organizations such as associations. Due to high uptake, the component for apparel companies was closed in March 2005. However support for textile companies under the CANtex component and for not-for-profits continues to March 31, 2010.

1.2 Main Findings

Governance

Overall, the combination of processes, procedures and guidelines in place provides adequate governance. No major issues related to governance were raised during the audit.

Internal Control

  • 1. Recipient contribution agreement clauses did not request the same performance information outlined in the Treasury Board Secretariat (TBS)–approved Program Terms and Conditions.
  • 2. Recipient site visit reports are not documented.

Risk Management

  • 3. Risk assessments to help determine which recipients to audit are not prepared for all projects.

1.3 Recommendations

Internal Control

  • 1. The Director, Apparel and Textiles Directorate (ATD) should ensure that all CATIP contribution agreements clauses contain the same requirements for performance information as is described in the TBSapproved Program Terms and Conditions.
  • 2. The Director, ATD should ensure that the results of site visits are recorded and the reports placed in the project file.

Risk Management

  • 3. The Director, ATD should ensure that the risk assessment process for selecting recipient audits is documented.

1.4 Statement of Assurance

In my professional judgment as Chief Audit Executive, sufficient and appropriate audit procedures have been conducted and evidence gathered to support the accuracy of the opinion provided and contained in this report. The opinion is based on a comparison of the conditions, as they existed at the time, against pre-established audit criteria. The opinion is applicable only to the entities examined and within the scope described herein.

1.5 Audit Opinion

In my opinion, CATIP has various areas, with low risk exposures related to the risk management and control processes relative to the program that require management attention.

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Richard Willan
A/Chief Audit Executive, Industry Canada
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Date
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2.0 About the Audit

2.1 Background

In June 2002, the Government of Canada announced a new strategic framework for the apparel and textile industries aimed at increasing international competitiveness. IC was provided with funding to implement the Canadian Apparel and Textiles Industries Program (CATIP) component of the Framework. CATIP enables IC to work in partnership with firms, associations and other partners to focus primarily on best practices, marketing initiatives and e-commerce. This initiative is to help Canadian firms take advantage of global apparel and textile opportunities. The overall administration of CATIP resides with IC and a portion is delivered by Canada Economic Development for Quebec Regions (CED-Q).

On February 27, 2004, the Government announced a new component for CATIP, the Textiles Production Efficiency Component called CANtex, to support productivity and cost competitiveness initiatives related to textile production activities. Specifically, this includes the re-engineering of textiles production processes and re-tooling of production equipment and facilities to product innovative and/or value-added textile products. The CATIP program was first extended to March 31, 2007. In December 2004, it was extended again to March 31, 2010. Under CATIP, IC has supported a total of 481 projects with authorized assistance of $35.4 million.

The funding was apportioned between contributions for recipients and expenditures for program operations. Contributions have been directed at specific projects by apparel and textile companies as well as not-for-profit organizations such as associations. Due to high uptake, the component for apparel companies was closed in March 2005. However support for textile companies under the CANtex component and for not–for–profits continues to March 31, 2010.

The audit was conducted in accordance with the 2007/08 IC Audit Plan approved by the Departmental Audit Committee (DAC). The risk-based planning process identified risks associated with CATIP that reflect materially significant expenditures, a complex legislative / policy environment and associated internal controls.

2.2 Objective

The audit objective was to provide assurance that sufficient and appropriate practices and procedures are in place and are undertaken to ensure that CATIP, as implemented, is consistent with government and departmental objectives and priorities.

This objective enabled us to report on the effectiveness of governance, control practices and risk management for CATIP.

2.3 Scope

The scope of the audit included all aspects of CATIP over its lifespan.

2.4 Methodology

In support of the requirements under TBS's Policy on Internal Audit, audit criteria were developed and linked to each audit objective under the categories of governance, internal controls and risk management (see Appendix A).

2.4.1 Audit Approach

The following activities were undertaken by the audit team in the performance of this engagement:

  • Conducting interviews with management and staff of CATIP;
  • Reviewing documentation; and
  • Testing a sample of 40 CATIP files to determine the effectiveness of related controls. The sampling approach consisted of a targeted sample of files that were considered higher risk (defaulted projects), plus a discovery sample of randomly selected files from the remainder of the population.
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3.0 Findings and Recommendations

3.1 Introduction

The following section presents the detailed findings. Findings are based on the evidence and analysis from the detailed audit performed.

In addition to the findings presented below, one observation that was non-systemic and of low materiality and risk has been communicated to management for their consideration.

3.2 Governance

Overall, the combination of processes, procedures and guidelines in place provides adequate governance. No major issues related to governance were raised during the audit.

3.3 Internal Control

Finding 1.0: Contribution Agreements Clauses

Recipient contribution agreement clauses did not request the same performance information outlined in the TBS-approved Program Terms and Conditions.

Project contribution agreements must reflect the performance measurement and reporting expectations as approved in the TBS-approved Program Terms and Conditions.

As specified in the TBS-approved Program Terms and Conditions, recipients are required to submit data, schedules, plans and reports in sufficient detail to enable the Minister to assess the progress of the project, to carry out the post-completion monitoring called for in the contribution agreement and to evaluate the effectiveness of the contribution. Recipients are also required to provide project monitoring reports, and are expected to make arrangements to coordinate the monitoring and collection of this type of information.

The results of the audit indicated that contribution agreements did not request the same information as outlined in the TBS-approved Program Terms and Conditions regarding performance measurement and monitoring. Contribution agreements do provide for access to the recipients' premises and any premises where the project takes place to assess the progress of the project and allow the department, on request, to receive information needed for statistical or project evaluation purposes for up to two years following the termination date of the agreement. In addition, contribution agreements provide that all project claims, including the final claim, must be accompanied by a status report on work completed to date by the recipient.

Of the reviewed project contribution agreements, 14 did not request performance measurement reports to evaluate the effectiveness of the contribution in their Summary of Project Milestones and Reports (Annex 1 to Schedule A).

All project files reviewed included a Final Report on the project, however only 7 of the Final Reports contained sufficient information to assess the effectiveness of the project. This finding is further supported by similar issues identified in the 2006 IC formative evaluation of CATIP-CANTex.

Achievement of expected program benefits or contributions made toward program objectives cannot be measured without sufficient project performance information. This reduces management's ability to make appropriate recommendations concerning the program.

Recommendation 1.0

The Director, ATD should ensure that all CATIP contribution agreements clauses contain the same requirements for performance information as is described in the TBS-approved Program Terms and Conditions.

Finding 2.0: Site Visits

Recipient site visit reports are not documented.

Active monitoring should be demonstrated by reviewing and assessing monitoring reports to ensure they are accurate and timely.

As specified in the IC Program Procedures Manual, site visits should be well documented as to the nature, scope and results with the recommended action resulting from the visit. This information provides the project officer with a first hand account of the project to determine whether reasonable progress is being made.

The audit team found that a total of 74 site visits to recipients have been conducted but were not reported in any of the sampled project files. As a result, management and staff accessing project files may not be aware of, or benefit from, the information that results from site visits.

Recommendation 2.0:

The Director, ATD should ensure that the results of site visits are recorded and the reports placed in the project file.

3.4 Risk Management

Finding 3.0: Recipient Risk Assessments

Risk assessments to help determine which recipients to audit are not prepared for all projects.

The TBS's Policy on Transfer Payments holds departments responsible for determining whether recipients have complied with applicable terms and conditions and allows for an audit of recipients when necessary. The TBS's Policy on Transfer Payments also requires a Risk-based Audit Framework (RBAF) to guide the audit of contributions.

The program has a process for selecting projects for recipient audits based on a risk evaluation which is consistent with the audit risk factors identified in the program's RBAF. This process is not fully documented. As a result, only those projects selected for audits have risk assessments on file. This exposes the program to the risk of not being able to defend its selection of projects for recipient audits.

Recommendation 3.0

The Director, ATD should ensure that the risk assessment process for selecting recipient audits is documented.

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Appendix A - Detailed Audit Criteria

Detailed Audit Criteria
Objective Audit Criteria
Governance
Governance and Strategic Direction
  • The CATIP Program has operational plans and objectives aimed at achieving its objectives.
Public Service Value
  • Management, through their actions, demonstrates that the Department's integrity and ethical values cannot be compromised.
Results and Performance
  • Management has identified appropriate performance measures linked to planned results.
  • Management monitors actual performance against planned results and adjusts course as needed.
  • Management has identified planned results linked to organizational objectives.
Learning, Innovation and Change Management
  • The Department has in place a formal approach to knowledge and talent management.
Accountability
  • Authority, responsibility and accountability are clear and communicated.
Internal Controls
Policies and Programs
  • Clear departmental policies and guidelines are consistent with government policies including the Policy on Transfer Payments.
People
  • Human Resource planning is aligned with strategic and business planning
  • The Program provides employees with the necessary training, tools, resources and information to support the discharge of their responsibilities.
Citizen Focused Service
  • Feedback from users and other stakeholders drives strategic and operational planning.
Stewardship
  • A timely budget is developed at the appropriate level of detail.
  • Forecasts are monitored on a regular basis.
  • There is appropriate segregation of duties.
  • Records and information are maintained in accordance with laws and regulations.
Reporting
  • Management has established processes to identify, solicit, evaluate and manage third party contracts.
Risk Management
Controls
  • Management identifies the risks that may preclude the achievement of objectives, assesses the risks it has identified and formally responds to its risks.
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Appendix B: Management Action Plan

Management Action Plan
Recommen-dation
(Page/Section)
Planned Action or Justification for no action on the Recommen-dation Responsible Official Target Completion Date Revised Completion Date Current Status
1. The Director, Apparel and Textiles Directorate (ATD) should ensure that all CATIP contribution agreements clauses contain the same requirements for performance information as is described in the TBS-approved Program Terms and Conditions. Agree
ATD has been improving its procedures throughout the life of the program. One of the improvements instituted in  2006 was that all Project Summary Forms (the analysis and approval documents required as the basis of all Contribution Agreements) include a section on Project Success Indicators. This section describes the indicators/factors, derived from the project objectives and from discussion with the recipient, which will be used to determine project success. It also includes an explanation of the methodology that will be used to measure the success indicators and a statement on how this will be reported. The ATD will immediately institute a procedure requiring that the Project Success Indicators be specified in the Contribution Agreement and that the final report submitted by the recipient address the Project Success Indicators.
Director, Apparel and Textiles Directorate Immediate    
2. The Director, ATD should ensure that the results of site visits are recorded and the reports placed in the project file Agree.
This procedure will be implemented immediately.
Director, Apparel and Textiles Directorate Immediate    
3. The Director, ATD should ensure that the risk assessment process for selecting recipient audits is documented. Agree.
The auditors have noted that, while CATIP does have a process for selecting projects for recipient audits based on a risk evaluation which is consistent with the audit risk factors identified in the program's Risk Based Audit Framework (RBAF), the implementation of the annual process is not fully documented. Accordingly, additional measures as described below will be adopted to improve documentation.
In order to select candidates for the annual recipient audits undertaken by the Directorate, a formal request is sent to all Program Officers to recommend projects for which they are responsible as good potential candidates for audit. Using their knowledge of the projects, each Officer recommends five to ten files, and prepares an Audit Risk Factor Evaluation Form, documenting the reasons for recommending the project for audit. All correspondence and documentation in this regard will be retained and placed on the appropriate project files, as well as retained in a central recipient audit management file.The Project Officers and Program Manager meet to discuss the suggested projects and select those to be recommended for audit, taking into account the Audit Risk Evaluation results and other considerations. The recommended list is then submitted to the Director for approval. All program team meetings to select candidates for recipient audit will be documented by preparing a meeting summary which will include the reasons for selection or non-selection of individual projects for audit.
Audit Risk Factor Evaluation Forms, for both projects selected for audit and projects considered but not selected, will be retained on the project files and on the recipient audit management file.
The ATD has always utilized the audit risk factors as set out in the program's RBAF. For recipient audits to be conducted in fiscal year 2008/2009 fiscal year and beyond, additional selection criteria have been added to the existing factors to further improve the documentation for selection and non-selection of projects.
Director, Apparel and Textiles Directorate Immediate

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