Audit of the Infrastructure Program — Canada-Ontario Infrastructure Program (COIP) and Canada-Ontario Municipal Rural Infrastructure Fund (COMRIF) — 3.0 Observations

3.0 Observations

3.1 Introduction

In accordance with the Audit of the Infrastructure Program Preliminary Survey Report dated March 29, 2007, management practices and procedures within each Program were examined against each of criteria listed in Appendix A. We found that controls and operational practices to help ensure sound governance, internal control, and risk management had been designed for each Program, but that several key controls were not operating effectively in practice. Specifically, significant issues were identified with respect to the timeliness and nature of recipient auditing and monitoring activities being conducted for each Program and with respect to compliance with established Program procedures for claims processing and monitoring activities, particularly within the COIP Program. The audit noted one other issue related to the need to improve performance measurement and reporting practices. Opportunities for improvement were identified to streamline existing claims approval and project monitoring procedures and to better focus program audit activities.

3.2 Effectiveness of the Management Control Framework

Management has designed a number of practices to help ensure sound governance, risk management and control over the Programs. Of particular note is the active participation of both Industry Canada and Provincial representatives on joint Management Committees and supporting sub-committees. These Committees consist of Industry Canada and Provincial representatives who generally meet on a monthly basis to discuss and monitor project and program status and identify action items required. This practice enables both federal and provincial delivery partners to keep apprised of the issues affecting the Programs and fosters a collaborative approach to program delivery.

The Management Committee is charged with a wide range of responsibilities, including: establishing guidelines for applications; performing application assessments; approval reporting; implementing and evaluating projects; and communicating guidelines and Program requirements to applicants. The Management Committee must ensure that the project review and selection process, the audit framework, and the communications protocols are respected.

A Joint Secretariat has been established with responsibility for the day-to-day operations of the COMRIF Program. The Secretariat is accountable to the Management Committee and assists in the administration of the Program, including the timely production and sharing of information on applicants, projects, financial cash flows, and other operational matters. The Secretariat consists of equal provincial and federal representation. Other joint committees that support the operations of the Joint Secretariat include the Operations Sub-Committee, the Audit Sub-Committee, and the Communications Sub-Committee. The use of this joint committee approach is a key control in helping to ensure that issues and program performance are identified and reported on a timely and routine basis to both federal and provincial delivery partners.

Governance

Annual Business Plans for the Ontario Infrastructure Programs define key objectives and priorities for the Programs as well as action plans and deliverables required to meet the Program's stated objectives. Annual Business Plans also include a documented human resource plan and financial plan.

The governance structure for each Program is formally defined within the Program RBAFs and RMAFs developed by Infrastructure Canada. The general roles and responsibilities of Industry Canada in implementing COIP and COMRIF projects in Ontario are further defined within the COIP Agreement and the MOU for the COMRIF Program between Industry Canada and Infrastructure Canada.

Each Program's RMAF describes performance measurement and evaluation strategies. As stated in each Program's RMAF, Infrastructure Canada has overall responsibility for the results of both the Municipal Rural Infrastructure Fund and the Infrastructure Canada Program. Individual project performance results under each Program are monitored by Industry Canada and discussed at the Management Committee level.

Internal Control

At the time of the audit fieldwork, projects were not assigned to specific officers within the COIP and COMRIF Programs. In an effort to manage its limited human resources and balance workload, Program management implemented a process through which claims under both the COIP and COMRIF programs were reviewed by staff as they were available. As a result, there was a lack of continuity in the review of claims and progress reports on each project file. This created risks of reduced efficiency in claims processing and project monitoring activities and in identifying project issues on a timely basis given the complexity and long term nature of both COIP and COMRIF projects. It is our understanding that management has revised this approach to assign specific officers to each file to allow for greater continuity and increase the efficiency of claims verification and monitoring procedures.

COIP Program

All applications for COIP funding are received directly by the Province. The Province reviews applications for eligibility and merit, nominating deserving and eligible applications for approval to the COIP Management Committee. The COIP Management Committee has responsibility for recommending projects for approval and ensuring approval is obtained in accordance with delegated financial authorities. Under the Program, the Minister of Industry must approve all projects. Additional approvals are required from the Minister of Transport, Infrastructure and Communities for projects between $1 million and $10 million, and from Treasury Board for all projects in excess of $10 million. This needs to be vetted with PSB — evidence on file? A decision was made by Industry Canada's Program and Services Board (PSB) in 2000 that PSB approval of COIP projects would not be required since the intended role and mandate of the PSB was covered through the Management Committee and delegation of authorities under the Program.

Approved funding agreements are entered into directly between the Province and the recipient. All contribution agreements examined through the audit had been approved as required under the COIP Agreement and in accordance with the Program's delegations of authority. It was noted that there are differences between the provincial and federal eligible costs under the Program due to differences in the Program's terms and conditions at the provincial level and the federal level.

Formal training specifically tailored to the COIP Program was not provided to staff and management. However, Program staff is guided by a documented COIP Administration Manual. The Manual describes the procedures expected to be performed by Industry Canada throughout each phase of the project's life cycle, including the conduct of environmental screening procedures, eligibility screening, and ranking projects against pre-defined assessment criteria.

COMRIF Program

The COMRIF Program has been implemented under a joint delivery model with the Province. Through this model, the planning of all aspects of the Program was conducted in a collaborative manner with representatives from both Industry Canada and the Province. As a result, the provincial and federal terms and conditions for the Program are consistent. Program procedures and supporting tools were jointly developed by the Province and Industry Canada, resulting in consistent eligibility criteria, application guidelines and forms, project assessment criteria, and claims review procedures. All procedures and supporting tools were reviewed and approved by a joint federal/provincial Management Committee. Training was provided to both provincial and federal staff concurrently. This joint training helped to ensure quality and consistency in the implementation and application of program procedures at both the provincial and federal levels.

Under COMRIF's joint delivery model, applications for COMRIF funding are assigned to either a provincial or federal lead. This allows for a more equitable distribution of workload between the provincial and federal representatives. In all cases, applications for funding and claims are initially reviewed by the lead partner for eligibility and merit in accordance with Program terms and conditions and assessment procedures. They are then reviewed by the other delivery partner for compliance. However, as in the COIP Program, all COMRIF agreements require approval by delegated authorities from the Minister of Industry, Minister of Transport, Infrastructure and Communities, and Treasury Board depending upon the value of the contribution agreement.

Risk Management

Infrastructure Canada has developed an integrated RBAF (Risk-Based Audit Framework) and Results-based Management and Accountability Framework (RMAF) for the Infrastructure Canada Program, under which Industry Canada delivers the COIP Program. Infrastructure Canada has also developed an RBAF for its Municipal Rural Infrastructure Fund through which Industry Canada delivers the COMRIF Program. These frameworks identify the key risk areas for each Program as a whole, as well as the required risk mitigation strategies to be implemented by each federal delivery partner, including Industry Canada.

Industry Canada representatives are kept up to date on risks affecting each of the COMRIF and COIP Programs through their attendance at regular Management Committee meetings. The Management Committees have responsibility for overseeing the monitoring of both the Programs as a whole and individual projects. Management Committee meetings are typically held on a monthly basis and allow for a thorough discussion of program and project specific risks, as well as result in specific action plans to mitigate risks identified.

Business Plans for the Ontario Infrastructure Programs are developed annually by the Director of Operations, IOD and the Director General SSIP, with the input from all respective managers. Annual Business Plans include a section that describes new and significant challenges or risks facing the Programs, including external and political factors as well as internal constraints that may impact the achievement of Program objectives. Our examination of the Infrastructure Operations Directorate Business Plan 2007-08 confirmed that key risks and challenges facing each Program were identified and strategies and action plans to mitigate these risks were defined.

3.3 Compliance with the Policy on Transfer Payments

The audit found that management has designed a number of management practices to help ensure compliance with the Policy on Transfer Payments. These practices include:

• claims that are expected to be supported by detailed breakdown of costs by category, supporting invoices, and progress reports;
• clearly defined delegations of financial authority that are documented and adhered to; and,
• contribution agreements that clearly define the project's objectives, roles and responsibilities, project monitoring and reporting requirements, and the conditions that are required to be met prior to payment.

However, the audit identified instances where significant practices and controls were not found to be operating effectively, most notably with respect to recipient audit and monitoring activities and compliance with Program procedures for claims processing and monitoring.

Governance

As described previously, each Program is subject to the governance structures defined within the COIP Agreement and MOU for the COMRIF Program. As required under these documents, the Program has complied with requirements to establish and implement joint committee structures to oversee and monitor the Programs.

Internal Controls

Our examination of a sample of project files indicated that the Programs exercise due diligence in the approval of recipients that comply with the eligibility criteria contained in the terms and conditions of the Programs. Our audit also identified multiple layers of review and approval for claims under each Program.

Under the COIP Program, claims are submitted by the recipient to the Province for review and approval. Provincially approved claims are then forwarded to Industry Canada where they are reviewed for eligibility and completeness under the Program's terms and conditions. This second level of review and approval is required due to the fact that certain costs under the Program are eligible for reimbursement by the Province but are not eligible for reimbursement federally due to differences between the federal and provincial terms and conditions for the Program. Claims are then approved in accordance with Industry Canada's delegated signing authorities and are entered into the Shared Information Management System for Infrastructure database (SIMSI). The majority of claims reviewed in our sample of project files had received appropriate approvals in accordance with delegated signing authorities. Industry Canada reimburses the Province for the federal portion of funding required for each project based on the approved claims. Instances of non-compliance are discussed in detail under Finding #2 in Section 4.3 of this report.

Under the COMRIF Program, all recipient claims are submitted on-line through SIMSI. When Industry Canada is the project lead, claims are initially reviewed and approved by Program Delivery Officers. Claims are then forwarded to a Claims Officer and to the Manager of Business Services for review and approval. In addition, the Director of Operations, IOD is required to approve all claims over $500,000. These approval levels are consistent with the Department's delegations of authority. The federally approved claim is then sent to the Province through SIMSI for additional provincial review and approval procedures. When the Province is the lead, a provincially approved claim is received through SIMSI. Industry Canada then performs a secondary review and approval of these claims.

Progress reports are used as a performance measurement tool to assess progress against project timelines and milestones and in assessing the reasonableness and eligibility of claims filed. Although isolated instances were identified that supported the Program's receipt of regular communication from recipients including project progress reports, site visit reports, and joint committee meeting minutes, in many cases this documentation was missing from project files within both Programs.

Risk Management

The RBAFs for each Program require the Management Committees to ensure that appropriate monitoring activities are conducted including receiving and reviewing annual audits of the Programs, project progress reports, detailed claims submissions, and recipient audit reports. These sources of information are a key input in the identification of risks and risk mitigation strategies on a timely basis. Our review of a sample of Management Committee meeting minutes confirmed that discussions were held to discuss a wide range of issues, including funding recommendations, communication approaches, ensuring consistency between funding decisions and program objectives, and progress updates on environmental assessment and claims submissions. It was noted that Management Committee meetings for the COIP Program have been held on an as needed basis over the past three years due to a reduced volume of activity under this Program.