Audit of collection and recovery management mechanisms for repayable contributions
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About this publication
Publication author : Canada Economic Development for Quebec regions
Collaborator : Internal Audit Branch
Publish date : October 18, 2012
This report presents the internal audit of the collection and recovery management mechanisms for repayable contributions at the Agency.
Table of Contents
1. Executive Summary
The Economic Development Agency of Canada for the Regions of Quebec (the Agency) provides direct funding for businesses and not-for-profit organizations in the form of repayable and non-repayable contributions. Repayable contributions are a major part of the transfer payments provided by the Agency. As at March 31, 2011, repayable contributions receivable totalled $352.6M. Monies collected resulting from repayable contributions are reinjected into the economic development of Quebec through the Agency’s subsequent activities. In this context, sound management of amounts due and payable, including effective, risk-based internal controls, is essential if the Agency is to meet its responsibilities with regard to prudent and responsible financial management while carrying out its economic development mandate.
In recent years, the Agency has adjusted its collection and recovery strategies and practices. This led to the publication of a chapter on debt collection procedures in the Program Management Manual in February 2011. Although these procedures and their application are new, Agency management considered it important to evaluate all the management mechanisms related to collection and recovery activities at the Agency, including evaluation of compliance with the new procedures. This decision was made based on the extent of the risk associated with these activities in the life cycle of repayable contributions.
For several years, the audit of collection and recovery mechanisms has been considered as part of the Risk-Based Internal Audit Plan, and this was done for the 2011-2012 fiscal year. The increase in bad debts was identified by Agency management as high risk in the 2011-2012 Inventory of Departmental Risks. It is thus a subject of importance in the Agency’s audit universe, since it is linked to the sound management of financial resources.
At the Agency, debts related to repayable contributions are managed by the Operations Sector and Financial Services. To make it clear who does what, the Agency uses the term
“debt collection” when the Operations Sector is responsible for management, and
“recovery” when responsibility for management resides with Financial Services. Collection refers to enforcement of the repayment schedule, while recovery refers to the recovery of overdue accounts following default.
1.2 Primary audit objective
The primary objective of this audit was to provide assurance that the management mechanisms used are adequate to allow for effective and efficient management of repayable contribution collection and recovery at the Agency.
1.3 Scope of audit
The audit dealt with the following management mechanisms in place with regard to collection and recovery:
- new collection mechanisms in place from the implementation of new procedures in April 2011 to September 2011;
- recovery mechanisms in place from April 1, 2009 to September 2011.
Both types of repayable contribution provided by the Agency—type C (repayable without conditions and on a fixed schedule) and type D (conditionally repayable) were included in the scope of this audit. Non-repayable contributions and grants are excluded from the scope of this audit.
The approach used involved the following steps:
- confirming the risks and scope using interviews with the parties concerned;
- developing a risk-based mission plan and audit program;
conducting the audit program, including:
- analysis of collection and recovery files;
- visit to four of the Agency’s business offices (BOs) and to the Departmental Finance Branch (DFB);
- presenting the audit findings and conclusions to the audited entities for validation;
- preparing a draft audit report and obtaining comments and an action plan from management;
- presenting the report to the Departmental Audit Committee.
1.5 Statement of assurance
The audit was carried out in accordance with the Policy on Internal Audit, and with Treasury Board’s directives and standards on internal audit. It was also planned in accordance with the Institute of Internal Auditors’ (IIA) Standards for the Professional Practice of Internal Auditing. These standards require the audit to be planned and carried out in a manner which provides a reasonable degree of certainty. The evidence was gathered in a manner that will provide senior management with sufficient probative elements to support the internal audit opinion.
The purpose of the audit was to determine whether the collection and recovery mechanisms and controls in place are adequate to ensure efficient and effective management of repayable contributions at the Agency. The audit took place from February to September 2011.
In my professional judgment as Chief Audit Executive, sufficient and appropriate procedures have been applied and evidence gathered to support the accuracy of the opinion provided and contained in this report. The opinion is based on a comparison between the situation at the time of the audit and the pre-established audit criteria provided.
1.6 Audit opinion
In my opinion, the Agency has taken reasonable and well-founded measures to effectively and efficiently manage the collection and recovery of repayable contributions at the Agency. However, the audit revealed some opportunities for improvement, particularly in terms of the identification and documentation of the key steps and reasons leading to a decision with regard to collection, analysis of the financial situation of recipients, standardization and documentation of recovery practices and the identification of operational indicators to facilitate evaluation of the collection mechanisms in place. These improvements are intended to improve accountability, prudence and diligence in the management mechanisms related to activities for the collection and recovery of repayable contributions at the Agency.
1.7 Conclusion and recommendations
In recent years, the Agency has adjusted its collection and recovery strategies and practices. This led to the publication of a chapter on debt collection procedures in the Program Management Manual in February 2011, and the initiation of the documentation and standardization of recovery practices. These measures, considered reasonable, taken by the Agency to improve the effectiveness and efficiency of the management of collection and recovery activities, have helped to strengthen the activities audited. Despite these efforts, there are nevertheless opportunities for improvement in order to improve the management of the collection and recovery of repayable contributions at the Agency. My recommendations are as follows:
- The Operations Sector should ensure that the key steps and reasons for a decision are always identified and properly documented.
- The DFB should finish identifying and documenting key controls and procedures and make sure that they are applied.
- The Operations Sector should make sure that the financial analysis is carried out within a framework that allows for standardization of financial statements and that analysis of the financial situation of recipients is always supported by a conclusion and justification.
- The Operations Sector and the DFB should specify the conditions under which guarantees could be considered.
- The Operations Sector should identify the operational criteria used as management tools to facilitate the monitoring of actions taken and collection mechanisms in place.
André Bolduc, CA
Chief Audit Executive
 Based on the Agency’s financial statements for the 2010-2011 fiscal year. This amount does not include contributions which are unconditionally repayable according to a fixed schedule.
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