Voted Grants and Contributions (June 2012)

Guidance for use as reference material. Content may not be current. Use with caution.

1. Introduction and Purpose

2. Policy Requirements

3. Program Design and File Review for Grant and Contribution Program Audits

4. Additional Considerations

Appendix 1—Sample Audit Objective and Criteria

Appendix 2—Basic Documents for Audits of Grant and Contribution Programs

Appendix 3—Sample Audit Programs for Departmental Management of Grants and Contributions

Appendix 4—OAG Reports on Grant and Contribution Programs, 2000–2011

Appendix 5—Selected References

1. Introduction and Purpose

This guide, approved by the Methodology and Professional Development Committee in June 2012, is intended for internal purposes only; it was last updated in 2008. It provides guidance for auditing voted grants and contributions. It should help you to understand the government policies and departmental frameworks required for voted grant and contribution programs and to be able to identify quickly areas of potential audit significance. The federal government’s regime for managing transfer payment programs continues to evolve, and therefore this guide may be updated from time to time. Teams seeking more detailed guidance should contact the internal specialist directly.

The government has many ways to pursue public policy, including

• legislation and regulation;
• tax measures;
• provision of services, information, and advice;
• transfer payments to individuals, organizations, and other levels of government.

Transfer payments to individuals and organizations are generally grants or contributions. The government does not benefit directly from awarding a grant or a contribution, whereas it does benefit directly when it pays for goods or services through a procurement contract. The government uses grants and contributions as financial incentives to influence a recipient (either an individual or an organization) to carry out activities that help achieve the government’s policy goals and a department’s objectives. More specifically, transfer payments are monetary payments or transfers of goods, services, or assets to third parties, including Crown corporations, on the basis of an appropriation. Transfer payments include grants, contributions, and other transfer payments, including those made to other orders of government, international organizations, and Aboriginal peoples.

Some spending through grants and contributions is statutory. Statutory expenditures are those that have continuing authority by an act of Parliament and therefore do not require Parliament’s approval every year. Examples of these statutory expenditures include Old Age Security payments and Guaranteed Income Supplement payments. Some grants and contributions must receive parliamentary approval through an annual appropriation act. These are voted grants and contributions.

Government policy imposes different management requirements on departments for grants than for contributions. Once recipients meet the eligibility criteria for a grant, they can usually receive it without meeting further conditions. However, the recipient of a contribution must meet the monitoring and performance requirements, specified in the terms and conditions of a contribution agreement, to be reimbursed for project costs.

This document reflects current policies in place. Note that the Policy on Transfer Payments dated 1 June 2000 was replaced by the Policy on Transfer Payments that took effect on 1 October 2008. The new policy explains to which transfer payment programs it applies:

In practical terms, this means that you will need to audit transfer payment programs against whichever version of the policy applies.

2. Policy Requirements

The objective of the Policy on Transfer Payments is “to ensure that transfer payment programs are managed with integrity, transparency and accountability in a manner that is sensitive to risks; are citizen- and recipient-focused; and are designed and delivered to address government priorities in achieving results for Canadians.” The policy applies to all “departments” as defined in section 2 of the Financial Administration Act, unless excluded by specific acts, regulations, or Orders in Council.

The Policy sets out responsibilities for the Treasury Board, the Secretary of the Treasury Board, ministers, and deputy heads.

2.1 Deputy Head Requirements

Deputy heads have the following specific obligations.

Program relevance and effectiveness. Ensuring that programs are, and remain, relevant and effective in meeting departmental and government objectives, as well as ensuring programs are aligned with and support the departmental management, resources, and results structure and results from spending reviews (such as strategic reviews).

Performance measurement strategy. Ensuring that a performance measurement strategy is established at the time of program design, and that it is maintained and updated throughout its life cycle, to effectively support an evaluation or review of relevance and effectiveness of each transfer payment program.

Evaluation or review. Ensuring that an evaluation or review of the relevance and effectiveness of each transfer payment program is undertaken at least every five years, as required under the Financial Administration Act, and that appropriate and timely action is taken to respond to findings.

Systems in place. Ensuring that cost-effective oversight, internal control, performance measurement, and reporting systems are in place to support the management of transfer payments.

Risk management. Ensuring that the administrative requirements on recipients are proportionate to the risk level. In particular, ensuring that monitoring, reporting, and auditing reflect the risks specific to the program, the value of funding in relation to administrative costs, and the recipient’s risk profile.

Engagement of applicants and recipients. Engaging applicants and recipients to achieve the objective and expected results of this policy through innovative, cost-effective, citizen- and recipient-focused transfer payment programs that are accessible, understandable, and useable.

Departmental service standards. Establishing reasonable and practical departmental service standards for transfer payment programs.

Harmonization of programs. Ensuring, when appropriate, the harmonization of transfer payment programs within the department.

Standardization. Ensuring that opportunities are pursued to standardize the administration of transfer payment processes, procedures, and requirements within the department.

Monitoring and reporting. Monitoring compliance with the Policy on Transfer Payments and its supporting directives through periodic assessments to ensure their effective implementation.

2.2 Departmental Requirements

The department is responsible for the overall framework established within which programs operate. The framework should include financial and program controls, sufficient departmental capacity to effectively deliver and administer grant and contribution programs, and appropriate authorization levels within the department to ensure appropriate accountability.

Financial controls. Financial controls include adhering to sections 33 and 34 of the Financial Administration Act; ensuring proper accounting records are maintained; and having the appropriate controls in place to adhere to the cash management provisions in the Policy on Transfer Payments and to ensure that, where appropriate, repayments owing to the government are collected.

Departmental capacity. This includes having sufficient resources, training, and reasonable tools to conduct work on a daily basis.

2.3 Program Requirements

The terms and conditions established for programs must include a number of elements in order to be approved by the Treasury Board. It must include clear identification of eligible recipients, project assessment criteria, stacking limits, basis of payments, and processes in place to monitor repayable contributions where appropriate. A program must demonstrate how the objectives of the transfer payments further program objectives and how these will be measured, evaluated, and reported on through the use of a results-based management and accountability framework or performance measurement strategy. A program must also set parameters for monitoring of recipients through a risk-based audit framework. For more recent programs, departments are instead to establish performance measurement strategies.

Eligible recipients. In its terms and conditions, a program should identify eligible recipients of the program. This is to define what criteria a recipient must exemplify to be able to apply for a grant and contribution program. Each recipient file should clearly document how the recipient met this requirement.

Assessment criteria. After meeting recipient eligibility, proposals to receive grants and contributions are subject toassessment criteria. The analysis of a proposal should be clearly and consistently documented in accordance with these criteria. The eventual awarding of grants and contributions should result from the objective rating of recipients against the assessment criteria.

Stacking limits. A program must adhere to the Policy on Transfer Payments requirement that the amount of funding provided to a recipient does not cause the stacking limit established in the terms and conditions to be exceeded. Programs may have further regulations regarding the maximum percentage of eligible costs they will support for any given recipient.

Basis of payment. The basis of paymentshould include maximum amounts payable to recipients, indicate whether or not advance payments will be used, contain holdback provisions, and ensure that delegated financial signing authorities are in place to approve payments.

Repayable contributions. In the case of repayable contributions, the conditions that give rise to repayment should be specified and monitoring should be established by the program to identify potential repayments and collect amounts as due.

Results-based management and accountability framework (RMAF). Each program must have an RMAF or performance measurement strategy, which includes a clear statement of the program’s objectives. The framework or strategy should outline performance indicators, expected results and outcomes, methods for reporting on program performance, and an evaluation plan that includes the criteria to be used in assessing the program’s success, relevance, and effectiveness. The RMAF should clearly link the program objectives with the department’s mandate. It should also be possible to trace the annual results of performance indicators to departmental performance reports.

Risk-based audit framework (RBAF). The RBAF should include a risk assessment with corresponding mitigation strategies for the program, a risk-based plan for program monitoring and recipient auditing, a description of the objectives and timing of a planned internal audit for the program, and reporting strategies.

Performance measurement strategy. A performance measurement strategy should encompass the selection, development, and ongoing use of performance measures for program management or decision making.

3. Program Design and File Review for Grant and Contribution Program Audits

This guidance consists of two main audit programs that you and your team may follow when auditing grant and contribution programs. The first audit program, Program Design, is intended to look at the framework within which the grant and contribution program operates. The second audit program, File Review, is used to assess whether the program is operating as designed.

3.1 Program Design

The program design includes the following elements.

Management control framework. Assessing the department’s management control framework means examining the policies and procedures put in place by the department and the program to govern the processes followed in program management.

The management control frameworks established by both the department and program should be sufficiently complex and complete to ensure that the requirements of the Policy on Transfer Payments and departmental-specific policies are being considered.

Past audits have found inconsistent application or interpretation of government policy on grants and contributions as well as serious deficiencies in the management control frameworks of programs.

We have found that a better practice has been for a framework to simplify the policies related to grants and contributions by stating them in order of program life-cycle management.

Control over authority. Ensuring appropriate financial controls are in place is covered by control over authority.

The audit must ensure that the program’s financial authorities, as approved by the Treasury Board in the program’s Treasury Board submission, are being carried out as designed. In addition, authority should correspond to departmental delegation of authority charts.

Departmental capacity. Departmental capacity is demonstrated in two ways. The first is by having a transfer payment tool set to help guide the management of grants and contributions. The second is by having an appropriate amount and content of training that is offered to program management.

More commonly, a transfer payment tool set consists of an electronic management system. Systems that follow best practices have all the built-in procedures required by the Policy on Transfer Payments and internal departmental policy. The system generally will not allow program officers to move from one step to the next without having completed the appropriate controls. Controls can include check boxes for how the recipients meet eligibility, along with forced documentation and grading against the project assessment criteria. Unless these steps are completed by program officers, the recipients cannot get approved for funding.

If the appropriate amount and content of training has been provided, the department or program will have done a needs analysis of program officers managing grants and contributions and will have either developed or identified available courses that are considered mandatory to carry out their jobs. The department or program should also ensure that all necessary employees have taken suitable training to fulfill their responsibilities.

Funding instrument. The choice of funding instrument should respect accountability to Parliament and achieve a balance among principles of cost-benefit, risk management, and reasonable treatment of program recipients.

The choice of funding instruments as a means to achieve policy objectives is made when designing the program. This choice should take into account the key attributes of both funding instruments, balancing the degree of flexibility required by program managers and the potential recipients, management’s tolerance for risk, the level of monitoring envisaged, the cost of administering the program, and the need for audit. The greater the need for control, monitoring, and follow-up to ensure that recipients fulfill program objectives, the more appropriate is the use of contributions over grants.

Program promotion. Requirements of program promotion are to ensure that all potential applicants have equal access to public funding.

A key ingredient of a successful program is a high level of interest among potential applicants. Encouraging as many potentially eligible applicants as possible to apply helps ensure fairness of the program and helps target available funds toward the most promising projects. This means using appropriate and effective communication, and even promotion, whether through modern technology or traditional media, to increase awareness in target groups. Promotional material sets out the purpose of the program, the various forms of assistance available, terms and conditions of support, the scale of assistance, and eligibility and assessment criteria. It also contains information about the approval process, including any appeal process, the requirement for an agreement, the monitoring requirements, and how to apply.

Eligibility and assessment criteria. Precise eligibility and assessment criteria ensure program officers understand who and what is eligible for funding, under what conditions funding can be provided, for what purposes, and in what amounts.

Program staff is accountable for ensuring that programs are delivered with due process. Program managers facilitate this by ensuring that the eligibility criteria, conditions of support, and scale of assistance are documented in the program literature and are well understood and applied consistently and fairly by program staff, including staff in regional offices. Clearly documented eligibility criteria help ensure that payments are made only to eligible recipients for eligible expenses. With clear evaluation criteria linked to program objectives, staff will eventually be able to assess whether funding has been effective in meeting those objectives. The expected results are documented in the application (for grants) or in the agreement (for contributions) and are in line with the program’s objectives.

Approval process. The approval process should ensure that the most deserving projects are funded at an appropriate level.

Given practical limitations, program officers try to support projects that are more, rather than less, deserving among those that are eligible and meet the assessment criteria. Encouraging as many potentially eligible applicants as possible helps to target available funds toward the most promising projects. Consistency of appraisal is critical to ensuring fairness and equity. Guidelines for the ranking of projects should be available. If program staff understands their responsibilities and specific work assignments, the risk of problems with due process, fairness, and equity is reduced. Guidelines should assist staff in consistently applying program terms and conditions and appraisal criteria. For large or complex proposals, expert staff or outside experts should be consulted. This is particularly true for the assessment of the applicant’s financial requirements, which requires analysis of income and expense estimates and examination of the implications of changes in the project’s various estimates.

Harmonization of transfer payment programs. Program management should consider whether harmonization of transfer payment programs would be appropriate due to their program objectives being similar to other transfer payment programs, or whether the program funds recipients who are also subject to funding from other government programs.

Cost of administration. The cost of administration of a transfer payment program should be considered by the department.

Performance expectations and reporting. Performance expectations and reporting on results should be clearly stipulated in the program results-based management and accountability framework or performance measurement strategy, and program evaluations should be carried out in a timely manner.

Program staff at all levels need to understand the program’s objectives and how funding recipients will contribute to the achievement of these objectives.

Objectives indicate what the program is intended to achieve in light of the department’s or agency’s mandate and strategic objectives. Because they are usually general statements, program objectives need to be restated as expected results if they are to properly support subsequent stages of program management (those stages are developing assessment criteria, selection process, agreements, monitoring, and reporting). One way to articulate expected results is to answer the following question as precisely as possible: “What do we expect to happen to the recipients because of the funding?”

Performance monitoring assesses the extent to which the desired outcomes are being achieved all the time. To monitor program performance, management puts in place relevant quantitative and qualitative performance measures at the project level and then the program level, and receives regular reports. Program performance measures identify emerging problems, enabling management to take corrective action. Good management, then, combines good information with appropriate action. Determining the appropriate extent and timing of monitoring can be a challenge, particularly for smaller programs with limited resources, and for programs funding a large number of relatively low-value grants or contributions. Effective risk identification and analysis can help to define the extent, timing, and frequency of monitoring in these circumstances. Regular review of the program helps to ensure that adequate resources continue to be available to deal with the size, perceived risk, and sensitivity of the awards made.

At the project level, a key risk is the potential for changes to the status or competence of the recipient that could adversely affect its ability to carry out the project. The terms of the funding agreements should provide for monitoring to give sufficient warning of circumstances that could indicate failure. In the case of grants, letters of offer can provide for similar reporting by recipients.

Performance measurement. Program monitoring and recipient auditing should be conducted in accordance with the program’s performance measurement strategyand on the basis of the identification, assessment, and management of risks: strategic, internal, project/recipient, and external.

Achievement of program objectives is contingent on the funds being used for the purposes agreed on at the project level. Effective monitoring provides assurance that all requirements for a grant or contribution are complied with, and it provides a basis for refining the overall program. Regular review of progress and achievements under grants and contributions reduces risk. The frequency of review will vary depending upon the size of the award, the nature of the risks and their priority, the sensitivity of the award, the degree of uncertainty or subjective judgment in the original appraisal, the type of funding instrument, and the type of project.

In the case of grants, which are non-conditional transfers of funds, the eligibility criteria for the program, the information requirements on applications, and the review process provide management with the necessary assurance that project funding will be used for purposes that are in line with program objectives. Large grants are normally paid in instalments following verification of the recipient’s continued eligibility. Periodic reporting on progress toward meeting objectives before instalments are released is a way to ensure that funds continue to be used for the purposes intended.

In the case of contributions, which are conditional transfers of funds for a specified purpose, a formal agreement is signed by both the funding agency officials and the recipient. It stipulates the purpose and the immediate objective of the contribution. An effective statement of purpose is results oriented and linked to the program objectives. The parties to the agreement clearly understand the outcomes required, not just outputs, before the funding begins. The payment of funds is conditional on performance, and agreements are subject to audit to verify that all conditions, both financial and non-financial, have been met.

3.2 File Review

The file review includes determining whether the program is operating as designed. You should ask yourself the following seven questions:

1. Has the approval of recipients resulted in clear documentation to support the recipient’s eligibility and demonstrate that the proposed project is the most appropriate project to fund from all applications?
2. Does the file include an appropriate analysis to support government assistance, and have stacking rules been taken into consideration?
3. Has a risk-based rationale, consistent with the design stipulated in the risk-based audit framework or performance measurement strategy, been conducted to determine the appropriate frequency and level of monitoring and reporting requirements of the recipient, and has this been carried out in accordance with the rationale?
4. What are the program controls to ensure only eligible costs are reimbursed for grant and contribution programs?
5. Do the project payments comply with the cash management provisions found in the Policy on Transfer Payments?
6. Do the payments comply with the Financial Administration Act and have delegations of authority been respected?
7. If applicable, are repayable contributions clearly identified? What procedures are in place to monitor when repayment is applicable? Are repayments collected in a timely manner?

Government policy requires that, with some specific exceptions, all contributions to business be repayable. The choice of contribution or repayable contribution depends on the objectives of support and on whether the contribution increases the business’s ability to generate profits or increases the value of the business. For a high-risk business venture or highly speculative project, the government expects to share equitably in the financial return. The Treasury Board’s policy on repayable contributions should be taken into account in setting the repayment terms.

In general, where the objective is investment in economic development, all contributions to business enterprises are repayable, except for those specifically exempted. If there is a direct link between profits earned and increased value of the business as a result of the payment, the investment should be returned to the government in accordance with its policy on repayable contributions. In addition, where the government provides financial support to high-risk business ventures or to highly speculative projects, it should share in the benefits commensurate with its sharing of the risks. The Treasury Board policy on repayable contributions should be used. Other instances of money owed to the Crown include, but may not be limited to, money remaining from an advance payment at the end of a contribution agreement and the amount of any disallowed disbursements and money received under misrepresentation or received by a non-eligible person.

4. Additional Considerations

You may wish to consider the following as you audit voted grants and contributions:

Access to recipient records and information. Under the 2008 Policy on Transfer Payments, funding agreement provisions for grants and funding agreement provisions for contributions must include provisions for the recipient to make records and information available to the Auditor General of Canada when requested by the Auditor General for the purposes of an inquiry under subsection 7.1(1) of the Auditor General Act. The same is true for funding agreement provisions for upfront multi-year funding.

The Office’s “follow-the-dollar” mandate. Under the Budget Implementation Act, 2005, the OAG mandate was changed to allow us to “follow the dollar”—that is, to examine the operations of certain grant recipients. Under those provisions, we could audit “recipients” of “funding agreements” as those two terms were defined in the Auditor General Act. Essentially, we could look at recipients (defined to exclude Crown corporations, departmental corporations, municipalities, international organizations, and corporations controlled by other levels of government) that had received more than $100 million in any five consecutive years under funding agreement(s) with the Government of Canada. In 2006, the Federal Accountability Act expanded the follow-the-dollar mandate. Now we can examine recipients who have received over any five consecutive fiscal years more than $1 million under one or more funding agreements. The definitions of “recipient” and “funding agreement” were moved into section 42 of the Financial Administration Act. The new definitions are presented below.

At the time of the amendments set out in the Federal Accountability Act, the Auditor General indicated that this mandate would be exercised only in the rarest of circumstances, as it was her view that the responsibility for ensuring that recipients abided by the terms of their funding agreements lay with the department that entered into the funding agreement.

The Office’s mandate in relation to funding agreements to recipients is set out in s.7.2 of the Auditor General Act.

Appendix 1—Sample Audit Objective and Criteria

With respect to departments, a generic audit objective is to determine whether departments have adequate control over grant and contribution programs.

Teams should consider the following possible criteria, to determine whether departments

• design and implement effective financial and program controls;
• exercise due diligence in the selection and approval of recipients of grants and contributions;
• comply with authorities;
• develop a results-based management and accountability framework or performance measurement strategy that provides for appropriate measurement and reporting of results and evaluation criteria to be used in assessing the effectiveness of the programs;
• establish the management and program capacity necessary to effectively deliver and administer their programs;
• exercise due diligence in monitoring the recipients’ use of contributions, including a risk-based framework for audit;
• ensure that proper program, accounting, and other relevant records and documents are maintained;
• ensure that the amount of each transfer payment is appropriate, taking into consideration stacking of assistance and eligible project costs;
• ensure that payments were made in accordance with the policy and the Financial Administration Act; and
• as appropriate, recover amounts due to the Crown.

Appendix 2—Basic Documents for Audits of Grant and Contribution Programs

• Internal audit(s) including the program or management framework and management response,
• Internal audit work plan/list of internal audits,
• Treasury Board submission for the program,
• Program terms and conditions,
• Results-based management and accountability framework or performance measurement strategy for the program,
• Evaluations of the program,
• Risk-based audit framework for the program,
• Management control framework for transfer payments,
• Delegation of financial authorities chart,
• Grant and contribution templates for use of program managers,
• Grant and contribution computer system documentation and screenshots,
• Template for recipient-level grant and contribution agreements,
• Example grant and contribution agreement,
• Recipient application form,
• Program promotional material,
• List of training available and course objectives for management of transfer payments,
• Media articles on program.

Appendix 3—Sample Audit Programs for Departmental Management of Grants and Contributions

In this appendix, we set out a sample audit program and questions for you to consider as you audit grant and contributions programs. These questions may be answered through a variety of mechanisms, from interviews with senior managers to a review of files, including databases.

Work Project #1—Program Design

Management Control Framework

1. Obtain the management control framework of the department and program related to transfer payments.
   • How have they ensured consistency and adherence to the Policy on Transfer Payments?
   • List additional layers of control established by the department or program.
   • Obtain copies of templates that are provided to program managers to ensure adherence with internal policy.
2. Identify and document (or obtain) internal formal roles and responsibilities for the key players involved in transfer payments, such as the policy unit, centre of excellence, finance, program managers, and internal audit. Who is responsible for what? For example, who is responsible for the Treasury Board submission, results-based management and accountability framework, risk-based audit framework, and performance indicators?
3. Identify the forum within which these groups share knowledge.
4. Are there regional variations in how the program is delivered and managed? If yes, how does the department or program ensure adequate control over the regions?
5. How does the department provide assurance that departmental systems, procedures, and resources are in place for ensuring due diligence in approving transfer payments, verifying eligibility and entitlement, and managing and administering the programs according to the Policy on Transfer Payments?
6. Ensure all required elements from the Policy on Transfer Payments are included in the Treasury Board submission for program renewal.

Control over Authority

1. Are proper financial controls designed and implemented to ensure that payments are subject to commitment control, account verification, and payment requirements under sections 32, 33, and 34 of the Financial Administration Act? (See the Policy on Transfer Payments.)
   • Who is responsible for Section 34? (Project officers?)
   • Who is responsible for Section 33? (Finance?)
2. Obtain support for the amount of appropriation given to the program for each of the years under review.
3. Obtain an understanding of how the program monitors its appropriations.
4. Provide a description of how the appropriation is further divided by regions or recipients. What ensures they do not exceed their budget (such as monthly reconciliations and reporting)?
5. Describe the processes used to redistribute appropriations at year end between programs or projects.

Departmental Capacity

Transfer Payment Modules

1. What are the key objectives of the transfer payment module?
   • Is there an IT steering committee?
   • Who is involved in the development and maintenance of the module (program managers/financial/IT)?
   • Have they assessed whether they are meeting user needs? If so, how?
2. What ensures that all programs and all recipients are entered into the module?
3. What are the mandatory inputs to move between stages? Outline the stages of the module and mandatory elements. Outline what elements are not considered mandatory but should be.
4. Are the financial systems integrated?
5. Does the program have electronic approval ability?
6. What reporting functions have been built into the module (for example, compilation of results, statistics)?
7. Is the reporting meeting the needs of users? (Ask program managers.)
8. How are these reports used to feed into departmental requirements?

Training

1. Obtain an understanding or copy of the training program designed for program managers and project officers.
2. Obtain an understanding of the objectives for training programs and of when the courses were developed.
3. How was the development of the course done (with outside expertise or sharing training material with other departments)?
4. How does the department ensure that all the appropriate personnel have taken the training, and what is the frequency of updates required? (Review attendance records.)
5. How does the department determine the training needs and success of the program?
6. Does training cover all internal control aspects over transfer payments as well as use of transfer payment modules?
7. Is there a centre of expertise or central review group for grants and contributions in the organization to assist program management and provide on-the-job training?

Funding Instrument

Explain the following through discussion with the client and OAG analysis:

1. What is the essential purpose of the program? In other words, why was it put in place?
2. Did the program obtain specific exemptions from the Policy on Transfer Payments? If so, document the reasons why.
3. How is the choice of funding instrument supported in the department’s authorities?
4. Could the department consider the use of a contract to carry out program objectives?
5. How, and how often, will the choice of funding instrument be reassessed (to consider changes in eligibility, changes in arrangements requiring new terms and conditions) to determine whether it remains appropriate as the program evolves?
6. How were risks assessed when selecting the funding instrument?
7. If contributions are being used, is it clear why they should be non-repayable, conditionally repayable, or unconditionally repayable?
8. Are a variety of funding instruments being used? If yes, why?
9. Discuss with program managers and departments their areas of concern. What discussions with the Treasury Board of Canada Secretariat have they had with respect to funding instruments?

Program Promotion

1. Does the program ensure all potential applicants have equal access?
2. Are assessment criteria made public?
3. Is the same promotion strategy used in all provinces and territories? If there is no promotion carried out, how do program managers know that all potential recipients are aware of the program?
4. What is the best promotional strategy (paper, electronic, hands-on information sessions)? Is it clear how it takes account of the evolving needs of the target population, ease of understanding (plain language), and extent of market penetration (program reach)?
5. How will potential applicants access information (for example, program publications, websites, or help desks)?

Eligibility Criteria

1. Obtain an understanding of the eligibility criteria.
   • Are the criteria the same for all regions? If not, document variations.
   • Are there any deviations in the application of the eligibility criteria? (For example, are criteria not applicable to a particular recipient?)
2. Are the eligibility criteria consistent with the Treasury Board submission terms and conditions?
3. How do project selection criteria ensure that only eligible recipients are funded?
4. Is consistency and fairness demonstrably valued by management? If so, how? Is there a project committee, checklist, or standard appraisal form to ensure consistency in scrutiny of review of applications? If yes, obtain a copy. (Ensure that program officers understand who is eligible for funding, under what conditions, for what purposes, and in what amounts.)
5. How are conflicts of interest resolved? Are there conflict-of-interest guidelines governing reviewers? If so, are these guidelines enforced and monitored?
6. Does the department obtain from potential recipients information about other sources of funding for a project prior to approving a contribution in excess of $100,000 or providing a grant in excess of $100,000? Document departmental policy in this area.

Approval Process

1. Is the likelihood of funding the best proposals optimized (for example, using case-by-case versus batching)?
2. Obtain an understanding of the approval process, prepare a simple flow chart that shows how program promotion or advertising is done, from initial screening to actual approval and acceptance of recipients (that is, from the application form to formal proposal to number of layers of peer review and other approval requirements). (Note: Financial attest teams may already have flow charts of this process that we can share.)
3. Who has the authority to override a decision and on what specific grounds?

Government Horizontal Management

1. Discuss with program/project officers whether this program includes recipients that receive funding from other program sources (it could be the same or another department).
2. Does the department coordinate audit planning or reporting requirements of recipients with other departments’ programs when feasible?

Cost of Administration

1. Ask the client how they compiled the information in their Treasury Board submission with respect to the cost of administering the program. Where did they get their cost estimates? Provide a list of the costs that have been included in this estimate.
2. Ask the client how/if they track actual costs against these estimates.
3. Determine if any cost-effectiveness analysis has been done for the program.

Results-Based Management and Accountability Framework (RMAF) or Performance Measurement Strategy

RMAF Approval

1. Obtain a copy of the RMAF or performance measurement strategy included in the Treasury Board submission.
2. Ensure that the RMAF or performance measurement strategy is complete (that is, it contains a profile, logic model, ongoing performance measurement strategy, evaluation strategy, and reporting strategy). Trace to departmental mandate, objectives, or program activity architecture to ensure consistency.
3. If the RMAF or performance measurement strategy encompassed a broader range of programs, determine how it was narrowed to define components for this program. Ensure the result is consistent with that approved by the Treasury Board in the Treasury Board submission.

Development of the RMAF

1. Obtain an understanding of who was involved in the development of the RMAF for this program. (Key people who should be involved according to the RMAF guide are managers, evaluation specialists, and Treasury Board analysts.)
2. Document how the performance indicators were determined for this program and assess the quality of performance indicators in measuring the results of program effectiveness. (Quality of indicators is related to reliability, validity, credibility, cost-effectiveness in terms of collection, indicator directly linked to the output in question.)
3. Are performance indicators the same for all regions?

Compiling Results to Measure Against RMAF Objectives

1. Obtain a copy of the template terms and conditions for recipients in this program. Trace results that they are supposed to report to the performance measurement criteria in the RMAF. Conclude on consistency.
2. Obtain an understanding of how result reporting from recipients is measured, compiled, and analyzed.
3. Does the analysis include a comparison of achievements of different recipients to determine successful initiatives and share best practices?
4. Determine consistency of RMAF reporting with program activity architecture to the departmental performance report and thus transparency to Parliament.
5. How are “lessons learned” captured and fed into future program design/redesign decisions?

Program Evaluation

1. Is there an evaluation plan based on assessment of risk, departmental priorities, and priorities of the government as a whole?
2. Do you understand who was involved in developing the evaluation for this program (in-house or consultants).
3. How does the department ensure that evaluators are competent and demonstrate objectivity and integrity?
4. Did the evaluation work incorporate consultation and advice from major stakeholders and peer review groups?
5. Did the evaluation work produce timely, pertinent, and credible findings and conclusions that can be used with confidence, based on practical, cost-effective, and objective data collection and analysis?
6. Did evaluation reports present the findings, conclusions, and recommendations in a clear and objective manner?
7. Does the evaluation address the following areas: relevance of program, success of program, and cost effectiveness? (See the Policy on Evaluation.)
8. Is the program evaluation consistent with the performance measurements in the RMAF?

Risk-Based Audit Framework (or Performance Measurement Strategy)

Design of Risk-Based Audit Framework

1. Obtain a copy of the risk-based audit framework (RBAF) included in the Treasury Board submission.
2. Ensure that the RBAF used for the program agrees with the one submitted with the associated Treasury Board submission.
3. Ensure that the RBAF is complete (including an introduction, roles, responsibilities and relationship, program profile, risk assessment and mitigation strategy, program monitoring and recipient auditing, internal auditing, and reporting strategies).
4. Obtain an understanding of how the RBAF was designed for this program. Also document who was involved in its development (that is, whether was it done by consultants or in-house and what was the degree of acceptance).
5. If the RBAF encompassed a broader range of programs, determine how it was narrowed to define RBAF components for this program. Ensure the result is consistent with that approved by the Treasury Board.
6. Obtain a copy of the key elements considered in assessing risk for this program and how this is applied at the recipient level.
7. Assess the appropriateness of the criteria used to determine the risk elements for this program.
8. Document coverage of recipients included for auditing due to the RBAF for each year under your scope.
9. Are the frequency, scope, and capacity to execute the audit framework considered? (In other words, do they have the necessary resources to carry out the plan?)
10. Determine whether the RBAF was carried out as designed.
11. Document how the program analyzes and uses the results of the RBAF work done (sharing of best practices, correction of systemic weaknesses).

Monitoring of Recipients

1. Obtain an understanding of the monitoring control framework used for the program.
2. Describe the monitoring process: How is it determined what and when things need to be done at each recipient level?
3. Identify whether monitoring is done in a consistent manner across all recipients, or if there are varying levels of monitoring commensurate with risk and materiality.

Work Project #2—File Review

Approval of Recipients

1. Do appraisal procedures ensure that the successful applications meet the program’s stated objectives?
   • Is a copy of the application on file?
   • Is there clear documentation that the application meets the eligibility criteria included in the recipient’s file?
   • How does the project comply with program eligibility, meet or exceed the assessment criteria, and demonstrate the potential for social and/or economic benefits to Canada?
   • How does the project officer know that the amount of funding is appropriate? Are there guidelines?
2. Does the file include clear documentation regarding recipients’ other sources of funding (in excess of $100,000 or less, depending on program policy)?
3. What is the rationale for government funding and the documented proof thereof? Consider the following:
   • evidence that the project could not proceed, or not in the desired manner, without government funding;
   • the funding is required to accelerate timing, or there is some other rationale provided that is in line with the program objectives;
   • the purpose of the project relative to the program objectives.
4. Are project planning estimates regarding timing and budgets realistic? How does the officer know?
5. Is there a requirement for leveraging funding by expecting financial and/or in-kind support from the applicant? If so, is it documented and substantiated?
6. For a business contribution, is there a documented direct link between expected profits and increased value to the business as a result of the contribution? If yes, is a repayable contribution vehicle being used to recover the full government investment? If the financial support is for high-risk business ventures or speculative projects, is the government sharing the financial benefits commensurate with its sharing of the financial risks?
7. If the recipient previously received a repayable contribution, is the repayment on that contribution current?
8. Is an environmental assessment required? Has one been done?

Stacking

1. Does the department obtain a written statement from potential recipients on other sources of funding for the project, as required by the Policy on Transfer Payments?
2. Ensure that funds received from other sources fall within the stacking provision policies.

Monitoring of Recipient

1. Ensure that the reporting frequency of financial information agrees with the requirements of the terms and conditions.
2. Identify what verification the project officer does with financial reporting and that this is documented.
3. Ensure that the reporting frequency of performance indicators agrees with the requirements of the terms and conditions.
4. Identify what verification the project officer does with performance indicator reporting and that this is documented
5. Obtain an understanding of how the project officer compares actual results with the budget or expected results.
6. What things can go seriously wrong at the project level?
7. How would managers know, and know soon enough, to take remedial action?
8. Are these risks common enough to affect overall program performance?
9. How do managers know that project performance monitoring is reliable?
10. Are the frequency and coverage of project verification/audits of compliance with agreements sufficient to provide useful information on ongoing program performance?
11. Is there quick action on problems identified by compliance audits?

Eligible Costs

1. Identify the program controls in place to ensure project costs are eligible under the terms and conditions.
2. Determine whether these procedures are sufficient and risk based.
3. Choose a sample of one periodic financial report from each recipient. Scan through the expense types and assess their reasonability given the terms and conditions. You must document which report you have examined for the sake of re-performance. Document any items (noticed either through your review or in discussions with project officers) that appear uneconomical (such as renting rather than owning a computer).

Cash Management Provisions

1. Ensure that the last payment date falls within the approved period for the project.
2. Compare the project’s start date with its approval date to ensure no funds were committed prior to formal approval.
3. What prevents payments in advance of need? (For special circumstances, see the Policy on Transfer Payments.)
4. Ensure that payments made were in accordance with the terms and conditions entered into with the recipient (by examining a sample). In terms of payments and dates, what evidence do you need to see? (If no other evidence is on file, verify cheques.)
5. Ensure that the payment terms were consistent with the requirements of the Policy on Transfer Payments regarding
   • advance payments,
   • repayments (what tracking occurs), and
   • accumulation of unspent balances.
6. Ensure that payments made were done in the fiscal year in which they were spent. (Look at year-end activity.)
7. In the case of multiple instalments, how do program officers satisfy themselves regarding the recipients’ continuing eligibility?

Financial Administration Act, Sections 33 and 34

1. Ensure that for a sample of one payment in each file, document payment vouched for re-performance is made in accordance with s.34 of the Financial Administration Act. In particular, for section 34, how do program officers satisfy themselves that the terms of the transfer payment agreement have been met? (The person signing off must have actual knowledge of the project and certification must be based on a scale of risk.)
2. Ensure that payments are made in accordance with s.33 of the Financial Administration Act.
3. Using the delegation chart of authority, ensure the authority levels are consistent with internal policy.
4. Is there appropriate segregation of duties between those who review and approve applications, and those who approve payments? Document cases where either the same person who approves applications or the project officer is approving payments.

Repayable Contributions

1. How are repayable contributions identified as such and recorded in the financial system?
2. How are the financial risks to the department and to the business entity determined?
3. Are repayment schedules specified in the contribution agreement?
4. How is assurance obtained that financial risks and rewards are shared equitably?
5. Do the funding agreements provide for full repayment and sharing of profits and royalties, if appropriate?
6. How do the provisions for repayment take account of the high-risk nature of the contribution? For programs recovering some portion of their costs, how is account taken of the fact that real successes in the program project portfolio have to pay for those that do not make a return?
7. If amounts owed are past due, is interest being charged?

Conclusion on Recipients’ Files

1. Conclude on the completeness of the recipients’ files based on sampling work done. Discuss whether files were maintained in an adequate manner and necessary documentation appropriately organized.
2. Document the extent of duplication in effort for recipients’ files by, for example, printing screen shots from the grants and contributions information management system.

Appendix 4—OAG Reports on Grant and Contribution Programs, 2000–2011

Year	Chapter
2011	1	Canada’s Economic Action Plan
2011	3	Payments to Producers—Agriculture and Agri-Food Canada
2011	1	Expenditures for the 2010 G8 and G20 Summits
2011	2	G8 Legacy Infrastructure Fund
2011	4	Programs for First Nations on Reserves
2010	1	Canada’s Economic Action Plan
2010	4	Managing Conflict of Interest
2009	6	Selected Contribution Agreements—Natural Resources Canada
2008	1	A Study of Federal Transfers to the Provinces and Territories
2006	6	Management of Voted Grants and Contributions
2005	8	Other Audit Observations—The Canadian International Development Agency
2005	5	Canadian International Development Agency—Financial Compliance Audits and Managing Contracts and Contributions
2005	4	Accountability of Foundations
2004	7	Process for Responding to Parliamentary Order Paper Questions
2004	8	Other Audit Observations—Telefilm Canada
2004	4	Canadian Food Inspection Agency—Regulation of Plants with Novel Traits
2003	2	Accountability and Ethics in Government
2003	3	The Sponsorship Program
2003	10	Other Audit Observations—Natural Resources Canada
2002	1	Streamlining First Nations Reporting to Federal Organizations
2002	5	Financial Management and Control in the Government of Canada
2002	6	Statistics Canada—Managing the Quality of Health Statistics
2002	1	Placing the Public’s Money Beyond Parliament’s Reach
2002	8	Other Audit Observations—Health Canada and Public Works and Government Services Canada
2001	4	Voted Grants and Contributions—Government-Wide Management
2001	5	Voted Grants and Contributions—Program Management
2001	6	Atlantic Canada Opportunities Agency—Economic Development
2001	9	Health Canada—A Proactive Approach to Good Health
2000	2	Human Resources Development Canada—Service Quality at the Local Level
2000	11	Human Resources Development Canada—Grants and Contributions
2000	12	Values and Ethics in the Federal Public Sector
2000	13	Assessment of Financial Management Capabilities in Departments
2000	14	Canadian International Development Agency—Managing Contracts and Contribution Agreements
2000	15	Health Canada—First Nations Health: Follow-up
2000	33	Follow-up of Recommendations in Previous Reports—Grants and Contributions: Selected Programs in Industry Canada and Department of Canadian Heritage—1998, Chapter 27

Appendix 5—Selected References

Relevant Acts and Regulations

• Access to Information Act
• Auditor General Act
• Canadian Environmental Assessment Act
• Conflict of Interest Act
• Constitution Act, 1982
• Financial Administration Act
• Government Contracts Regulations

Relevant Treasury Board Policies

• Policy on Transfer Payments (2000 and 2008)
• Policy on Evaluation
• Communications Policy of the Government of Canada
• Policy on Information Management
• Policy on Internal Audit

Other Government Publications

• Directive on Transfer Payments (2008)
• Guideline on Recipient Audits Under the Policy on Transfer Payments and the Directive on Transfer Payments
• Supporting Effective Evaluations: A Guide to Developing Performance Measurement Strategies
• Guideline on Performance Measurement Strategy under the Policy on Transfer Payments
• Guideline on Service Standards
• Accounting Standard 2.3 – Treasury Board – Transfer Payments (Grants and Contributions)
• Management Accountability Framework