Joint Letter by TBS and OAG to Deputies and Senior Manager to Clarify Responsibilities/Duties

20 January 2004

Letter to Deputies and Senior Managers

Among the expectations in the Guidance to Deputy Ministers are the responsibilities with respect to the Auditor General. As described in the guide, Deputy Ministers must ensure that their departments establish respectful and constructive working relationships with the Auditor General and that the information required to fulfill her mandate is supplied as appropriate. Similarly, [performance*] audit teams are obliged to adhere to high standards of professional practice as regards their interactions with departments.

Questions are often raised about how this works in practice. On one side are the responsibilities of management and on the other the duties of the independent auditor. The enclosed document brings together the perspective and responsibilities of management and those of the auditor. It summarizes the important role that deputies and other senior managers in departments and agencies can and should play in one area of the Auditor General’s work, [performance*] audits.

The document sets out the specific steps in the audit process that can facilitate the working relationship between management and the auditor, particularly in those areas where it is considered important for deputies to be involved. These include understanding the risks departments face, selecting subject areas for audit, audit objectives and criteria, recommendations, and follow‑up. A strengthened role for audit and evaluation committees can assist deputies in dealing with many of the areas identified.

This document should be of assistance to Deputy Heads and their senior managers.

Yours sincerely,

Jim Judd
Secretary of the Treasury Board and
Comptroller General of Canada

Sheila Fraser, FCA
Auditor General of Canada
 

Enclosure

* The original letter referred to Value for Money Audits. In June 2004, OAG renamed the practice from “Value-for-Money” to “Performance Audit.

Working with the OAG on Performance Audits
Information for Deputies and Senior Managers in Departments and Agencies

Purpose

To summarize the involvement that deputies and other senior managers in the departments and agencies (entities) can expect to have in performance audits conducted by the Office of the Auditor General (OAG) and improve the working relationship.

Background

The OAG has a mandate to carry out performance audits under Section 7 of the Auditor General Act. In carrying out this mandate, the OAG’s right of access to entities’ information and staff is governed by Section 13 of the AG Act. This entitlement cannot be overridden except by specific statutory provision to the contrary. Indeed, the Privy Council Office’s Guidance for Deputy Ministers reiterates the deputies’ role in ensuring that their departments establish a respectful and constructive working relationship with bodies such as the OAG, and make sure that information required to fulfill their legislative mandate is supplied as appropriate.

The OAG’s Manual on Performance Audit is available on the OAG web site. It sets out the Quality Management Framework and related policies that govern the conduct of all performance audit work. The subject of a performance audit can be a government entity or activity (business line), a sectoral activity, or a government‑wide functional area. With different complexities and sensitivities for the potential audit subjects, there is a degree of flexibility in the audit process. The Manual is primarily for use by the professional staff of the OAG. As such, it has an internal focus.

Deputies and senior managers in entities have an important role to play during the course of a performance audit. This document focuses on the key points in the performance audit process where Deputies and senior managers are involved. It covers the spectrum of activity related to audits from the selection of audits through the conduct of the performance audit (e.g. planning, examination and reporting stages), to the subsequent annual monitoring of recommendations made in prior audits.

Design of this Document

This document is purposely brief; it is intended to be a quick reference for senior managers. Some general principles are set out, then there are charts that show the key points of involvement of entity managers.

General Principles

The following general principles apply:

  1. Entity contact—
    • The management of the entity should designate a contact person for the OAG who is responsible for the management and administration of the audit process. (Often this is the head of internal audit.)
    • The management of the entity should establish an “Office of Primary Interest” responsible for the substantive issues for each audit in an entity. This should be done for each entity that is involved in a government‑wide or other audit that involves more than one entity.
  2. Timelines—The OAG and the entity should communicate and discuss timelines to meet the requirements for including the audit report (chapter) in the AG’s Report to Parliament.
  3. Access to information—
    • Entities should ensure that their staff understands the AG’s right of timely access to information and entity staff.
    • Requests by auditors for information should be clear and the information should be provided by the entity within reasonable/established timeframes.
  4. Conduct of audit—
    • The audit Principal is normally expected to consult with entity management at the appropriate decision points during the audit.
    • If, after the examination phase begins, the auditor believes it is necessary to materially change the scope of the audit, the rationale, timing and approach should be discussed with the entity, recognizing that the AG will make the final decisions.
    • Auditors should identify main topics to be discussed in advance of meetings, where practicable.
    • The approach to debriefing departments will be agreed upon prior to the end of the examination phase.
    • As issues arise during the audit, it is important to discuss and resolve them as quickly as possible and to escalate them for early resolution if necessary.
  5. The OAG and entities should respect the confidentiality of the OAG's report drafts until the report is tabled in Parliament.

Audit Planning

The starting point in the performance audit planning process is deciding what to audit from the large number of government activities. This is a complex and challenging exercise that requires good knowledge of the entities’ business or sector of activity and a high level of professional judgment. Key inputs are periodic one‑pass plans of individual entities. One‑pass plans provide a systematic, integrated and risk‑based approach to long‑range audit planning.

Audit Planning

Deputies’ and Senior Managers’ Involvement

 

Key for D.H.

Letter advises the Deputy Head of the entity that one‑pass planning is about to begin.

Distribute the letter to those in the entity who need to know.

Develop an understanding of the entity, including its objectives, risk profile, control profile, etc.

Deputy Head meets with auditors (AAG and Principals)

Annually the proposed audits are consolidated and the OAG’s Executive Committee approves those that will be reported over the next 12 to 18 months.
Shares information on the planned audits with the entity.

Receive information on planned audits and share details within the entity as appropriate.
Discuss planned audits with Audit and Evaluation Committee.

 

The Audit Process

1. Performance audit planning phase

The purpose of audit planning is to enable the audit team to develop an appropriate level of knowledge concerning the entity, the programs under audit and the issues facing them. This knowledge enables the audit team to develop an examination plan that will provide a basis for the orderly, efficient and cost‑effective conduct of the audit.

Audit Process

Deputies’ and Senior Managers’ Involvement

 

Key for D.H.

Letter advises entity Deputy Head that performance audit planning is about to begin.

Distribute the letter to those in the entity who need to know.

Sends the Deputy Head a letter on preserving ‘solicitor‑client privilege’ on information that may be requested.

Responds to letter and sends a copy to those in the entity who need to know.

Audit team acquires a sound knowledge of the audit subject in order to develop an examination plan for the audit.

Deputy Head meets with auditors to discuss proposed audit. The audit team is provided with the necessary information to enable it to understand the areas subject to audit.
Provide views on the critical success factors for the subject area being audited, responsibility for the subject, sources of criteria, risks, management concerns, and other related audits or studies.

Based on the examination plan, prepares a scope and plan report and sends it to the contact to coordinate the development of comments on the audit objectives, approach, suitability of criteria and management’s responsibility for the subject area.
(Any unresolved disagreement on criteria and management’s responsibilities would be disclosed in the audit chapter with appropriate explanation.)

Provide views on the audit objectives, approach, criteria and management’s responsibility for the subject, preferably in writing.

 

Plan to rely on the work of internal audit whenever possible in areas relevant to the audit.

Assess these plans and ensure that related internal audit work is consistent with management priorities for internal audit.

 

2. The examination phase

The purpose of the examination phase is to gather sufficient appropriate audit evidence to allow the auditor to support all of the statements made in the audit report.

Audit Process

Deputies’ and Senior Managers’ Involvement

 

Key for D.H.

As issues arise, they should normally be discussed with entity management.
(Audit teams would report corrective action where there is sufficient appropriate evidence that it is underway.)

Discuss the issues and, in particular, any corrective action that is underway.

 

Facts should be shared with and confirmed by entity management.

Examine all factual statements and either confirm their correctness to the auditors or if the purported fact is in error, provide the auditors with the correct information and with appropriate supporting evidence.

 

When developing recommendations, seek management’s views, as early as possible on what actions are necessary to correct the problem.

Input in the development of recommendations.

 

Towards the end of the examination brief the entity on emerging findings.

Deputy Head participates in the briefing.

3. The reporting phase

The purpose of the reporting phase of audits is to present the finding and conclusions in accordance with the purpose of the audit.

Audit Process

Deputies’ and Senior Managers’ Involvement

 

Key for D.H.

Send the Principal’s draft chapter to the contact person for coordination of the development of responses within the agreed upon timelines.

Review the draft and provide the OAG with a clear entity position on:

  1. facts in dispute—accompanied by all supporting evidence in the entity’s possession;
  2. accuracy of text.

Deliver the response within agreed upon timelines, a process that usually takes 4 weeks.

 

Discuss the issues raised in the entity’s response and attempt to resolve them.

Discuss the issues raised with the audit team and attempt to resolve them.
Those discussions should begin within agreed upon timelines.

 

For unresolved issues, the AAG should meet with the Deputy Head of the entity to attempt to resolve them.

The Deputy Head should meet with the AAG to attempt to resolve outstanding issues.
(The result should be either agreement or at least a clear and shared understanding of the points on which there is ‘agreement to disagree’.)

Revise the draft chapter to reflect all of the changes necessary as a result of the discussions on the Principal’s draft.
Send the revised draft (DM draft) to the deputy head for comments and official responses to the recommendations for corrective action.

Provide in writing final comments of the Deputy Head, including formal responses to recommendations and any disagreements within the agreed upon timeframes and the limits set out by the OAG, usually in 2 weeks.

If needed, draft a management letter on findings not included in the audit chapter and forward it to the entity (Deputy or Senior Management) on a timely basis.

Review draft and provide comments to the OAG on a timely basis.

 

Annual Monitoring of Recommendations

It is important for both the AG and the deputy head to know and understand the extent to which the recommendations of the AG have been implemented. This is a matter of due diligence, accountability and value for money.

Monitoring Process

Deputies’ and Senior Managers’ Involvement

 

Key for D.H.

Letter to contact person requesting an update on the status of the implementation of recommendations from prior years’ audits.

Distributes the request to those who will provide the input for the response.
Coordinates the response and sends it to the OAG.
Deputy Head and Audit and Evaluation Committee discuss status with auditors (AAG and Principal).

Inform the entity of results.

Provides information to those who need to know.