Introduction

Initially created as a special operating agency in 1987, WD was established as a federal department, through the Western Economic Diversification Act, 1988. The department's mandate is to promote the development and economic diversification of western Canada (Manitoba, Saskatchewan, Alberta and British Columbia) and to advance the interests of western Canada in national economic policy, program and project development and implementation. It also plays a significant role in the west by taking lead roles in many government initiatives that bring together partners from private and not-for-profit sectors, municipal and provincial governments, other federal departments and academic institutions. WD has evolved to meet changing expectations and it is building on its successes. WD has earned recognition in a broad diversity of industries besides the energy sector in western Canada.

WD's Headquarters is located in Edmonton, Alberta. It has four regional offices in Edmonton, Winnipeg, Saskatoon, Vancouver and a liaison office in Ottawa. A regional satellite office exists in Calgary. The Deputy Minister is located in Edmonton, and Assistant Deputy Ministers are located in Vancouver, Edmonton, Saskatoon, Winnipeg and Ottawa. The organizational chart is depicted in Exhibit 1. As a regional development agency, WD works closely with the government of the day to align its strategic priorities and outcomes with government priorities as outlined in Speeches from the Throne, Budgets and other policy directions.

Audit context and risks

Comparatively a small federal department with 380 employees, WD is a significant department in terms of federal government funding and accountability because it administers over $250M annually in grants and contributions for the development and economic diversification of western Canada.

In 2006, the Government introduced two key documents, namely:

1. The Federal Accountability Act (FedAA); and
   
2. A new Policy on Internal Audit.

A direct impact of the FedAA is that the Deputy Minister is designated as WD's Accounting Officer. The Deputy Minister can be called in front of Parliamentary Committees on a number of subjects, including the internal controls within the department. As a result of the new Policy, holistic opinions will soon be required on internal controls, risk management and governance.

This audit assessed whether the existing management structures and corresponding systems are sufficient to provide strategic direction and to demonstrate accountability for results achieved. Therefore, this audit focused on examining evidence supporting strategic governance and performance. The results of this audit will support the Chief Audit Executive, in part, to render a future holistic opinion on governance, controls and risk management processes in place at WD.

Exhibit 1: Western Economic Diversification Canada Organization Structure

Source: WD Departmental Reports: 2007-08 Reports on Plans and Priorities

Scope of the audit

The audit examined evidence of good³ governance and accountability processes, and their integration at strategic levels of the organization. The audit assessed the capacity and readiness of WD's modern management practices in response to recent federal government management initiatives for achieving results. The audit examined documentary evidence of management practices for linkages.

Government of Canada internal auditing standards were used. In conducting and reporting on the audit, emphasis was placed on factual evidence, analyzing the evidence, and its collaboration and documentation. The audit analyzed conditions with objectivity and against risk exposure, significance, cause and probable effect. Recommendations were selected based on risk exposure, significance, and actionable added-value points that will contribute to management excellence.

The audit period covered control frameworks in existence from the period of April 1, 2006 to September 30, 2007. The audit covered all regional offices, including the Ottawa liaison office and corporate headquarters. Fieldwork was completed in September 2007 and a draft report produced in October 2007. The consultation and finalization phase of the audit was delayed until April 2008 as a result of changes in internal audit priorities. This report has been updated to reflect any relevant supplementary evidence that occurred between October 2007 and April 2008. The effectiveness of such evidence has not been evaluated for purposes of this report. However, this will be covered as part of any follow up or future audit work.

Management controls being tested in this audit are enablers to the achievement of performance expectations. The audit did not assess the quality and adequacy of information in transactional documents supplied since the scope was limited to control frameworks and information summarized at the strategic level of management. Also, while certain elements of the audit might align to the principles and concepts in the federal government's Management Accountability Framework (MAF), this is not an audit of MAF. MAF is a broader and global accountability framework, but it is not a control framework.

Audit criteria

The audit criteria were drawn from multiple sources including: WD's enabling legislation, WD's Visioning exercise, TBS Internal Audit Policy, Government of Canada internal auditing standards, TBS Management Accountability Framework (MAF), TBS Core Management Controls, Results for Canadians - Modern Management, CCAF-FCVI "Characteristics of good governance", TBS Report on Plans and Priorities and Departmental Performance Report guidelines, Office of the Auditor General of Canada reports and TBS internal audit database. The audit was based on the following criteria:

1. The systems and practices should ensure that WD's strategic decisions and priorities are linked to its Western economic mandate;
2. WD corporate systems and practices should provide for periodic reassessment of the value and continuing relevance of the Western economic and policy agenda;
3. Evidence that strategic directions and decisions are made after thorough analysis of the operating environment and regional priorities, options, risks, and results impact;
4. Resource allocations are adequate and reflect priorities and/or changing needs;
5. WD's strategies and priorities are communicated consistently to staff on a timely basis through the various appropriate authorities and networks;
6. Staff roles and responsibilities are aligned to organizational plans, priorities and performance.
7. Performance and lessons learned information are collected and used to improve operations and accountability reporting to stakeholders.

Audit expectations

For the purpose of this audit and future use, WD Audit, Evaluation and Ethics branch developed a model Integrated Management Framework for Performance (Exhibit 2). The model outlines four broad integral suites of management processes and controls. The intertwined topics need to be governed, integrated, communicated and monitored in order to meet clients' expectations and achieve corporate results. Underneath the four broad topics are a mixture of strategic, operational and transactional level elements of legislation, activities, policies, documents, and practices critical for a federal department's success. The auditors selected the four highest elements of the model as the lines of inquiry and examined governance at the strategic level, namely:

1. Strategic direction;
2. Resourcing strategic priorities;
3. Delivering and monitoring priorities; and
4. Performance accountability.

The audit examined documentary evidence of governance practices for linkages to performance. The auditors did not audit all the elements in the model since the focus of the audit was at the strategic level of the organization. The audit expectations have been summarized in the observations and recommendations section under each line of inquiry.

Exhibit 2: A model Integrated Management Framework for Performance

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