Acknowledgements

Audit and Evaluation would like to acknowledge the participation and interest of both Headquarters and regional management and staff in this audit, particularly for insights and contributions provided. The sincere and honest opinions and contributions reflect the importance placed on this review. It is hoped that the results of this review will provide the department with useful information and suggestions.

Executive Summary

Overview:

Western Economic Diversification Canada (WD) supports activities that develop and diversify the western Canadian economy and promote economic benefits and job creation in Western Canada. Funding is focused on activities that support innovation, promote a competitive and expanded business sector in Western Canada, and develop sustainable communities that improve the competitiveness and quality of life in the West.

WD stimulates investment in the West primarily through contributions which may be, repayable, conditionally repayable, or non-repayable. All projects are funded through individual contribution agreements.

WD considers effective management of grants and contributions as key to successful achievement of departmental strategic outcomes. To contribute to management’s goal of achieving continuous improvements, the Audit, Evaluation and Ethics branch initiated in 2005 continuous auditing of the management of grants and contributions to assess various aspects of overall management. Continuous auditing of grants and contributions helps to identify key issues, provide recommendations and develop management action plans on a timely basis. This helps WD implement ongoing, timely improvements in this key area.
 
Phase one of the audit was completed in early 2006, and involved the assessment of the financial management of grants and contributions. The current phase, phase two, was intended to examine administrative management of grants and contributions including adherence to relevant policies. This audit covered the period from October 2004 through to March 2006.

Findings

The audit found that, overall, the administrative management of grants and contributions at WD was adequate, however more could be done to improve grants and contributions management and strengthen adherence to government policies. The audit team observed that files were complete in their documentation and that contribution agreements included the components of the Policy on Transfer Payments as required. Ongoing improvements around management of grants and contributions in the department were proceeding appropriately. This report notes opportunities to make further improvements that are presented for management’s consideration.

Good practices:

In assessing potential projects, some regions are using a formal Grants and Contribution Committee meeting approach. The project assessment officer presents the proposed project, where it is then discussed for its merits and fit towards contributing to departmental and regional objectives. The results of that meeting are one of three options: a project is determined to be a good fit for WD and proceeds to the due diligence process; the project requires more information and will be presented again at a future meeting; or, it is determined that the proposed project is not a good fit for WD and should be declined. The meeting is intended to inform the decision making process and ensure that proposals are consistent with the goals and objectives of the region. Not all regions are holding such meetings and this was held to be a good practice which has potential for all regions. The audit of the Financial Management of Grants and Contributions completed in April 2006 recommended that the committee approach to reviewing project proposals should be pursued. This audit supports and reconfirms that recommendation.

In Manitoba Region, officers undertook a follow up review on completed projects. The objective of the review was threefold: to provide valuable information on success stories; to review lessons learned; and, to encourage engagement with recipients. Results were collected for target groups and sectors of the economy. The potential to collect valuable information available to educate future programs and decision making was considered to be a best practice that other regions may wish to follow.

Improving Grants and Contributions Management and Compliance with Policy:

Although WD has made progress in this area, certain elements of the management of contribution agreement amendments were found to be an issue in all regions. For example, some agreements reviewed had been amended to extend the project completion date after the original project completion date in the contribution agreement had passed, occasionally without request from the recipient. It should be noted, that in those cases, there was no impact to the scope of the project, the amendment was to extend the date of project completion only. Of the 60 files selected for review, late amendments were completed in seven cases, which represent 12 per cent of the files examined.

This audit also noted examples of start dates in contribution agreements that were earlier than the signing date of the agreement to allow for claiming of costs prior to the signing of the agreement, although this practice has since been corrected.

Advances were made to recipients and not accounted for within the required 90-day period. In one region, 33 per cent of the files reviewed included advances issued at year-end with the need for the advance not always apparent. At issue around advances was charging interest on overdue repayments, with one case noted in which the decision was made to waive a substantial amount of interest. This was contrary to the Treasury Board Policy on Transfer Payments. In the example noted, the project file indicated the recipient had fully expected to be charged interest, and had even set up a liability in their books for the interest. However, the decision was made by WD to waive the interest charge.

The audit noted examples of non-compliance with reporting requirements stated in the contribution agreements. Contribution agreements indicate that regular progress reporting is required, with a final report to be provided following completion of the project. Receipt of reports was not always evident and reporting on agreed upon indicators was inconsistent. WD currently does some follow up on missing information, but more could be done to rigorously ensure that recipients meet the requirements agreed to in contribution agreements. Enforcing terms and conditions of the contribution agreements would strengthen file management by bringing due dates to the attention of those officers who would be responsible to follow up. Proper management of, and follow up on, all terms and conditions of contribution agreements is a critical element of good stewardship over these public funds.

The gaps noted during the review raised questions around whether clear and defined roles and responsibilities exist once the contribution agreement has been signed.

Consistency between regions:

During the visioning exercise the department recently underwent, the need for more pan-western projects was identified. Should this trend continue, there will be a need to standardize and streamline processes between regions in order to facilitate the management and reporting on such projects. Communication and cooperation between regions will be key to managing such projects successfully. Opportunities to promote regular communication between regions, to seek advice on issues, and to share best practices and streamline process should be capitalized upon wherever possible.

Performance measurement:

As a result of the 2003 review of Monitoring and Payments (M&P) at WD, recommendations were made which are currently being addressed. A working group was assembled whose mandate was to “implement a system as a mechanism to monitor and report on project activities and outcomes in determining the impact of the contribution with respect to WD’s three strategic directions.” Significant progress has taken place as a result of efforts of the working group; however, there are still areas where improvements can and are being made.

Performance measurement has been a challenge for the department and continues to be so. In developing a good performance measurement system, outcomes need to be clearly defined and the system itself needs to be simple. The indicators need to be straightforward, valid, reliable, relevant and affordable to obtain. Project files reviewed showed no formal mechanism in place to track and report on project performance, or to accumulate and roll up results departmentally. The M&P working group has been working on a project outcome report, which they intend to have incorporated into the Project Assessment Tool system on line. Currently, WD does this manually.

Recommendations

1. Consideration should be given to following up on the success of completed projects when anticipated results have been achieved. Although this may be years after project completion, this practice would help to assess the long-term impacts and influence future decision making and resource allocation.
2. Contribution agreement management should be strengthened so important dates in the contribution agreement are recognized and acted on consistently. Key dates include: project completion date, due date for filing claims against advances and quarterly report filing due dates. Automation of contribution agreement management could assist officers by producing a report identifying important upcoming dates to the project, thereby facilitating proactive action. As a means of soliciting further compliance and clarity, contribution agreements should include more details on the project description and more detail around what constitutes an eligible and ineligible cost.
3. As a means of improving transparency and broadening the client base, consideration should be given to developing a request for proposals document for certain initiatives, as was done in Saskatchewan with the Canada Celebrates Saskatchewan sub-program. It is anticipated that the request for proposals will identify a number of pan-western projects. To further consistency between the regions and to manage such pan-western projects, communication and information sharing between the regions and Headquarters should be enhanced by appropriate means, such as regular meetings, conference calls or informal ad hoc discussions. 
4. Continue refining the project performance measurement process to facilitate accumulating results-based information linked to departmental strategic outcomes. Clarification of roles and responsibilities around performance measurement should be undertaken and communicated to all staff involved at all stages of the management of contribution agreements.