Archived - Audit of Financial Commitments to the World Bank
Final Report

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Prepared by
Internal Audit and Evaluation
Department of Finance Canada

Approved by the Deputy Minister of Finance Canada on the recommendation of the Audit and Evaluation Committee on December 9, 2013

Table of Contents

Executive Summary

Background

Audit Objective and Scope

Statement of Conformance and Audit Approach

Conclusion

Findings by Audit Criteria

Appendix A: List of Departmental Employees Interviewed

Appendix B: Key Information Reviewed

Appendix C: Sampling Methodology

Appendix D: Members of the Audit Team

Executive Summary

The World Bank Group, as a Bretton Woods Institution, has a mandate to promote poverty reduction and sustainable development. Canada is a member country and significant shareholder of the World Bank Group, and the Minister of Finance is Canada’s Governor on the World Bank Group’s Board of Governors.

The Department of Finance Canada coordinates Canada’s policy advice and undertakes financial transactions in support of Canada’s participation and commitments to the various World Bank organizations.

The audit objective was to provide reasonable assurance that the Department’s management control framework for the financial commitments to the World Bank is effective.

The audit concluded that the Department’s management control framework for the financial commitments to the World Bank is effective. Specifically, the following good management practices were noted:

  • Roles, responsibilities and accountabilities are clearly established, including delegation of authorities, to support the management of financial commitments to the World Bank;
  • Effective processes and controls are in place to support financial commitments to the World Bank being processed in compliance with legislative requirements and administrative arrangements;
  • Monitoring processes and controls exist and are effective in supporting reporting to and decision making by management; and
  • Controls are in place to ensure that payment master files are maintained and include appropriate recipient information.

There were no issues identified during the audit and therefore no recommendations are provided in this report.

Background

The Audit of Financial Commitments to the World Bank was authorized as part of the Department of Finance’s 2013–16 Internal Audit Plan, which was approved by the Deputy Minister at the departmental Audit and Evaluation Committee meeting of March 1, 2013.

Canada is a member country of the World Bank Group’s International Development Association (IDA), the International Bank for Reconstruction and Development (IBRD), the International Finance Corporation (IFC), and the Multilateral Investment Guarantee Agency (MIGA). As a significant shareholder, Canada has contributed a total of US$5.5 billion in capital subscriptions to the IBRD, IFC and MIGA, and US$8.9 billion in donor contributions to IDA.

The Department of Finance coordinates Canada’s policy advice and undertakes financial transactions in support of Canada’s commitment to and participation in international organizations, including the various World Bank organizations.

Within the Department, the International Trade and Finance Branch (ITFB) manages the Department’s participation in international organizations and administers Canada’s financial commitments to international organizations. The Corporate Services Branch executes and reports on financial transactions with international organizations, ensuring that transactions are authorized, accurate, recorded in a timely fashion in the financial information system, and appropriately presented and disclosed in departmental financial statements.

The Bretton Woods and Related Agreements Act sets out the authority to provide financial assistance to the various World Bank organizations. The Financial Administration Act, relevant Treasury Board policies, as well as specific administrative arrangements, govern the administration of the financial transactions.

Audit Objective and Scope

Audit Objective

The audit objective was to provide reasonable assurance that the Department’s management control framework for the financial commitments to the World Bank is effective.

Audit Scope

The scope of the audit was limited to the Department’s management control framework and covers the financial commitments to World Bank organizations, focusing on financial commitments made from FY 2009–10 to FY 2012–13.

The audit scope included and was limited to the following:

  • “Core” payments (i.e., capital subscriptions) as part of the International Bank for Reconstruction and Development general capital increase; and
  • “Non-core” payments (i.e., contributions made to World Bank Group trust funds) and related reflows from World Bank organizations made under administrative arrangements in place (the Global Trade Liquidity Program, the Private Sector Window of the Global Agriculture and Food Security Program, Financial Mechanisms for Climate Change Facility, the Global SME Finance Innovation Trust Fund, the AgResults Initiative, and the International Finance Corporation Climate Catalyst Fund).

The total value of the financial commitments in the audit scope was $755 million in payments and $203 million in repayments (reflows).

The audit scope did not include subscriptions and contributions to the International Development Association, the Multilateral Investment Guarantee Agency, or the Global Environment Facility because these areas have been covered in previous audits and reviews, were deemed low-risk, or their responsibility resides outside of the Department.

Statement of Conformance and Audit Approach

Statement of Conformance

The audit was conducted in accordance with the Internal Auditing Standards for the Government of Canada, as supported by the results of the Quality Assurance and Improvement Program.

Audit Approach

The audit was planned and performed so as to obtain reasonable assurance that the audit objective was achieved. During the audit, appropriate procedures were followed and sufficient evidence was obtained to support the accuracy of the findings and the overall audit opinion presented in this report. The findings are based on a comparison of the conditions, as they existed at the time of the audit, with the audit criteria identified in this report, which were accepted by management. The opinion applies only to the entities examined.

Audit procedures included, but were not limited to, interviews, observations, reviews of supporting documents and analytical testing. The audit criteria used to develop the required audit tests were based on the relevant elements of the Office of the Comptroller General’s Audit Criteria Related to the Management Accountability Framework.

Twelve individuals (listed in Appendix A) were interviewed for this audit. These employees were consulted on one or more criteria, and with different levels of depth, depending on their role in the administration and execution of financial commitments to the World Bank. The audit team also conducted a review and analysis of applicable authorities and policies, as well as other financial and non-financial documents from various relevant sources. A list of key information reviewed is provided in Appendix B, and details of the judgmental sample of transactions selected for financial review are in Appendix C.

The audit approach allowed for the audit findings to be communicated so as to enable management to review and provide feedback on the findings and conclusions before they were finalized.

Conclusion

The audit concluded that the Department’s management control framework for the financial commitments to the World Bank is effective. Specifically, the following good management practices were noted:

  • Roles, responsibilities and accountabilities are clearly established, including delegation of authorities, to support the management of financial commitments to the World Bank;
  • Effective processes and controls are in place to support financial commitments to the World Bank being processed in compliance with legislative requirements and administrative arrangements;
  • Monitoring processes and controls exist and are effective in supporting reporting to and decision making by management; and
  • Controls are in place to ensure that payment master files are maintained and include appropriate recipient information.

Findings by Audit Criteria

The assessments in this section summarize the audit observations based on the factual evidence gathered and analyzed during the audit. Based on these assessments, there were no recommendations raised.

The “Findings by Audit Criteria” section includes the approach used for the assessment of risk exposure in audit reports. Taking into consideration audit findings and mitigating controls in place in relation to the audit criteria, residual risk exposure for each audit criteria is categorized as high, medium or low.

These risk ranking levels correspond to the residual risk exposure, which auditors believe may influence organizational objectives. The risk levels also take into consideration the levels of resources required to successfully implement corrective actions. The following describes the standards used to establish the residual risk exposure:

High
Serious impact that requires immediate attention and action (extensive management efforts are required; problems are costly and difficult to repair, if repairable).
Medium
Significant impact that requires ongoing monitoring to ensure that risk is contained to an acceptable level (considerable management efforts are required; problems are manageable with management action and investment).
Low
Little impact (limited effort from management is required, and low level of investment is needed to address the problems).
Findings by Audit Criteria
Criterion Residual Risk Exposure Assessment
1.0: Delegation of Authority
Roles, responsibilities and accountabilities are clearly established, including delegation of authorities, to support the management of financial commitments to the World Bank. Low Roles, responsibilities and accountabilities are clearly established, including delegation of authorities, to support the management of financial commitments to the World Bank.

Authority for Agreements

Canada’s Minister of Finance acts as Canada’s Governor at the World Bank. The authority of the Minister of Finance and, via delegation, the Assistant Deputy Minister (ADM), ITFB, to enter into agreements to provide financial assistance to organizations within the World Bank Group stems from relevant clauses in the Bretton Woods and Related Agreements Act, and for the purposes of conferring authority via delegation, the Interpretation Act.

Authority for Payments

Responsibility for the control and spending of public money is placed on ministers and deputy heads by Parliament through appropriation acts, the Financial Administration Act (FAA), and regulations under the FAA. Through the departmental Delegation of Financial Signing Authorities Instrument, the Minister of Finance Canada allows for delegation of financial and other authorities to positions where responsibility can be most effectively exercised and where accountability for results can be determined.

The audit examined whether the Department had the appropriate authority to enter into agreements and make payments to the World Bank in the manner in which it did. In addition to conducting interviews with departmental officials, key documentation internal to Finance as well as the relevant acts were reviewed to ensure there was sufficient and appropriate evidence to demonstrate that authorities were in place and properly delegated.

The audit found that the authority to enter into the agreements relevant to the payments in the audit sample was properly determined and established based on the relevant acts that allowed the Minister of Finance and ADM, ITFB, the authority and delegation to sign agreements with the World Bank. With respect to the issuance of payments, the Director, International Finance and Development Division, was granted and assumed the appropriate authority to make payments to the World Bank.
2.0: Compliance with Legislative Requirements and Administrative Arrangements
Processes and controls are in place to support the financial commitments to the World Bank being in compliance with the legislative requirements and administrative arrangements Low Processes and controls are in place to support financial commitments to the World Bank being processed in compliance with the legislative requirements and administrative arrangements.

The Bretton Woods and Related Agreements Act sets out the authority to provide financial assistance to the various World Bank organizations. The FAA, relevant Treasury Board policies, as well as specific administrative arrangements, govern the administration of the financial transactions. In order to comply with these requirements, requisitions for payment are to be approved by a delegated financial authority, supported by adequate documentation, certified prior to payment and supported by an appropriation. Related reflows (i.e., repayments) of funds are to be made in accordance with administrative arrangements.

To assess compliance, a judgmental sample of 8 disbursement transactions (comprising core and non-core payments totalling $703 million) and 5 repayment transactions (comprising the receipt of principal and interest totalling $198 million) was examined, representing approximately 94% of the total volume of payments and repayments (details of the sampling methodology can be found in Appendix C). Testing focused on key controls such as authorization and payment requisition, adequacy of the supporting documentation, and allocation to the appropriate facility. In addition, interviews were conducted with departmental officials to confirm the processes and controls in place.

Based on the testing performed, the audit found that payments were made in compliance with the legislative requirements and administrative arrangements in place and were in accordance with the relevant appropriations. Repayments reviewed were received in accordance with the administrative arrangements in place.
3.0: Monitoring and Reporting
Monitoring processes and controls are in place to support reporting to and decision making by management. Low Monitoring processes and controls are in place to support reporting to and decision making by management.

Monitoring mechanisms help identify the occurrence of errors and irregularities, as well as provide early warning signals when expected results may not be achieved. Internal reporting of this information to management is important to ensure informed decision making related to Canada’s participation in World Bank programs.

The audit reviewed the relevant administrative arrangements to determine what monitoring and reporting requirements applied to the audited payments. In addition, interviews with ITFB officials were conducted, and documentation was sought to determine whether appropriate monitoring was taking place and whether internal reporting requirements had been met.

The audit found that the administrative arrangements corresponding to the World Bank programs within the audit scope contained several monitoring and reporting requirements that form an obligation on the part of the trustee (World Bank) to report to the donor country (in this case, Canada) key financial data on program spending as well as information on program performance.

Based on the evidence on file and communicated in interviews, ITFB has received the reports required as per the relevant administrative arrangements and regularly monitors the reports on the results of the World Bank’s programs and projects, both from a financial and development perspective. This information is then communicated to management to inform decision making on Canada’s participation in these programs, identifying lessons learned, and in negotiating future agreements.
4.0: Maintenance of Payment Master Files
Controls are in place to ensure that payment master files are maintained and include appropriate recipient information. Low Controls are in place to ensure that payment master files are maintained and include appropriate recipient information.

Maintaining banking information is critical to ensure that payments are made to the correct recipient. This is particularly important regarding payments to the World Bank, given the significance of these payments.

To assess whether payment master files were appropriately maintained, the audit team conducted interviews and tested the maintenance of banking information for the 8 disbursement transactions within the audit sample. Testing focused on the key controls, including the Department’s confirmation of banking instructions and the conduct of small-value test payments, where required.

The audit found that banking instructions were confirmed in writing for all transactions in the sample reviewed and that small-value test payments were conducted where required. Based on the transactions tested, supervisory review of payment requisitions, including banking instructions, occurred.

Appendix A: List of Departmental Employees Interviewed

Corporate Services Branch

  • Senior Director, Financial Management Directorate
  • Manager, Departmental and Public Debt Reporting
  • Senior Financial Analyst, Departmental and Public Debt Reporting

International Trade and Finance Branch

  • Assistant Deputy Minister
  • General Director
  • Director, International Finance and Development Division
  • Chief, Multilateral Institutions
  • Senior Economist, Multilateral Institutions
  • Senior Economist, Multilateral Institutions
  • Economist, Multilateral Institutions

Law Branch

  • Acting Senior Counsel, General Legal Services Division
  • Counsel, General Legal Services Division

Appendix B: Key Information Reviewed

Legislation, Policies and Guidelines

  • Bretton Woods and Related Agreements Act
  • Interpretation Act
  • Financial Administration Act
  • Treasury Board Policy on Internal Control
  • Treasury Board Directive on Delegation of Financial Authorities for Disbursements
  • Treasury Board Policy on Transfer Payments
  • Treasury Board Directive on Expenditure Initiation and Commitment Control

Documents Specific to the Department

  • Administrative arrangements between the World Bank and the Department
  • Financial Signing Authorities Manual and Delegation of Financial Signing Authorities Instrument
  • Business Process Narrative—International Organizations (Corporate Services Branch)
  • Payment process documentation specific to the Department

Other Documents

  • Office of the Comptroller General’s Audit Criteria related to the Management Accountability Framework
  • Canada at the IMF and World Bank Group 2011

Information Systems

  • Integrated Financial and Material System (IFMS-SAP) and the Standard Payment System data related to the transactions in the audit sample

Appendix C: Sampling Methodology

For this audit, a judgmental sample of 8 disbursement transactions (comprising core and non-core payments totalling $703 million) and 5 repayment transactions (comprising the receipt of principal and interest totalling $198 million) was examined, representing approximately 94% of the total volume of payments and repayments. These transactions were chosen so as to provide coverage across fiscal years in the scope of the audit, along with disbursements and repayments for both core and non-core payments to the World Bank organizations.

Judgmental Sample of Transactions
  Population* Value of Population in CAD $ Sample Value of Sample in CAD $
Disbursements 13 transactions 755 million 8 transactions 703 million
Repayments 14 transactions 203 million 5 transactions 198 million

* Population is multi-year, as described in the “Audit Scope” section.

Appendix D: Members of the Audit Team

  • Abdillahi Roble, MBA, CGA, CIA, CRMA, Audit Manager, Internal Audit and Evaluation
  • Michelle Langlois, B.Comm, CPA, CA, CIA, Senior Financial Auditor, Internal Audit and Evaluation
  • Daniel Steeves, MPA, Senior Auditor, Internal Audit and Evaluation
  • Rim Ben Saad, B. Admin, B.Comm, Senior Financial Auditor, Internal Audit and Evaluation
  • Christian Kratchanov, MBA, CIA, CMC, CRMA, Chief Audit and Evaluation Executive