Archived - Audit of Travel and Hospitality
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

Recommendation and Management Action Plan

Appendix A – Trend in the Department’s Travel and Hospitality Expenditures

Appendix B – List of Employees Interviewed

Appendix C – Key Information Reviewed

Appendix D – Sampling Methodology

Appendix E – Members of the Audit Team

Executive Summary

In the Government of Canada, travel and hospitality expenditures are governed by a complex legislative and policy framework. Changes to the Directive on the Management of Expenditures on Travel, Hospitality and Conferences were introduced in fall 2012 to enhance control of costs related to events. Also, Budget Plan 2013 included measures to reduce travel costs beginning in fiscal year 2013–14.

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

The audit objective was to provide reasonable assurance that travel and hospitality expenditures are in compliance with applicable policies and directives and that the management control framework for travel and hospitality is in place and operating effectively.

Overall, the audit concluded that travel and hospitality expenditures are in compliance with applicable policies and directives and that the management control framework for travel and hospitality is in place and operating effectively.

While travel and hospitality activities are well managed in the Department, an opportunity for improvement exists in terms of communication and training to departmental employees on travel and hospitality requirements, to enable greater efficiency and to optimize compliance at the branch level.

Background

In the Government of Canada, travel and hospitality are governed by a legislative and policy framework that includes the Financial Administration Act (FAA); the Treasury Board Travel Directive, hosted by the National Joint Council; and the Directive on the Management of Expenditures on Travel, Hospitality and Conferences and its related guidelines.  

The President of the Treasury Board approved changes to the Directive on the Management of Expenditures on Travel, Hospitality and Conferences, effective October 3, 2012. The objective of these changes was to enhance control of costs related to events that departments organize or attend and to promote fiscal prudence. In addition, Budget Plan 2013 included measures aimed at reducing government travel costs beginning in fiscal year 2013−14.      

As shown in Appendix A, the Department of Finance’s travel and hospitality expenditures have declined in the last three fiscal years.        

The Department has a memorandum of understanding (MOU), effective April 1, 2010, with the Treasury Board of Canada Secretariat (TBS) for the provision of accounting services to the Department. In line with the MOU, TBS Accounting Services handles the day-to-day processing of travel and hospitality claims under section 33 of the FAA.   

Departmental branches are responsible to initiate their own travel and hospitality requests, to control their commitments pursuant to section 32 of the FAA, and to perform account verification procedures and certification on claims pursuant to section 34 of the FAA and in accordance with applicable policies and directives, before submitting their claims and related supporting documents to TBS Accounting Services for final verification and payment processing. The branches are also responsible for monitoring and reporting on their travel and hospitality activities to Financial Management Directorate within the Department’s Corporate Services Branch.    

Employees are responsible for consulting the appropriate policy instruments, and seeking expert advice, for completing authorization and claim forms adequately, for obtaining authorization and for submitting claims for approval with the essential supporting documents in a timely manner.

Audit Objective and Scope

Audit Objective

The audit objective was to provide reasonable assurance that travel and hospitality expenditures are in compliance with applicable policies and directives, and that the management control framework for travel and hospitality is in place and operating effectively.

Audit Scope

The audit scope included:

  • Travel and hospitality transactions subject to the requirements of the National Joint Council Travel Directive and the Directive on the Management of Expenditures on Travel, Hospitality and Conferences.
  • Travel transactions that occurred in the Department between April 1, 2010 and March 31, 2013.
  • Hospitality activities organized by the Department between April 1, 2011 and March 31, 2013. As new policy requirements came into effect in January 2011, thus the audit scope for hospitality transactions was set to cover the last two fiscal years.

The scope did not include:

  • Expenditures related to conferences.
  • Relocation travel expenditures.
  • Process for proactive disclosure of expenses for departmental officials.

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 entity 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 (1) relevant elements of the Office of the Comptroller General’s Audit Criteria Related to the Management Accountability Framework: A Tool for Internal Auditors; (2) relevant aspects of the Committee of Sponsoring Organizations of the Treadway Commission (COSO) Internal Control - Integrated Framework; and (3) the Treasury Board of Canada Secretariat Guideline on Common Financial Management Business Process 3.2 − Manage Travel.

Twenty individuals (listed in Appendix B) 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 travel and hospitality process. The audit team also conducted a review and analysis of applicable authorities and policies, as well as financial and non-financial documents from various relevant sources. A list of key information reviewed is provided in Appendix C, and details of the transactional samples selected are in Appendix D.

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

Overall, the audit concluded that travel and hospitality expenditures are in compliance with applicable policies and directives, and that the management control framework for travel and hospitality is in place and operating effectively.

While travel and hospitality activities are well managed in the Department, an opportunity for improvement exists in terms of communication and training to departmental employees on travel and hospitality requirements, to enable greater efficiency and to optimize compliance at the branch level.

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, issues and themes along with potential causes, impacts, management initiatives and recommendations are summarized in the “Recommendation and Management Action Plan” section.

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 criterion is categorized as high, medium or low.

These risk ranking levels correspond to 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 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. Controls
The Department has controls in place to effectively administer travel and hospitality processes. Low The Department has controls in place to administer travel and hospitality processes. An opportunity exists to improve communication and training to departmental employees on travel and hospitality requirements to enable greater efficiency and to optimize compliance at the branch level.

A control framework is a process designed by an organization to achieve its objectives effectively and in compliance with applicable laws and regulations. The audit expected the Department’s control framework to include effective measures to ensure that employees are trained and that pertinent information is communicated in a timely manner. Moreover, the control framework was expected to include effective ongoing monitoring and risk reporting on travel and hospitality activities.

To test the control framework, the audit examined processes in place, reviewed documents, conducted interviews, and tested two random samples of 47 travel transactions and 47 hospitality transactions.

Training and Communication

The audit assessed whether training and communication of travel and hospitality were adequate and effectively support compliance with financial policies.

Regarding training, the audit found that formal training on travel and hospitality is offered across the Department in the form of:
  • Information sessions for administrative staff, including updates related to travel and hospitality directives and procedures by Financial Management Directorate within Corporate Services Branch; and
  • Specific training sessions intended for Responsibility Center Managers and travellers. 
Regarding communication, the audit found that the Department has in place various communication mechanisms to disseminate financial management policies and directives to departmental staff. These include the InfoSite web pages on travel and hospitality, a team dedicated to travel within TBS Accounting Services, information sessions provided by Financial Management Directorate, and communiqués to senior management.

Monitoring

The audit used a control testing approach to determine whether risks were identified, assessed, managed and regularly monitored and reported.

The audit found that the Department performs ongoing monitoring for travel and hospitality activities through its business processes as well as for proactive disclosure requirements. At the branch level, designated branch personnel regularly monitor their respective budget for travel and hospitality activities.

The audit also found that, through the final verification process conducted by TBS Accounting Services prior to payment, an effective monitoring mechanism is in place to detect and correct errors on travel and hospitality transactions. This verification process also allows regular identification, assessment and management of risks stemming from requests and claims submitted for processing.

While training, communication and monitoring are taking place, the audit noted further improvements are possible at a relatively low cost. Specifically, training and communication that are more targeted to responsibility centre managers could help improve the overall quality of authorization request forms and related expense claims before they arrive at TBS Accounting Services for processing. This could also include feedback on error rates provided directly to responsibility centre managers as it would help implement required improvements.
2. Compliance with applicable policies and directives
The Department’s travel and hospitality expenditures are in compliance with applicable policies and directives. Low Overall, the Department’s travel and hospitality expenditures were in compliance with applicable policies and directives.

In order to comply with applicable policies and directives, it is critical that travel and hospitality expenditures are properly pre-authorized, adequately approved by a delegated financial authority with supporting documents, and verified prior to payment.

For compliance testing, two random samples of 47 travel transactions and 47 hospitality transactions were selected from the departmental financial system. The testing approach focused on key controls in place, such as pre-authorization, authorization and payment requisition, and verification prior to payment in compliance with established rates and allowances for travel and hospitality.  Details of the sampling methodology can be found in Appendix D.

Overall, the audit found that the key controls were in compliance with the requirements of the Financial Administration Act, the Travel Directive, the Directive on the Management of Expenditures on Travel, Hospitality and Conference and other applicable policies and directives.

Recommendation and Management Action Plan

The following section summarizes the audit findings based on their causes, highlights their impact and presents the audit recommendations with the corresponding priority level. The priority levels are assigned as follows:

  • High priority level: implementation of the audit recommendation is expected within 6 months from the approval of the audit report;
  • Medium priority level: implementation of the audit recommendation is expected within 6 to 12 months from the approval of the audit report;
  • Low priority level: implementation of the audit recommendation is expected to take more than 12 months from the approval of the audit report.

When applicable, relevant management initiatives already underway are included.For each recommendation, management has provided the following:

  • An action plan that addresses the recommendation;
  • The position responsible for implementing the action plan; and
  • The target date for completion.

1. Improve Communication and Training

Observations and Impact

Adequate communication and related training as well as regular monitoring and risk assessments constitute key elements of an effective control framework for travel and hospitality. In particular, communication and training contribute to the proper completion of travel and hospitality forms and to a better understanding of the requirements, and therefore to faster and more accurate processing of expense claims.

The audit examined travel and hospitality controls in place and tested compliance with applicable policies and directives. The audit found that the Department has controls in place to administer travel and hospitality processes, and that travel and hospitality expenditures were generally in compliance with applicable policies and directives.

The audit also found an opportunity to improve communication (i.e. increased awareness) and training to enable greater efficiency in the process and compliance with requirements at the branch level. For instance, the audit found that the results of monitoring were not being communicated to the branches.

When training and feedback are limited, errors and irregularities may occur and impact the quality (completeness and accuracy) of information contained in the required forms. The current reliance on monitoring to detect and correct errors and irregularities, without sufficient preventive controls, is likely to reduce the efficiency of the process. In addition, it increases the risk that some erroneous transactions slip through the account verification process and result in non-compliance.

Recommendation

To enable greater efficiency and compliance in the travel and hospitality expenditures process, it is recommended that the Corporate Services Branch in consultation with the service provider (TBS Accounting Services) reinforce preventive controls in place by improving communication and training to departmental employees on travel and hospitality requirements.

Priority Level = Medium

Management Response

Agree.

Action plan: Communication and training for departmental employees on travel and hospitality have been adapted to cover historical problem areas and will continue to be provided using a risk-based approach. Internal processes have also been adjusted to ensure effective communication of issues with specific claims. Training and communications activities will be updated on an ongoing basis for future policy and system changes.

Position responsible: Senior Director, Financial Management Directorate, Corporate Services Branch.

Target date for completion: Improved communication and training with respect to existing processes have been completed and are now ongoing.

Appendix A –Trend in the Department’s Travel and Hospitality Expenditures

The Department of Finance's travel and hospitality expenditures have declined in the last three fiscal years. Travel decreased from $3,709,000 to $2,666,197, while Hospitality decreased from $276,000 to $123,076.

Appendix B – List of Employees Interviewed

Department of Finance Canada

Consultations and Communications Branch

  • General Director
  • Director, Public Affairs and Operations
  • Head, Program Operations and Administrative Services

Corporate Services Branch

  • Senior Director, Financial Management Directorate
  • Manager, Financial Planning and Resource Management Directorate

Deputy Minister’s Office

  • Administrative Assistant

Economic and Fiscal Policy Branch

  • General Director
  • Executive Assistant/Office Manager, Assistant Deputy Minister’s Office

Economic Development and Corporate Finance Branch

  • Executive Assistant/Office Manager, Assistant Deputy Minister’s Office

Federal-Provincial Relations and Social Policy Branch

  • Executive Assistant, Assistant Deputy Minister’s Office

Financial Sector Policy Branch

  • Executive Assistant, Assistant Deputy Minister’s Office

International Trade and Finance Branch

  • Travel Logistics and Protocol Officer, Assistant Deputy Minister’s Office

Law Branch

  • Director
  • Business Management Project Officer
  • Executive Assistant

Tax Policy Branch

  • Administrative Assistant to the General Director, Senior Assistant Deputy Minister’s Office

Treasury Board of Canada Secretariat

  • Director, Finance and Procurement Operations Directorate
  • Manager, Accounting Services
  • Acting Manager, Accounting Services
  • Financial Analyst, Accounting Services

Appendix C – Key Information Reviewed

Legislation, Policies and Guidelines

  • Financial Administration Act
  • Directive on Account Verification
  • Directive on the Management of Expenditures on Travel, Hospitality and Conferences
  • Travel Directive (hosted by the National Joint Council)
  • Policy on Internal Control
  • Guideline on Common Financial Management Business Process 3.2 - Manage Travel
  • Policies for Ministers’ Offices

Documents Specific to Finance Canada

  • Corporate Risk Profile (June 2011, January 2012)
  • Integrated Business Plan (2011−12)
  • Department of Finance Report on Annual Expenditures for Travel, Hospitality and Conferences (2011−12)
  • Corporate Services Branch − Directive on the Management of Expenditures on Travel, Hospitality and Conferences - Update
  • Delegation of Financial Signing Authorities Manual
  • Travel and hospitality process maps
  • Departmental Hospitality Procedures

Other Documents

  • Memorandum of Understanding, Treasury Board of Canada Secretariat and Department of Finance Canada
  • Treasury Board of Canada Secretariat Accounting Services Error Status Reports
  • Budget Plan 2013 (Economic Action Plan 2013)

Information Systems

  • Integrated Financial and Material System (IFMS-SAP) – reports on travel expenditures (FY 2010−13) and hospitality expenditures (FY 2011−13)

Appendix D – Sampling Methodology

Based on the audit risk assessment, two samples of 47 travel transactions and 47 hospitality transactions were randomly selected from the Department’s financial system (SAP). The random sampling selection process was completed by using data analysis software (ACL).

Sampling Methodology
  Population * Value of population in $ Average value in $ per transaction Sample Value of sample in $
Travel 5,295 transactions 4,222,900 797 47 transactions 27,469
Hospitality 268 transactions 163,663 610 47 transactions 17,385
* Population is multi-year, as described in the “Audit Scope” section.

Appendix E – Members of the Audit Team

  • Abdillahi Roble, MBA, CGA, CIA, CRMA, Audit Manager, Internal Audit and Evaluation
  • Rim Ben Saad, B.Admin, B.Comm, Senior Financial Auditor, Internal Audit and Evaluation
  • Olivia Zhu, MPA, CIA, CFE, CRMA, Senior Financial Auditor, Internal Audit and Evaluation
  • Randa Kassis, B.SocSc, Acting Senior Financial Auditor, Internal Audit and Evaluation
  • Chantale Dumornay, BAA, Auditor, Internal Audit and Evaluation
  • Christian Kratchanov, MBA, CIA, CMC, CRMA, Chief Audit and Evaluation Executive