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PACP Committee Report

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GOVERNMENT RESPONSE TO THE FIFTEENTH REPORT OF THE STANDING COMMITTEE ON PUBLIC ACCOUNTS

INTERNAL AUDIT IN DEPARTMENTS AND AGENCIES

GENERAL

In the 2004 Budget, the Government made a commitment to “reorganize and bolster the internal audit function on a government-wide basis to ensure that audit programs are based on sound risk analyses of all departmental activities, with the authority to delve into every corner of every portfolio.” Strengthening internal audit is an important part of the Government's agenda to improve public sector management and ensure the rigorous stewardship of public funds. This will be achieved by an extensive internal audit policy review process that aims to transform how internal audit is practiced within the public sector, ensuring that it is led by certified internal audit professionals and supported by independent audit committees. A transformative agenda such as this requires due process and diligence that the Treasury Board Secretariat has been engaged in since Budget 2004. Reflective of the Government's on-going commitment to improving the practice of internal audit are the extensive consultations that have already occurred both internally and externally, and the serious and quick attention the Government continues to give to this matter.

These efforts to strengthen internal audit will reinforce good stewardship practices and sound decision-making at the departmental level, thereby enabling central agencies, particularly the Treasury Board Secretariat, to focus on strategic rather than transactional matters. By the beginning of the next fiscal year, it is expected that a new Policy on Internal Audit, accompanying directives, standards and guidelines for audit committees and Chief Audit Executives (who provide direct assurance support to deputy heads) will come into force. This will be supported by a three-year incremental and phased implementation by the Office of the Comptroller General, who will also be responsible for general oversight and for carrying out internal audits in small departments and agencies and government-wide horizontal audits, amongst others.

With these initiatives, the Government expects to rebuild internal audit capacity, as well as standardize the audit function across government through professionally-driven operating processes, supported by common technology platforms. The Government is also committed to enhancing the objectivity, independence and competency of Chief Audit Executives and audit staff, and establishing audit committees that are independent from line management.

As the Government is in the process of finalizing a revised Policy on Internal Audit, and because this policy is part of a wider process to modernize management in the Government of Canada, many of the specific items raised by the Committee cannot be addressed at this time. The Government's position on all of these matters, including internal audit, will be tabled in Parliament in the coming months.

RECOMMENDATION 1

That Treasury Board Secretariat submit a detailed plan, that includes timelines, to the Standing Committee on Public Accounts that shows how and when it will produce a revised Policy on Internal Audit. The revised policy must contain a specific clause prohibiting revisions to final internal audit reports, or reports commissioned from outside auditors, that result in changes to audit opinions.

Consultations are taking place within Government, taking into account the views and recommendations of the Auditor General and the Standing Committee on Public Accounts. Timelines for the production of a revised policy are presently under consideration by the Government. Upon the finalization of the policy, the Government undertakes to submit a detailed plan of implementation as recommended by the Committee without undue delay.

The issue of revisions to internal audit reports after finalization is under review by the Office of the Comptroller General.

RECOMMENDATION 2

That Treasury Board Secretariat set benchmarks for the implementation of the revised Policy on Internal Audit, monitor departmental progress against these benchmarks, take corrective action in the event of slippage, and report the results to Parliament in its annual departmental performance report beginning with the report for the period ending 31 March of the year following the coming into force of the revised Policy on Internal Audit.

Timelines for the production and implementation of a revised Policy on Internal Audit are presently under consideration by the Government. The Government undertakes to implement the recommendations set out above; however, since the internal audit policy review is still in its consultative stage, the details have not been finalized.

RECOMMENDATION 3

That when the Office of the Auditor General conduct a follow-up audit focused on the implementation of recommendations contained in Chapter 1 of the Report of the Auditor General to the House of Commons, November 2004, implementation of the revised Policy on Internal Audit and the changes related to internal audit announced by the President of Treasury Board on 18 November 2004 must also be taken into account.

The Government notes this recommendation.

RECOMMENDATION 4

That the Office of the Comptroller General develop a strategy that details how it will meet the requirements of the revised Policy on Internal Audit and how it will ensure that internal audits are conducted on a regular basis, and table that strategy with the Standing Committee on Public Accounts no later than 30 days following the coming into force of the revised Policy on Internal Audit.

As consultations are taking place, the Office of the Comptroller General is considering parallel implementation strategies. Once the revised Policy on Internal Audit has been approved, the Government will confirm with the Committee a date for the tabling of the strategy.

RECOMMENDATION 5

That Treasury Board Secretariat create, on a priority basis, a new classification system for internal auditors that recognizes and rewards the unique skills they offer and make that system operational to coincide with the implementation of the revised Policy on Internal Audit.

The Government agrees with the Standing Committee on Public Accounts that a detailed analysis of classifications for government internal auditors is required. The Public Service Human Resources Management Agency of Canada (PSHRMAC) is responsible for the classification modernization program. PSHRMAC has commenced this analysis and the results of the analysis will assist the Government to determine what actions, if any, need to be taken with regard to a new classification system for internal auditors.

RECOMMENDATION 6

That either in its Main Estimates or in its annual Report on Plans and Priorities, Treasury Board Secretariat include information on the funding to be allocated to the Office of Comptroller General for the specific purposes of meeting its obligations under the Policy on Internal Audit. This reporting should commence in fiscal year 2006-07.

The Government agrees.

RECOMMENDATION 7

That each department and agency of Government with an internal audit function include information on the funding to be devoted to the function in either its Main Estimates or in its annual Report on Plans and Priorities. This reporting should commence in fiscal year 2006-07.

The Government of Canada will respond more fully once consultations related to the draft revised Policy on Internal Audit have been completed and the policy has been approved.

RECOMMENDATION 8

That the Government of Canada table an amendment to the Access to Information Act as called for by the Access to Information Review Task Force in its recommendation 4.24, at the earliest possible opportunity.

The Government is currently in the process of consulting parliamentarians to ascertain their views on this issue. On April 5, 2005, the Minister of Justice presented a discussion paper outlining the Government's views on reform of the Access to Information Act to the House Standing Committee on Access to Information, Privacy and Ethics. This Committee is expected to study the issues and provide its input and advice prior to legislation being introduced in the House of Commons.

RECOMMENDATION 9

That in conjunction with the revision of the Policy on Internal Audit, all internal audit units in departments and agencies be placed under the authority of the Comptroller General of Canada.

The Government believes that deputy heads are responsible and accountable for managing their departments in line with existing legislation, regulations and policy. Hence, the Government does not concur with this recommendation.

The Government acknowledges the need to ensure that the internal audit function is independent and believes that the consultations currently under way to draft a new internal audit policy will address the rationale that lies behind this recommendation.

RECOMMENDATION 10

That Treasury Board Secretariat develop a detailed action plan showing the steps that will be taken to ensure that internal audit units are fully prepared, prior to January 1, 2007, for an external quality assessment as called for by the International Standards for the Professional Practice of Internal Auditing. This action plan must include the date(s) set for the external assessment, specific reference to the actions that will be taken, and target implementation and completion dates for each phase of the plan, and be submitted to the Standing Committee on Public Accounts no later than 31 December 2005.

Following the finalization of the revised Policy on Internal Audit, and no later than six months after its effective date, the Government will report back to the Committee with an action plan detailing the preparations for external quality assessments of internal audit units.

RECOMMENDATION 11

That Treasury Board Secretariat monitor the progress made by internal audit units leading up to the external assessment, and report the results to the Standing Committee on Public Accounts on a semi-annual basis beginning 30 June 2006.

The consultations presently in progress regarding a revised internal audit policy include the concept of external review of internal audit groups. However, given that the consultations have not been concluded, the Government is not in a position to confirm the deadlines set out in the recommendation. The Government does commit to respond more fully to the Committee following the coming into force of the revised policy.