Audit of the New Building Canada Fund – Management Control Framework

October 2015

Table of Contents

1. Executive Summary
   • 1.1 Introduction
   • 1.2 Audit Objective and Scope
   • 1.3 Conclusion
2. Background
3. Audit Objective and Scope
4. Audit Approach
5. Audit Findings
   • 5.1 Governance
   • 5.2 Risk Management
   • 5.3 Internal Controls and Compliance
   • 5.4 Conclusion
6. Statement of Conformance
7. Management Response and Action Plan
8. Annex A: Project Site Visits

1 EXECUTIVE SUMMARY

1.1 Introduction

The Government of Canada announced in Economic Action Plan 2013 that a 10-year, $53 billion New Building Canada Plan would be put in place to support infrastructure projects across the country. The New Building Canada Fund (NBCF) is one of three programming elements within the Plan.  The NBCF was launched on March 28, 2014 and is comprised of two main components: the National Infrastructure Component (NIC) and the Provincial-Territorial Infrastructure Component (PTIC). The PTIC includes two sub-components: National and Regional Projects (NRP), and the Small Communities Fund (SCF).

This audit was conducted in accordance with Infrastructure Canada's Risk-Based Audit Plan 2015–2018.  By undertaking this audit during the first year and a half of the program's implementation, it is expected that the observations and recommendations will support management in improving the administration of the program.

1.2 Audit Objective and Scope

The audit objective was to assess the adequacy and effectiveness of the management control framework in place to administer the New Building Canada Fund (NBCF).
The audit criteria are:

• Internal and external governance structures that support NBCF program delivery are defined, communicated and working as intended;
• Program risk management processes are documented and support the management and mitigation of key risks; and
• Key internal controls are in place for the administration of the NBCF program and are working as intended.

The first year and a half of the implementation of this 10-year program was examined.  The scope included the key controls for all NBCF components and covered the period of March 2014 to June 2015. Information obtained through September 2015 was also considered as part of the analysis.

1.3 Conclusion

Overall, an adequate management control framework has been developed for the administration of the NBCF. Though the program is a year and a half into implementation, we are able to conclude that governance mechanisms and project review and approval controls are working as intended. While controls related to risk management, financial stewardship, monitoring, and reporting have been put in place, at this stage of implementation it is too early to conclude on their effectiveness.

We identified three areas for improvement. These include file management practices related to documenting decision-making processes and interactions of business value with recipients; communicating departmental approval processes to recipients, and communicating the claims payment process and service standards to oversight committee members.

Three recommendations are included in this report. It is recommended that:

1. The Policy and Communications Branch and the Program Operations Branch standardize file management practices related to correspondence or other interactions of business value with project recipients. One example would be the consistent use of notes to file. This would support documenting the rationale for decision-making, which is important given analyst turnover and the transfer of files between branches once NIC and NRP projects obtain agreement in principle, and help mitigate the internal capacity risk by supporting corporate memory retention. 
2. The Policy and Communications Branch communicate the departmental approval process to recipients for the NIC and NRP program components. This will assist stakeholders in their understanding of the steps involved in obtaining project approval.
3. Program Operations Branch officials discuss the claims payment process during the first oversight committee meeting so that recipients are aware of the procedures to be followed and departmental service standards related to processing claims. This will assist stakeholders in their understanding of the changes from past programs and support the effective payment of claims.

Given this is a 10-year program; audits of the effectiveness of the control framework as well as other audits based on risks will be conducted over the life of the program to provide assurance on program management and administration. Audits of the Project Review Panel will also be conducted periodically in accordance with the program's approved terms and conditions.

Management response: Management accepts the recommendations and action plans have been put in place to address the three areas for improvement identified.

2 BACKGROUND

The New Building Canada Plan

The Government of Canada announced in Economic Action Plan 2013 that a 10-year, $53 billion New Building Canada Plan would be put in place to support infrastructure projects across the country. The New Building Canada Plan was approved in 2014 and is comprised of the following elements:

• A renewed Public-Private Partnership Canada Fund to continue supporting innovative ways to build infrastructure projects;
• A Community Improvement Fund consisting of an indexed Gas Tax Fund and an incremental Goods and Services Tax Rebate for Municipalities to build roads, public transit, recreational facilities and other community infrastructure across Canada; and
• A New Building Canada Fund (NBCF) in support of major economic infrastructure projects that have national, regional and local significance.

Infrastructure Canada, in collaboration with stakeholders, is responsible for implementing the Gas Tax Fund and the NBCF components of the Plan. The focus of this audit is on the management control framework put in place to administer the New Building Canada Fund.

The New Building Canada Fund (NBCF)

The NBCF supports infrastructure projects of national, regional and local significance related to construction and repair of roads, bridges, wastewater plants and other public infrastructure. It was officially launched on March 28, 2014, and contains two major components – the National Infrastructure Component and the Provincial-Territorial Infrastructure Component. Each is described below.

National Infrastructure Component (NIC)

This $4 billion component provides funding for projects of national significance and priority is given to those with a value greater than $100 million. The funding is not allocated by province or territory; projects are selected based on merit. Applicants must demonstrate how a proposed project contributes to one or more program objectives.  Provincial and Territorial officials identify and select projects which are then assessed by Infrastructure Canada officials to determine whether the project is in line with federal priorities, and whether the project is eligible under one of the funding categories. These categories are: highways and major roads, public transit, rail infrastructure, local and regional airports, marine port infrastructure, intelligent transportation systems, and disaster mitigation infrastructure.

The Provincial-Territorial Infrastructure Component (PTIC)

This $10 billion component is comprised of a $9 billion National and Regional Project (NRP) element and a $1 billon Small Communities Fund (SCF) element.

Under NRP, each province and territory is allocated $250 million plus additional funds based on a per capita funding formula. This component supports projects that focus on construction, renewal, and rehabilitation or material enhancement of infrastructure for public use.

The SCF component provides funding for municipal projects in communities with populations below 100,000.  Infrastructure Canada enters into funding agreements with each province and territory to implement the SCF component. In turn, provinces and territories manage the project identification process in accordance with the program parameters and are responsible for the general oversight and management of the program within their respective jurisdictions.

As of June 2015, 115 projects valued at approximately $587 million from various jurisdictions across Canada had received approval for implementation.  These include projects such as the Dettah highway project in the Northwest Territories, the Highway 16 Twinning Project between Saskatoon and Clavet in Saskatchewan and the Aerotech Wastewater Treatment Plant near Halifax, Nova Scotia (see Table 1).

Table 1 – Allocation of funds by program component and jurisdiction as of June 5, 2015

Program: NBCF (2014)

	NIC			NRP			SCF
Jurisdictions	Announced Allocation	Project Count	$ Committed	Announced Allocation	Project Count	$ Committed	Announced allocation	Project Count	$ Committed
Total	-	2	68,666,667	8,678,160,000	21	465,316,020	964,240,000	92	53,231,333
Canada	4,000,000,000			9,000,000,000			1,000,000,000
Newfoundland and Labrador	-	0	-	314,116,448	0	0	34,901,828	0	0
Prince Edward Island	-	0	-	249,335,867	2	5,607,313	27,703,985	12	3,289,631
Nova Scotia	-	0	-	383,844,748	5	42,371,666	42,649,416	16	7,542,214
New Brunswick	-	0	-	354,273,505	4	72,805,674	39,363,723	38	26,430,266
Quebec	-	1	43,666,667	1,592,526,132	0	0	176,947,348	0	0
Ontario	-	0	-	2,448,308,682	1	62,090,000	272,034,298	0	0
Manitoba	-	0	-	420,377,314	3	27,172,867	46,708,590	26	15,969,222
Saskatchewan	-	0	-	392,992,272	4	71,168,500	43,665,808	0	0
Alberta	-	1	25,000,000	847,722,038	1	150,000,000	94,191,338	0	0
British Columbia	-	0	-	980,907,692	1	34,100,000	108,989,744	0	0
Yukon	-	0	-	230,925,755	0	0	25,658,417	0	0
Northwest Territories	-	0	-	232,248,982	0	0	25,805,442	0	0
Nunavut	-	0	-	230,580,565	0	0	25,620,063	0	0

Source: Monthly Report on Infrastructure Commitments

Branch Roles and Responsibilities

The administration of the NBCF within Infrastructure Canada is a coordinated effort. A brief description of each branch's roles and responsibilities is provided in Diagram 1 below:

Diagram 1 – Overview of branch roles and responsibilities

Policy and Communications Branch

The Policy and Communications Branch is responsible for initial and stage one project reviews of all NIC and NRP proposals.  This includes, among other things, an initial assessment of proposed project business cases; assessments of projects eligibility, and presentation of project proposals to the Project Review Panel for consideration and recommendation for approval in principle. Once a project receives approval in principle, the files are transferred to officials in the Program Operations Branch.

In addition, the Director General of Communications is responsible for coordinating program and project announcements. This work is done in collaboration with analysts from all branches as well as with officials from all provinces and territories.

Programs Operations Branch

For NIC and NRP, Program Operations Branch officials negotiate contribution agreements with recipients once a project has been granted approval in principle. Branch officials present draft contribution agreements to the Project Review Panel for stage two review and recommendation to the Minister for signature. Once agreements are signed, Branch officials co-chair oversight committees with recipients and monitor and report on project and program performance.

In addition, the Branch has overall responsibility for the administration of the SCF component.  This includes establishing funding agreements with each province and territory, obtaining Ministerial approval of the project lists, and establishing and co-chairing oversight committees.

Corporate Services Branch

The Assistant Deputy Minister, Corporate Services Branch and Chief Financial Officer chairs the Project Review Panel and Branch officials provide secretariat support to the Panel.  The Branch is also responsible for making payments on claims once Programs Operations Branch officials approve files. In addition, the Chief Financial Officer is also responsible for the overall management of NBCF funding and program financial decisions.

The NBCF Management Control Framework

The Committee of Sponsoring Organizations (COSO) of the Treadway Commission's Internal Control – Integrated Framework has a broad definition of internal control frameworks. According to COSO, “internal control is broadly defined as a process, effected by an entity's board of directors, management and other personnel, designed to provide reasonable assurance regarding the achievement of objectives in the following categories: efficiency and effectiveness of operations; reliability of financial reporting; and compliance with applicable laws and regulations.”

Departmental officials developed a management control framework for the administration of the NBCF. This framework has two components. The first relates to the NRP and NIC and the second to the SCF. Officials from all branches were involved and the framework was approved by the Departmental Management Committee.

The control framework defines the major program risks, the controls in place to mitigate them, the expected outputs generated by the application of the controls, and accountability for each controls. This information is available to all program personnel and is used in the administration of the program.

3 AUDIT OBJECTIVE AND SCOPE

The audit objective was to assess the adequacy and effectiveness of the management control framework in place to administer the NBCF.

The audit criteria are:

• Internal and external governance structures that support NBCF program delivery are defined, communicated and working as intended;
• Program risk management processes are documented and support the management and mitigation of key risks; and
• Key internal controls are in place for the administration of the NBCF program and are working as intended.

The first year and a half of the implementation of this 10-year program was examined.  The scope included the key controls for all NBCF components, and covered the period of March 2014 to June 2015. Information obtained through September 2015 was also considered.

4 AUDIT APPROACH

The approach and methodology used conforms to generally accepted practices, processes, procedures and standards of internal audit in the Government of Canada, and conform to the Treasury Board Policy on Internal Audit and the Institute of Internal Auditors International Standards for the Professional Practice of Internal Auditing.

The Treasury Board Policy on Transfer Payments and Treasury Board Directive on Transfer Payments were the main source of audit criteria used in this audit. In addition, the Office of the Comptroller General's most recent version of the Core Management Controls and relevant practices and reports from other Government of Canada Departments and Agencies were also referenced.

The audit work was conducted in three phases - planning, examination, and reporting - with deliverables prepared at key points. The planning phase included interviews with Infrastructure Canada officials, document review and an audit risk assessment. The audit plan was presented to the client to validate facts and to confirm the accuracy and completeness of the information prepared.

The audit included various tests as necessary to provide reasonable assurance on the administration of the program.  Auditors interviewed departmental, provincial, territorial and municipal officials, reviewed documentation, conducted process walk-throughs, undertook project site visits, and observed key governance committee meetings.  The audit team met with officials from six provinces and one territory and visited ten project sites across the country.

A judgemental sample of the NBCF projects approved as of June 5, 2015 was selected and assessed in order to support observations related to various audit criteria. In total, documentation from 29 of the 115 approved projects from NIC, NRP and SCF were selected based on materiality and geographic considerations. The sample is comprised of the following:

• NIC: Two of two approved projects;
• NRP: Eight of 21 approved projects representing 76 percent of approved funding;
• SCF: Nineteen out of 92 approved projects representing 53 percent of approved funding.

For the above noted projects, project files were reviewed for compliance with program terms and conditions and adequacy and effectiveness of program administration.

5 AUDIT FINDINGS

5.1 Governance

Audit criterion

It was expected that internal and external governance structures that support NBCF program delivery are defined, communicated and working as intended. Specifically:

• Delegated authorities were defined and project approvals were done in compliance with authority limits;
• INFC roles, responsibilities and accountabilities were defined and communicated; and
• Oversight committees were established with clear mandates and were working as intended. 

Delegation of authority for 5.1 Governance

Delegation of authority is an important aspect of any program's terms and conditions. It sets the parameters within which departmental officials and the Minister are authorized to make project approval decisions.

The NBCF delegation of authority levels are defined in the program's terms and conditions. There is specific dollar value, geographic and recipient-type limits on the Minster's approval authorities. For projects that are above or outside of the Minister's authority, the Treasury Board makes project approval decisions. The authority levels are detailed in the NBCF management control framework and the department has organized its decision-making framework accordingly.

The Project Review Panel

The Project Review Panel's (the Panel) role and composition is defined in the program's terms and conditions. The Panel recommends projects for Ministerial approval based on due diligence undertaken. It is supported by a secretariat that manages committee deliberations and acts as a quality assurance function with respect to all documentation being presented.

The Panel has detailed terms of reference that outline the delegation of authority levels and the processes to be followed for each type of project approval. For example, for projects under a certain dollar value, the committee meets to discuss and recommend projects for approval.  Projects above a certain dollar value can be considered for approval through a streamlined Treasury Board process, while projects exceeding a certain dollar value are considered through a Treasury Board submission.

All NBCF projects are subject to Panel review prior to being recommended for Ministerial or appropriately delegated authority approval. An analysis of the Panel's records of discussion from March 28, 2014 to June 5, 2015 demonstrated that this key project review control is established and that processes are in place and working as intended for reviewing project eligibility. The recommendations for approval of all 29 projects included in our sample were in compliance with the program's delegation of authority.

While not formally part of its mandate, Panel members have provided advice with respect to NBCF administration. Meeting records of discussion noted instances where Panel members identified opportunities for improvement related to project risk assessments, information for decision-making and general program design.

Infrastructure Canada accountabilities, roles and responsibilities for 5.1 Governance

Having a clear departmental governance structure to manage a program is important for ensuring that overall program administration is operating within the approved terms and conditions.

Infrastructure Canada's accountabilities related to NBCF implementation are clearly described in the program's terms and conditions. These broad accountabilities include: designing the program, assessing project proposals submitted by proponents, recommending projects for approval to the appropriate decision-making authority, negotiating contribution agreements, and overseeing the implementation of the program and individual contribution agreements for selected projects.

In order to define and communicate departmental roles and responsibilities to staff, Program Operations Branch officials led the development of a management control framework for each NBCF component. This was done in collaboration with officials from each branch and served to document key processes and controls. The framework outlines branch level roles and responsibilities as well as the mechanisms in place, such as governance committees, to collectively manage the administration of the program.

The management and administration of the NBCF has been incorporated into the overall departmental governance framework. As such, the main departmental decision-making bodies comprised of senior officials are engaged in all significant program management aspects. For example, the Horizontal Implementation Committee, the Horizontal Management Committee and the Departmental Management Committee each play a role in providing guidance, advice and decisions on how the program is administered within the department.

A review of governance committee minutes for meetings held during the audit period demonstrated that NBCF items were discussed. The issues considered included approval of the management control framework for each program component, updates on projects requiring Treasury Board approval, and periodic program and project status updates. 

In addition, there are branch or issue specific committees that support program administration and decision-making. One example is the Strategic Programs Committee (SPC). The SPC's terms of reference outline its roles and responsibilities with respect to the oversight of operational issues related to NRP and NIC administration and implementation.   

Another example is the “SCF Squad” that was established to complement the existing SPC and provide a forum to discuss and manage issues related to the operational implementation of the SCF.  Detailed records of decision are maintained and committee membership includes various levels of personnel.  The SCF Squad focuses on consistency in program implementation.

These two committees have served as effective mechanisms for policy and program analysts to discuss and consider information related to project decision-making related to all NBCF aspects.

Oversight committees for 5.1 Governance

The SCF terms and conditions require the establishment of oversight committees with all provinces and territories to manage funding agreements.  Although this requirement is not defined in the NIC and NRP terms and conditions, oversight or agreement management committees are an element of the monitoring strategy for these components. 

For NIC and NRP projects, oversight committees are to be established within 60 days of signing a contribution agreement. The committee is put in place to manage implementation of the agreement and provide a governance mechanism that can jointly oversee project performance and reporting requirements.

Oversight committees have Infrastructure Canada and recipient officials as co-chairs.The Infrastructure Canada co-chair is selected based on a project risk assessment performed prior to the signing of a contribution agreement for NIC and NRP projects. For example, for lower risk projects a manager may co-chair, while for higher risk projects a Director or Director General would be appointed to this role. Recipient co-chairs are selected by the relevant authorities in those jurisdictions.

For SCF, at the time of the audit, 12 of the 13 provinces and territories had signed funding agreements with Infrastructure Canada. There is a 60-day business requirement for an oversight committee to be established from the date agreements are signed. All 12 committees were established on time.

As of mid-September, 13 NRP projects and one NIC project had signed contribution agreements and nine of these established oversight committees on time. Two oversight committees were established after the 60-day timeframe due to recipient administrative delays. At the time of the audit, the remaining three committees were in the process of being established and were still within the time requirement.   

Oversight committee roles, responsibilities and accountabilities are documented in their corresponding terms of reference, and further communicated to appropriate officials through committee terms of reference and agreements. Our review of the minutes and agendas prepared for each meeting held to date indicates that committees are working as intended to effectively manage and oversee NBCF project agreements in collaboration with program stakeholders.

Although it is early in the program implementation phase, it is evident that the design of the oversight committees took into account lessons learned from previous programs as well as recipient considerations. All provincial and territorial officials interviewed as part of this audit indicated that the oversight committees are an effective management mechanism for NBCF projects, while also providing a forum for information sharing and development of a shared understanding of expectations.

5.2 Risk Management

Audit criterion for 5.2 Risk Management

It was expected that program risk management processes are documented and support the management and mitigation of key risks. Specifically:

• Program design considered risks, and mitigation strategies were identified;
• SCF funding agreements were consistent with program terms and conditions;
• Contribution agreements for NIC and NRP projects were consistent with program terms and conditions; and
• A project risk management tool was in place to support the identification and management of program and project risks.

Risk identification at the program design stage for 5.2 Risk Management

After the NBCF was announced as part of Economic Action Plan 2013, departmental officials began assessing how to design the program to meet government objectives. As part of these deliberations, detailed risk assessments were conducted. A number of risks related to various program administration and delivery aspects were identified. These risks included operational capacity, implementation challenges, financial, and administrative.

The program approval document describes the key risks and mitigation strategies that were identified during the program design phase. From March 2014 to October 2014, departmental officials considered these risks as part of the development of the management control framework. The framework defines five key risk areas: implementation risk; accountability risk; financial risk; program design integrity risk; and, reporting risk. It also integrates measures to manage and mitigate risks, and elaborates on the business process and controls as well as the governance and decision-making levels required to support program accountability.

Concurrent to the development of the management control framework, a risk related to NBCF program delivery was included in the departmental Corporate Risk Profile 2014 – 15. Specifically, senior management focused on the department's capacity to implement and administer this program over the 10-year period.

Departmental officials have continuously assessed whether mitigation strategies have been working as intended. These assessments have included internal reviews, internal audits, and a re-evaluation of the funding required to deliver the program. In addition, Lean process improvement exercises are being undertaken for key program delivery components such as the Project Review Panel and the claims payment process.  These Lean events have focused on improving the quality of these program components and reducing waste. 

The capacity of the department to deliver the program over the longer term remains a key program delivery risk. Changes in departmental staff as well as the decreasing funding available to the department in the latter half of this 10-year program may impact on program delivery. Specifically, in discussions with provincial and territorial officials it was highlighted that changes in key staff impacts file management and information flows between recipients and Infrastructure Canada. Two examples include knowledge of contracting practices in particular jurisdictions that have to be re-explained every time there is a new analyst on a file, and varying program and policy interpretations received from analysts within Infrastructure Canada. 

In reviewing file management practices within the two main branches that work with recipients it was noted that there is one project folder accessible to both policy and operations analysts on a shared drive with a standardized folder structure. The folders specifically related to electronic mail and correspondence contained saved copies of electronic mail however they are not classified by type of correspondence or subject. Furthermore, the use of notes to file was not consistent in the files. Analyst's notes to file document key interactions with stakeholders and decision-making processes and are an important method to capture corporate knowledge of recipients and decisions.

Recommendation 1. It is recommended that the Policy and Communications Branch and the Program Operations Branch standardize file management practices related to correspondence or other interactions of business value with project recipients. One example would be the consistent use of notes to file. This would support documenting the rationale for decision-making, which is important given analyst turnover and the transfer of files between branches once NIC and NRP projects obtain agreement in principle, and help mitigate the internal capacity risk by supporting corporate memory retention. 

Management response. INFC Senior Management agrees with the recommendation and an action plan has been developed in response to the recommendation.

5.3 Internal Controls and Compliance

Audit criterion
It was expected that key internal controls are in place for the administration of the NBCF and were working as intended. Specifically:

• Project review and approval controls existed and worked as intended;
• Monitoring and reporting controls existed and worked as intended and a performance measurement and reporting system were in place to support the management of the program; and
• Internal controls related to financial stewardship existed and worked as intended and payments were made to recipients in a timely manner.

Project review and approval controls

As stated earlier in the report, Infrastructure Canada officials have put in place a project review structure that emphasizes the role of the branches, the Project Review Panel and its secretariat. The Panel is a key control point that acts as the review board for all NIC and NRP projects seeking stage one (approval in principle) and stage two (contribution agreement) approvals within the program's delegated authorities. For SCF project lists, the Panel reviews documents prior to the signing of the funding agreement.

The three main branches that deliver on the NBCF have put processes and procedures in place to perform due diligence prior to sending project documentation to the Panel for review. These processes are evolving to address quality at source issues identified by the Panel related to project submissions and information for decision-making. That said, as review and approval processes continue to mature there have been improvements in the standardization of both the information requested by, and provided to, the Panel. This is expected to continue given previous audit management action plan implementation and various improvement initiatives such as Lean and other internal reviews that are all being undertaken to improve program administration.

The Assistant Deputy Minister Corporate Services Branch and Chief Financial Officer, chairs the Panel. The Panel's terms of reference describe the main roles and responsibilities of members, its secretariat, and departmental officials presenting project files for recommendation of Ministerial approval. For each project reviewed by the Panel, members attest to performing their due diligence by signing a Project Review Assessment form.

Based on our review of the panel's records of discussion and project assessments, the Panel and its secretariat have performed their due diligence role and have ensured that the documentation to support decision-making was complete prior to projects being sent to the Minister for approval and signature.  

While the project review and approval processes within Infrastructure Canada are defined and working as intended, the Provincial and Territorial officials we met indicated that departmental approval processes were not clear, and that they often had to contact Infrastructure Canada officials on multiple occasions to obtain information on project status. While the NBCF program guides available on the Internet offer some information related to project applications, there is no process map that outlines the complete approval process in detail. It was indicated that having a better understanding of the processes would assist in the management of the programs within their jurisdictions.

Recommendation 2. It is recommended that the Policy and Communications Branch communicate the departmental approval process to recipients for the NIC and NRP program components. This will assist stakeholders in their understanding of the steps involved in obtaining project approval.

Management response. INFC Senior Management agrees with the recommendation and an action plan has been developed in response to the recommendation.

Monitoring and reporting controls

Agreement management monitoring and reporting is a key component of the management control framework. The signing of a contribution agreement with a recipient is the beginning of the project monitoring and reporting requirements for the department. Until the signing of the agreement, there is no oversight mechanism in place for Infrastructure Canada officials other than through ad-hoc updates from recipients.  

The department undertakes monitoring and reporting through a range of controls including annual reports, recipient audits, ongoing communications and project status updates.  The establishment of oversight committees put in place to manage agreements is another key program control.

Recipient auditing

Recipient audits as defined in agreement clauses are key sources of monitoring information for program officials. These clauses indicate the types of recipient audits expected to be performed and the information that is required to determine, among other things, whether costs submitted to Infrastructure Canada were eligible for reimbursement. Recipient audit expectations differ by program component.

For SCF funding agreements reliance is placed on existing provincial and territorial accountability and audit mechanisms related to internal controls in those jurisdictions. Over the life of the program, it is anticipated that there will be one Infrastructure Canada contracted audit conducted per jurisdiction to review program administration controls.

For the NIC and NRP components, departmental officials receive annual audited financial statements from recipients rather than requiring annual project-specific recipient audits. This reflects the risk-based approach that Infrastructure Canada has put in place for recipient auditing to increase the relevance of audits, minimize recipient burden, and reduce costs.   

In addition, there is also a general audit clause that specifies Canada may undertake an audit at any time for specific purposes. These audits would be determined based on risk and could range from recipient internal control assessments to specific financial or compliance audits.

Finally, Infrastructure Canada's senior management is continuing to pilot a joint recipient audit program with Transport Canada in 2015-16 under a new multi-year contract. The two departments have also committed to working together to assess lessons learned from 2014-15 recipient audits and to collaborate and share best practices related to program and project risk assessments and recipient audits.

Performance measurement

A number of internal workshops have been held to develop a draft set of common performance indicators that recipients could use to report on project and program progress. The draft indicators have been shared with recipients and provide a baseline upon which program performance may be measured across the country. Given the program is a year and a half into implementation; it is too early to determine whether the performance measurement strategy has been working as intended. Senior management anticipates that as oversight committees meet and lessons are learned from project completions, the performance measures will be enhanced.

In addition, departmental officials developed service standards for each program component. These include performance targets and timeframes related to, among other things, acknowledging receipt of recipient business cases, sending draft contribution agreements to recipients, establishing oversight committees, and processing recipient claims payments. These were reviewed by departmental governance committees and approved by the Departmental Management Committee. Departmental results are periodically posted on the Infrastructure Canada web page.

Internal financial controls

The flow of funds risks, controls and business processes are identified and described in the framework. The segregation of duties between the program areas and finance division is defined as well as the procedures in place to process payments for claims for eligible expenses. The process includes an assessment and verification of eligible expenses by Program Operations officials and claims payments by Finance officials.

During the period of March 28, 2014 to June 5, 2015 there were four claims paid to recipients. We note that this was a small population to review and as such more work will be required in the future in this area to conclude on the effectiveness of payment controls.  Specifically, payment controls related to the NBCF is included in the Audit of Delegated Authorities currently underway, which will in part examine Infrastructure Canada's administration of its delegated financial authorities in accordance with legislative and policy requirements.

In our discussions with provincial and territorial officials it was noted that the NBCF claims processes differ from previous programs. In the past, recipients mostly worked with federal delivery partners – such as Transport Canada and regional development agencies – and had access to web-based claims processes. The NBCF claims process is paper-based and requires recipients to use a worksheet to calculate claim values. A majority of officials interviewed indicated that it would be important for Infrastructure Canada to clarify the claims payment process and set out clear expectations of recipients. In addition, it was mentioned that the departmental payment service standards were unclear and officials in different jurisdictions had been told different timeframes. This was the case even though payment service standards for NBCF have been posted on the Internet since October 2014.

Recommendation 3. It is recommended that Program Operations Branch officials discuss the claims payment process during the first oversight committee meeting so that recipients are aware of the procedures to be followed and departmental service standards related to processing claims. This will assist stakeholders in their understanding of the changes from past programs and support the effective payment of claims.

Management response. INFC Senior Management agrees with the recommendation and an action plan has been developed in response to the recommendation.

5.4 CONCLUSION

Overall, an adequate management control framework has been developed for the administration of the NBCF. Though the program is a year and a half into implementation, we are able to conclude that governance mechanisms and project review and approval controls are working as intended. While controls related to risk management, financial stewardship, monitoring, and reporting have been put in place, at this stage of implementation it is too early to conclude on their effectiveness.

We identified three areas for improvement. These include file management practices related to documenting decision-making processes and interactions of business value with recipients; communicating departmental approval processes to recipients, and communicating the claims payment process and service standards to oversight committee members.

Three recommendations are included in this report. It is recommended that:

1. The Policy and Communications Branch and the Program Operations Branch standardize file management practices related to correspondence or other interactions of business value with project recipients. One example would be the consistent use of notes to file. This would support documenting the rationale for decision-making, which is important given analyst turnover and the transfer of files between branches once NIC and NRP projects obtain agreement in principle, and help mitigate the internal capacity risk by supporting corporate memory retention.    
2. The Policy and Communications Branch communicate the departmental approval process to recipients for the NIC and NRP program components. This will assist stakeholders in their understanding of the steps involved in obtaining project approval.
3. Program Operations Branch officials discuss the claims payment process during the first oversight committee meeting so that recipients are aware of the procedures to be followed and departmental service standards related to processing claims. This will assist stakeholders in their understanding of the changes from past programs and support the effective payment of claims.

Given this is a 10-year program; audits of the effectiveness of the control framework as well as other audits based on risks will be conducted over the life of the program to provide assurance on program management and administration. Audits of the Project Review Panel will also be conducted periodically in accordance with the program's approved terms and conditions.

Management response: Management accepts the recommendations and action plans have been put in place to address the three areas for improvement identified.

7 STATEMENT OF CONFORMANCE

The audit conforms to the International Standards for the Professional Practice of Internal Auditing and the Internal Auditing Standards for the Government of Canada as supported by the results of the quality assurance and improvement program.

8 MANAGEMENT RESPONSE AND ACTION PLAN

#	Recommendation	Management Response and Action Plan	OPI and Due Date
1	It is recommended that the Policy and Communications Branch and the Program Operations Branch standardize file management practices related to correspondence or other interactions of business value with project recipients. One example would be the consistent use of notes to file. This would support documenting the rationale for decision-making, which is important given analyst turnover and the transfer of files between branches once NIC and NRP projects obtain agreement in principle, and help mitigate the internal capacity risk by supporting corporate memory retention.	Agree. The Policy and Communications Branch (PCB) and Programs Operation Branch (POB) have already taken steps to improve file management practices by sharing project folders on the P drive. To ensure that key communications with recipients, issues and decisions are well documented, PCB and POB will enhance guidance materials on the use of various documentation techniques (which include saving key emails, notes to file – both in paper format and through the PIMS notes module, memos, the Project Review Report, notes to the Minister, and issue briefs). This guidance will be integrated into PCB's NBCF Manual for Policy Analysts and POB's Operations Manual.	OPIs: Assistant Deputy Minister, Program Operations Branch and Assistant Deputy Minister, Policy and Communications Branch Due date: April 2016
2	It is recommended that the Policy and Communications Branch communicate the departmental approval process to recipients for the NIC and NRP program components. This will assist stakeholders in their understanding of the steps involved in obtaining project approval.	Agree. The Policy and Communications Branch will enhance its existing communications on these matters by developing a document that provides an overview of the project approval process, which will be made available to all provinces and territories, and other proponents who have submitted projects.	OPI: Assistant Deputy Minister, Policy and Communications Branch Due date: December 2015
3	It is recommended that Program Operations Branch officials discuss the claims payment process during the first oversight committee meeting so that recipients are aware of the procedures to be followed and departmental service standards related to processing claims. This will assist stakeholders in their understanding of the changes from past programs and support the effective payment of claims.	Agree. In addition to the service standards already posted on-line since October 2014, the Program Operations Branch will update its Oversight Committee Guidelines to reflect the need to discuss the claims process and claims processing service standard at the first Oversight Committee Meeting.	OPI: Assistant Deputy Minister, Program Operations Branch Due date: November 2015

Annex A: Project Site Visits

Dettah, Northwest Territories

The 11 km Access Road into the community of Dettah was originally constructed primarily with clay and little consideration to drainage issues.

This project will reconstruct the portion from km 0 to km 4.1 and then chip seal from km 0 through to km 6.6.  This will greatly improve the functionality and safety of the full length of the access road for the people in the Dettah community.

Souris, Prince Edward Island

The Souris Bridge is located on Route 2, which is part of the core National Highway System in the community of Souris West. The original bridge was built in 1976 using a pre-cast concrete bridge structure. This project replaces the current bridge.

Aerotech Business Park, Nova Scotia

The Aerotech Wastewater Treatment Plant Upgrade and Expansion Project  involves upgrading, expanding, as well as decommissioning and replacing components of the existing wastewater treatment plant at the Aerotech Business Park.